When a company is unable to pay its debts and creditors believe that they have exhausted all avenues to recover monies owed, they can petition to the Court for the company to be wound up. This process is known as Compulsory Liquidation and is the most serious action a creditor can take against a company.
In the majority of cases, a creditor will serve a Statutory Demand on the debtor company using a Process Server. If the indebted company fails to pay the amount stipulated in the Statutory Demand within 21 days following service, and the debt is not disputed on substantial grounds, the creditor can then petition to the Court for the company to be wound up. A company can also be wound up where it can be shown that it has insufficient assets to pay its debts, known as the “balance sheet test”, or is unable to pay its debts when they fall due, known as the “cash-flow test”. The balance sheet test will be satisfied where a company has insufficient assets to be able to meet all of its liabilities, including prospective and contingent liabilities, as and when they eventually fall due.
When a winding-up petition has been served on a Company and advertised, the company’s bankers will normally freeze all company accounts, making it impossible for the company to trade. Therefore, directors must take immediate action if their company receives a Statutory Demand or winding-up petition to save their business.
Once a creditor has presented a winding-up petition, the debtor company is unable to be placed into Creditors’ Voluntary Liquidation (‘CVL’) without the petition being withdrawn by the creditor, or with leave from the Court if the Petition has been advertised. The presentation of a winding-up petition will commence the Compulsory Liquidation process which will override a CVL. However, an Administration or a Company Voluntary Arrangement (‘CVA’) may be a better solution for creditors’ and the company depending on its circumstances.
If you are not in a position to defend the company, or if you are unable to negotiate a rescue solution, your company will be wound-up by the Court, and your conduct as a director will be investigated by the Official Receiver or any appointed Liquidator.
If we are contacted at an early stage, we will be able to review and consider the financial position of the company. As licensed Insolvency Practitioners, we can advise whether the petition can be contested, place the company into an alternative insolvency procedure such as a CVA or Administration, which may allow the directors to retain control of the business, or place the company into CVL, which will allow the directors to retain control over the process of the placing the company into Liquidation.
It is advisable that you seek advice from a licensed Insolvency Practitioner, such as ourselves, if your company has received a Statutory Demand or winding-up petition. If your company is experiencing financial difficulties, we can work with you to identify the most appropriate solution. We have helped companies of all sizes across many different sectors. We understand that being pursued for unpaid debts is a hugely stressful time. Contact us today on 0800 061 4002 should you require any further information on a Compulsory Liquidation and the options that may be available to you.