How to stop compulsory liquidation after it has started

If a creditor has filed a winding-up petition and the court has issued a winding-up order, you have seven days to halt the compulsory liquidation process. 

To prevent company liquidation once it’s underway, you can either settle the debt, arrange a repayment schedule, initiate a formal insolvency procedure, or contest the debt.


Can the Compulsory Liquidation Order be Stopped or Paused?

Compulsory liquidation usually happens when a creditor has tried multiple times to recover their debts through usual means but without success. While it often marks the end for the debtor business, it’s still possible to halt compulsory liquidation if swift action is taken.

If you’re aware that a creditor is moving towards winding up your business, what steps should you take, and how much time do you have to avert enforced liquidation?


Steps to Prevent or Halt Compulsory Liquidation: Guidance and Advice

Even at this advanced stage, there are various options available. However, given the limited seven-day window to halt compulsory liquidation, it’s crucial to act swiftly.

An important aspect of these proceedings is the notice published in the Gazette, informing other creditors that a winding-up petition has been served. Once the bank becomes aware, it may freeze the company’s accounts, hindering regular business operations and narrowing down available choices.

So, if you’ve promptly sought professional assistance, how can you potentially prevent the compulsory liquidation of your business?


(i) Pay the debt

If you manage to gather sufficient funds to clear the debt entirely or negotiate with your creditor(s) for installment payments, you can prevent your company from being liquidated. Securing alternative finance may be an option, typically involving a rapid application process.

This route not only helps alleviate significant debt but also lays the groundwork for rebuilding your business. Invoice factoring and invoice discounting are commonly utilised by companies facing severe debt, while asset-based finance may be suitable if your company possesses valuable assets that can be used to raise funds.

Business credit ratings usually don’t impact applications for alternative finance. Therefore, it’s advisable to seek professional advice on the likelihood of approval and the most suitable form of finance if deemed appropriate.


(ii) Company Voluntary Arrangement (CVA)

A CVA (Company Voluntary Arrangement) is a formal insolvency procedure designed to shield your company from compulsory winding-up. It establishes a legally binding agreement between you and your creditors, offering a pathway to steer your business towards financial recovery.

A licensed Insolvency Practitioner (IP) negotiates with your creditors to restructure your debts, and if 75% (by debt value) consents to the revised repayment terms, compulsory liquidation can be avoided. An important advantage for you as a director is that you regain control of the company once the arrangement is finalised.


(iii) Creditors’ Voluntary Liquidation (CVL)

Despite the ongoing liquidation through a CVL, the voluntary nature of the process holds significance. By prioritising creditor interests, it diminishes the likelihood of wrongful trading accusations against you and other directors. Additionally, there are additional advantages.

Under Creditors’ Voluntary Liquidation, you may be eligible to claim director redundancy. This could assist in covering the costs of the procedure or reducing some of the company’s debts.


(iv) Company administration

Opting for company administration shields your business from liquidation for an eight-week ‘moratorium’ period. This grants the appointed insolvency practitioner the opportunity to assess the most suitable exit strategy without constant pressure from creditors.

Several exit routes from the administration could be available, including business rescue alternatives like alternative finance. Additionally, a Company Voluntary Arrangement might be feasible, or Creditors’ Voluntary Liquidation could be considered if business rescue isn’t viable.


(v) Dispute the debt

If you choose to challenge the debt, it’s essential to have compelling evidence and a robust case. Insufficient evidence or inaccurate information could be viewed as an abuse of court proceedings.

Compulsory liquidations entail thorough investigations into directors’ actions preceding their company’s insolvency, aiming to uncover any signs of misconduct or fraudulent behaviour. Vanguard Insolvency, as insolvency experts, offers impartial guidance on avoiding compulsory liquidation for your company.

For further information and support, please reach out to one of our partner-led teams of licensed Insolvency Practitioners. With offices across the UK, we can arrange a complimentary same-day consultation to expedite any required actions.



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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.