Can’t pay company’s creditors

What happens if a company cannot pay its creditors on time?

Not being able to pay your company’s creditors as and when payment is due, is a clear indication that your company’s cash flow position is poor. When a company’s cash flow starts to deteriorate, action must be taken to address the problems so that the interests of your creditors can be protected as far as possible.

What action can creditors take against my company if I cannot pay them?

Creditors can take a range of actions against your company should you be unable to pay them on time. The action they are likely to take will depend on a number of factors including how much you owe and how long you have gone without paying your bill or invoice.

Most creditors will begin by sending reminder letters and emails in an attempt to recover the money they are owed. If you still do not pay the amount due, creditors may take legal action against your company by instructing bailiffs or serving a statutory demand to prove your company is insolvent.

Can my company be liquidated if I cannot pay my creditors?

Your company may have a variety of different creditors ranging from suppliers and customers, through to banks, your commercial landlord, and even HMRC. While each creditor may take a different approach in recovering the money owed to them by your company, you should be aware that all of them have the power to petition the courts to have your company wound up and forcibly placed into liquidation. This is done by way of a Winding Up Petition. 

A company can be placed into compulsory liquidation by the courts if they fail to adequately respond to a Winding Up Petition issued by a creditor.

When faced with a Winding Up Petition, you must either be able to repay the debt it relates to, contest the existence or the amount of the debt being claimed, or otherwise come to a mutually agreeable solution with the petitioning creditor.

If none of these things are done, the court will issue a Winding up Order which will see your company being forced into compulsory liquidation and an Official Receiver being appointed to take over the affairs of your business during the closure and winding up process.

What should I do if I cannot pay my company’s creditors?

If you cannot pay your company's creditors, communication is key. If you know you are likely to miss a payment deadline, speaking to your creditors ahead of time to inform them of the situation and the problems you are facing is always recommended. You may be surprised at how amiable they will be to come to a mutually agreeable plan for repayment and bringing your account back up to date.

In some instances, however, a company’s financial problems run deeper than a temporary cash flow blip. In these cases, there may be no alternative other than to explore formal insolvency options with a licensed insolvency practitioner.

This may include a process of rescue and restructuring, through either administration or a Company Voluntary Arrangement (CVA), or else placing the company into voluntary liquidation by way of a Creditors’ Voluntary Liquidation (CVL) process.

While no company director expects to have their company liquidated, sometimes it is the most appropriate option for company directors and creditors alike. When a company is insolvent, with no realistic prospect of the situation being able to be turned around, liquidation can help to protect outstanding creditors by shielding them from any further financial losses while also giving them the opportunity to recover some of the money they are owed as part of the liquidation process.

How UK Liquidators can help with creditor debt and increasing pressure

If your company is falling behind in its payments to creditors, UK Liquidators are here to help you understand your options. We can ensure you adhere to your legal obligations as the director of an insolvent company by prioritising the interests of your creditors.

Our team of licensed insolvency practitioners are here to provide you with the help and advice you need when creditor pressure is growing. Contact a member of the team today.