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Can a creditor place my company in liquidation?

Posted on: Friday 10th May, 2019

Can a creditor place my company in liquidation?

If your company is experiencing serious financial difficulty, it’s possible that a creditor could attempt to place it into liquidation. In the main, creditors must initially follow a process to formally establish that a debt exists, and this is done through the courts.

One exception to this rule is HMRC, who as an ‘involuntary creditor,’ can bypass court process and act to recover their debt in a shorter timeframe. So why would a creditor take such drastic action and close a company down?

Reasons for compulsory liquidation

If a creditor has been unsuccessfully chasing payment for some time, and they believe that by forcing liquidation they’ll be able to secure repayment of some or all of the debt, they could decide to issue a winding up petition.

When a company is liquidated all its assets are sold for the benefit of creditors, and if you own assets of value the creditor may feel they can recover at least some of the money owed.

Placing a company in liquidation by court order is an expensive process, however, and not one that the creditor will take lightly. So what are the criteria creditors need to meet in order to place a company into liquidation, and how do they initiate the process?

Criteria for creditors when placing a company into liquidation

Creditors must be owed an undisputed debt of £750 or more, and must have taken serious steps to recover their money before any attempts can be made to place their debtor into liquidation.

The debt must be proven to exist, and this is generally achieved by sending the debtor company a statutory demand for payment. This gives the business 21 days in which to pay, after which time the creditor can petition for the company to be wound up.

An unpaid County Court Judgment (CCJ) also proves that the debt exists, and allows a creditor to issue a winding up petition. Once the petition has been issued, there’s only seven days to take action before the company is forcibly liquidated.

What can you do to prevent compulsory liquidation?

It’s rarely advisable to allow a creditor to place a company in liquidation – a far better alternative is to opt for voluntary liquidation. Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure that also involves the sale of business assets, but as a director you have more control of the process.

You can appoint your own choice of liquidator, and by voluntarily entering liquidation you are demonstrating your desire to place the interests of creditors first – a crucial point when the post-liquidation investigation into director actions begins.

For more information on company liquidation and claiming redundancy pay as a director, please contact one of our expert team at Redundancy Claims UK. We have extensive experience of director claims for redundancy, and will ensure you stand the best chance of making a successful claim.


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