Compulsory Liquidation is where a creditor petitions or forces a company into liquidation to reclaim monies owed or where the directors petition themselves due to a lack of funds.
In most cases, if your business is being pushed into liquidation, it is normally because you owe someone (a creditor) more than £750. The easiest way to stop the process is simply by paying them in full. The alternatives are a Court hearing if you dispute the debt, asking for an adjournment at the first Court hearing or by putting the company into Administration.
A winding up hearing is a Court hearing to decide whether or not your company should go into Compulsory Liquidation.
How Does a Creditor put a Company into Liquidation?
Firstly there a few stages a creditor (someone you owe money to) will have to go through to put you into liquidation. These are:
- Invoice you or have paperwork to prove a debt
- Issue a County Court Judgement (“CCJ”) for the unpaid debt. This means a Court hearing and it gives you a chance to dispute the debt or not. If you lose and do not pay in 14 days a CCJ will be entered against you
- If creditors get a CCJ against you they can then ask the Court to enforce it by sending in a bailiff to remove your goods
- Following this, creditors should then issue you with a statutory demand. You have 21 days to then pay or 18 days to dispute it. A statutory demand is usually issued after a CCJ, but it can be issued instead of one
- If the debt owed is more than the likely assets your business has then they could issue a winding up petition. This means applying to the Court for a hearing date to decide if the company should be wound up
- You must be given 14 days written notice of the date of the winding up
A creditor has to go through these steps, all the while serving letters to you at your registered office. Not only this, the creditor has to supply £2,000 in Court as a deposit.
The most usual creditor to issue a winding up order is HM Revenue and Customs. They are not put off by the long process. They understand it and can afford the £2,000 deposit.
A Warning about Compulsory Liquidation
Even if you pay off a debt owed in full before the final Court winding up hearing, another creditor that you are owed money to can step into the original creditor’s shoes and continue the hearing.
Creditors must go through a list of hurdles first before they can put your business into liquidation.
How Can You Prevent Compulsory Liquidation
The best ways to stop a compulsory winding up are:
- If you agree the debt and you have the funds pay it off in full
- If you agree the debt but only have part of the money available, you can try and do a deal with the creditor to withdraw the petition and pay them back in instalments
- Consider hiring a solicitor
- You can go to Court and fight the claimed debt yourself at the hearing but this is risky. If you lose you will be put into liquidation
- You can go to Court and ask for an adjournment. This is easier on the first hearing but there is no guarantee the Court will accept this
- Offer to put your own company into liquidation. The creditor might accept this as it will save them the £2,000 deposit
- Apply to go into Administration. This is often heard as an application at the same time as the winding up hearing
If your business has cash flow problems and are worried about Compulsory Liquidation, we can help. Contact us today for a free consultation.