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How can I stop a creditor putting my company into liquidation?

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Disputing creditor action to liquidate business

When a creditor wants to put your company into liquidation they’ll file a winding up petition at court. If a winding up order is granted you’ll then enter compulsory liquidation. To avoid this happening it’s important to be aware of the company’s financial position, and take aversive action if you believe a creditor is considering this route.

So what can you do to stop your creditor forcibly liquidating your company?

Negotiate

You may believe a positive outcome isn’t possible from negotiating, particularly if you’ve tried before with no success, but you may be able to move forward and come to a new arrangement that can help prevent the compulsory liquidation of your company.

Obtaining professional support before you undertake further negotiations can instil confidence in creditors that you can overcome your financial difficulties, for example, and repay the money you owe given a little more time. These negotiations can be informal, so you don’t have to declare insolvency.

HMRC Time to Pay

Owing tax debts can be particularly concerning as HMRC are known to take fast action in closing down businesses they believe are insolvent. It’s crucial to contact them as soon as possible so they know you’re not deliberately avoiding payment, and they may be more open to offering a Time to Pay (TTP) arrangement.

This typically provides between three and six months extra time to repay arrears of tax or National Insurance, during which time you’ll need to keep up with your current tax liabilities. Again, involving licensed insolvency practitioners at the pre-negotiation stage, as well as during negotiations, can be instrumental in a successful outcome.

Pay off the debt using alternative finance

If your creditor is unwilling to negotiate, your business may be able to secure additional finance to pay the debt in full or in part. Alternatives to bank lending include invoice finance and asset-based funding, which both offer valuable flexibility and a boost to working capital.

Depending on your type of business and how it’s structured you may have several options when it comes to further funding, and be able to pay off your creditor before they take legal action.

Enter into a Company Voluntary Arrangement (CVA)

If you have more than one debt, a Company Voluntary Arrangement is one of several potential options that would prevent creditors putting your company into liquidation. A CVA formally restructures your debts, enabling you to carry on trading whilst repaying an affordable monthly amount.

This is an official procedure that requires a licensed insolvency practitioner to assess your company’s finances and future operational capability, formulate a proposal for creditors, and implement/administer the process.

At least 75% of creditors (by value of debt) need to vote in favour of a CVA, but it can provide a good outcome for viable businesses that are expected to survive, but are just experiencing temporary financial problems.

Enter company administration

Company administration can be an effective solution to prevent creditors from placing your company into liquidation. You secure a crucial eight-week moratorium period during which an administrator develops a recovery plan, with several potential outcomes for your business.

A Company Voluntary Arrangement may be possible on exit from administration, for example, or potentially an informal restructuring of your company’s affairs to make the business more sustainable for the long-term.

Seeking professional support is crucial

Time is of the essence when creditors are considering putting your company into liquidation, and the first step in avoiding enforced closure is to seek independent insolvency help.

Our licensed insolvency practitioners at UK Liquidators have industry-wide experience and can provide the reliable advice you need. It takes very little time for a creditor to successfully obtain a winding up order from the courts, so contact us today to arrange a free same-day consultation – we operate a wide network of offices throughout the UK.

Shaun Barton
Director
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.

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