Can a creditor put my company into liquidation

Can my business be forced into liquidation by a creditor for unpaid debts?

To be clear, yes. If you’re having difficulty paying creditors like suppliers, the bank, or HMRC, it’s crucial to understand the situation fully

A creditor (someone you owe money to) can initiate compulsory liquidation to shut down your business. However, you do have several chances to halt their actions and potentially revive your business.


What do we mean by compulsory liquidation?

If your company owes an unpaid creditor more than £750, that creditor can apply to the court to liquidate your business. They do this by submitting an application known as a winding-up petition. 

Upon receiving a winding-up petition, you still have the opportunity to settle the debt or challenge the claim if you have valid reasons. Failing to do either can lead to the court granting a winding-up order, which compels your company to shut down.

After a winding-up order has been issued against your business, the Official Receiver, acting as the government’s representative in insolvency matters, will assume the role of the liquidator. 

Their responsibility is to identify, safeguard, and sell the company’s assets and recover any outstanding debts owed to repay your creditors. Subsequently, the liquidator will proceed to dissolve the company, resulting in its cessation.


Unlocking the overall process of compulsory liquidation 

In many instances, the initial action involves the creditor issuing a statutory demand to the company, providing a 21-day window to settle the debt. 

This demand also serves to legally confirm the debt’s existence. In case you disregard the statutory demand, then:

1. The creditors can petition the court to issue a winding-up petition, which they will serve at your company’s registered address. A court hearing date will be scheduled, typically 8-10 weeks from the petition date.

2. At this stage, you still have the opportunity to settle the debt in full or negotiate a repayment arrangement with the petitioning creditor, but need to act quickly.

3. Just after seven days, the petition was issued against you and it will be publicised in the London Gazette, making your situation known to the public. The banks will freeze your company accounts, greatly impeding your ability to pay staff or sustain trading operations.

4. At this stage, you can attempt to adjourn the hearing, but the likelihood of success diminishes. If you opt for no action, the hearing will proceed at the High Court, potentially resulting in a winding-up order against your company.

5. If a winding-up order is issued, the control shifts away from you. A liquidator will assume authority over the company and commence the process of liquidating assets to settle outstanding debts owed to creditors.

6. The liquidator’s final task is to deregister the business from the Companies House register, leading to its cessation.


Why would a creditor decide to place a company into liquidation?

A creditor will resort to issuing a winding-up petition against your company only as a final option, having attempted unsuccessfully to recover the debt through various other methods. 

While a creditor can initiate steps to close down your company if they are owed £750 or more, in reality, most creditors prefer to avoid the inconvenience and expenses of the process unless the debt is considerably higher.

HMRC acts as the petitioning creditor in 60% of UK compulsory liquidations. Nevertheless, any creditor can file a winding-up petition against you provided the debt is not under dispute.


How long does it take to liquidate a company?

Typically, the process from receiving a winding-up petition to the company’s closure requires a minimum of three months. This timeframe includes the seven-day window to respond to the winding up petition, the 8-10 week wait for the court hearing, and the duration needed for the liquidator to wind up the company.

However, the duration can be significantly longer depending on the magnitude of the company’s debts and the time required to sell its assets. Directors can also prolong the proceedings by lodging appeals.


Is it possible to stop compulsory liquidation?

A company can only undergo liquidation in this manner if it’s insolvent, and well-advised businesses have numerous opportunities to rectify the situation before reaching this point.

In case you already received a winding-up petition, one method to stop these proceedings is simply by repaying the debt entirely. Alternatively, the court might grant an adjournment if you can demonstrate the ability to make the payment within the specified time frame. Another option to avoid liquidation in such situations is through a Company Voluntary Arrangement.

Another option is to request an adjournment to allow insolvency experts to assess whether the business is viable for company administration. Alternatively, a pre-pack administration, where a third party (sometimes the existing directors) acquires the assets of the business, could be considered.

Another option is to apply to dismiss the petition on grounds such as the invalidity of the debt, inaccuracies in debt details, or improper service of the petition. If successful, the petition could potentially be dismissed.


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Need help? Take assistance from Vanguard Insolvency to protect your business.

Are you struggling with creditors’ threat to liquidate your company, or have you received a winding-up petition? Doing nothing is not an option. 

Contact one of our insolvency experts for a same-day consultation in complete confidence. With a network of 100 UK offices nationwide, we can swiftly identify your best course of action.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.