Why is my company being compulsorily liquidated?
Compulsory liquidation happens when a creditor petitions the courts to have your company wound up and removed from the Companies House register. This is often the final step of a lengthy process by the creditor to collect the money your company owes. When a company is liquidated – either voluntarily or compulsorily – all its assets are sold with the proceeds then being distributed to outstanding creditors to pay back the debts of the company. By forcing your company into compulsory liquidation, creditors hope to then be able to collect the outstanding debt owed to them when the assets are liquidated.
Can I stop compulsory liquidation?
Prior to your company being forced into compulsory liquidation, you will be served with a Winding Up Petition (WUP). This is a legal notice which declares the creditors intention to have your company forcibly wound up by order of the courts. If you receive a WUP, all is not lost, however, time is very much of the essence. You have just 7 days to act otherwise your company will almost certainly be wound up. During these 7 days you can lodge a dispute if you feel the WUP is unwarranted, negotiate with the creditor to come to a mutually agreeable repayment plan, pay off the creditor in full, or else explore whether there are any alternative insolvency procedures which may better suit your company. You should take advice from a licensed insolvency practitioner immediately upon receiving a WUP; the sooner this advice is sought, the better the chance of preventing your company being compulsorily liquidated.
What are the alternatives to compulsory liquidation?
Compulsory liquidation is when a company is forced into liquidation against its will; however, there are alternative insolvency solutions for distressed businesses which give its directors more control over the process. If you know liquidation is the only likely outcome for your company, you can enter into this process voluntarily by way of a Creditors’ Voluntary Liquidation (CVL). By initiating the process, you have the ability to appoint an insolvency practitioner of your choosing and some control over when the liquidation takes place.
Alternatively, exploring the possibility of administration or a Company Voluntary Arrangement (CVA) to restructure the company and protect its viable elements, can help to save parts (or the whole) of the business rather than being liquidated. This option is best explored before a WUP has been issued by a creditor.
What happens after compulsory liquidation?
When a company is liquidated – whether voluntarily or through compulsory liquidation – it ceases to exist as a legal entity. All trading must stop, assets will be identified and sold, all proceeds used to repay creditors as much as possible, before the company’s name is removed from the Companies House register. Any staff will be made redundant as part of the process. It is often possible for the former directors to be able to start a new company following compulsory liquidation so long as they have not been disqualified from acting as a director. If this is done, strict rules regarding ‘phoenixism’ which refers to the reuse of a company’s name, must be adhered to. A licensed insolvency practitioner will be able to give you the advice you need on this.