Compulsory Liquidation

Compulsory Liquidation is when a company’s creditors apply to a court to wind up a business because it cannot pay off its debts. Creditors will not make this decision lightly and normally will only proceed down this route if they feel there is no other way that they will get their money back. This option usually signals the end of the business and once the process has been started it is difficult to get out of.

The process involves creditors who are owed £750 or more lodging a petition with the court, if the court agrees to the Creditors petition and the debt is not paid then a hearing is held, at the hearing the judge has the power to pass an act to compulsorily liquidate the company in order to settle its debts.

A liquidator will then be brought in to liquidate the company’s assets and distribute them between the creditors.

The risks

• You will loose your business
• The process is normally initiated because creditors believe that the business is unwilling or unable to pays its debts
• The liquidator will investigate the situation and you may be held responsible for wrongful or fraudulent trading
• Once the petition has gone to court, your other creditors may hear about it and may continue the process even if the initiating creditor has been paid

How to avoid compulsory liquidation

The majority of petitions are started by larger companies or companies who have tried to recover what they are owed by other means, creditors often see this as the final resort. If your business is finding it hard to pay its debts you must take action to try and resolve it, simply ignoring your debts or skipping payments will only make the situation worse.

Your creditors are likely to be more helpful and understanding if you are honest with them and tell them of your cash flow struggles. Creditors are also much more understanding and lenient if they can see that you have already begun trying to take steps to resolve your cash flow problems.

Getting help

If you are having trouble with cash flow and you are struggling to pay your debts it is a good idea to get some advice. A business turnaround specialist will be able to help you get to the bottom of your issues and can introduce you to a variety of options to turn around your business. Getting the right advice early could save your business.