Updated: 22nd September 2021
Compulsory liquidation commonly occurs after a creditor tries repeatedly to collect their debts using ‘standard’ methods, but is unsuccessful. It typically means the end for the debtor business, but it’s still possible to stop compulsory liquidation if you act quickly.
So what should you do if you know a creditor is taking action to wind up your business, and how long do you have to prevent enforced liquidation?
A variety of options remain open even at this late stage, but as you only have seven days in which to stop compulsory liquidation, we cannot emphasise enough the need to act very quickly.
A significant factor in these proceedings is the notice that’s placed in the Gazette, which advertises to other creditors that you’ve been served with a winding-up petition. Once the bank learns of your situation they’ll freeze the company’s accounts, effectively rendering normal trade impossible and limiting further options.
So assuming you’ve acted quickly in seeking professional help, how might you stop the compulsory liquidation of your business?
If you can raise enough money to pay the debt in full, or negotiate with your creditor(s) for payment in instalments, you’ll stop your company being liquidated. You may be able to secure alternative finance to do this, and this typically involves a speedy application process.
This is a good option to help you escape serious debt, but also provides the foundation on which to rebuild your business. Invoice factoring and invoice discounting are commonly used by companies in serious debt, but asset-based finance may be suitable if your company owns valuable assets that could be leveraged to raise money.
A business’ credit rating isn’t typically a factor when applying for alternative forms of finance, so it’s definitely worthwhile obtaining professional advice on the likelihood of being accepted, and the most suitable form of finance if it is appropriate.
A CVA is an official insolvency process that protects your company from compulsory winding-up. It’s a legally binding arrangement between you and your creditors, and if it’s a viable option, can allow you to trade your way back to good financial health.
A licensed IP negotiates your debts with creditors on your behalf, and if 75% (by debt value) agree to the new repayment terms you can prevent compulsory liquidation. A key benefit for you as a director is that you take back control of the company once the arrangement is in place.
By entering company administration you protect your business from liquidation during a ‘moratorium’ period of eight weeks. This enables the appointed insolvency practitioner to determine the best exit route, without the relentless pressure from creditors.
Various exits from administration may be open to you, including business rescue options such as alternative finance. A Company Voluntary Arrangement may also be an option, or Creditors’ Voluntary Liquidation if rescuing the business isn’t possible.
Although the business is still being liquidated with a CVL, the fact that it’s a voluntary process is significant. It reduces the chances of wrongful trading allegations being made against yourself and other directors as you’re placing creditor interests first, but there are further benefits.
Creditors’ Voluntary Liquidation opens up the possibility that you could claim director redundancy, which would help to pay for the procedure itself or pay down some of the company’s debts.
If you decide to dispute the debt you must have a strong case and solid proof, as it may be seen as an abuse of court proceedings if the evidence you provide is insufficient, or the information you present is incorrect.
Compulsory liquidations involve detailed investigations of director actions leading up to their company’s insolvency, for evidence of misconduct or fraudulent activity. Real Business Rescue are insolvency specialists and can provide independent advice on preventing the compulsory liquidation of your company.
Please contact one of our partner-led team of licensed IPs for more information and assistance. We work from offices throughout the UK and can offer you a same-day consultation free-of-charge to ensure any necessary actions are expedited.