Stopping a Creditor from Putting Your Company into Compulsory Liquidation

As a director, facing the threat of a creditor forcing your company into liquidation can be daunting.

The key to navigating this challenging situation lies in understanding your options and taking proactive steps. This article aims to provide clear, actionable guidance to help you prevent a creditor from initiating proceedings against your company via exploring liquidation alternatives.

Negotiating with Creditors

Negotiating directly with your creditor is perhaps the most crucial step in preventing your company from being pushed into liquidation.

This process involves discussing flexible payment options or adjusting the debt terms to find a mutually beneficial solution.

Open and honest communication about your company’s challenges and how you plan to overcome them is essential. Reaching an agreement that is sustainable for your business and provides assurance to the creditor can prevent liquidation and help maintain positive business relationships.

Don’t forget to document any agreements in writing to formalise the negotiation outcomes.

HMRC Time to Pay Arrangement

For companies facing difficulties in meeting their tax obligations, the HM Revenue & Customs (HMRC) offers a “Time to Pay” arrangement.

This option allows businesses to spread their tax payments over a period, making it easier to manage cash flow while fulfilling tax liabilities. Entering into a Time to Pay arrangement involves contacting HMRC to discuss your company’s financial situation and proposing a payment plan that aligns with your current capacity to pay.

The key to successfully securing a Time to Pay agreement lies in demonstrating your company’s commitment to settling its tax debts and presenting a viable plan that shows how the payments will be made. It’s crucial to engage with HMRC early and openly, as this can increase the likelihood of an agreement being reached.

Pay Off the Debt Using Alternative Finance

Alternative finance refers to funding sources outside of traditional bank loans, including options like invoice financing, asset finance, peer-to-peer lending, or crowdfunding. These alternatives can provide your company with immediate cash flow to settle outstanding debts, potentially stopping the liquidation process.

Choosing the right type of alternative finance depends on your company’s specific needs and financial situation. For instance, invoice financing allows you to borrow against the value of your outstanding invoices, providing quick access to funds. Asset finance can help you purchase essential equipment by spreading the cost over time, preserving your cash flow for debt repayment.

Exploring alternative finance requires a careful assessment of the terms and costs involved, ensuring they align with your company’s ability to manage repayments. Successfully securing alternative funding can offer your company a lifeline, enabling you to settle debts and focus on returning to profitability.

Enter into a Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) offers a formal route for companies facing financial difficulties to settle their debts over a fixed period while continuing to trade. Under a CVA, your company can reach an agreement with its creditors to pay back a portion of its debts, based on what it can afford, over an agreed timeframe. This arrangement must be approved by 75% (by debt value) of the creditors who vote on it.

Entering a CVA requires careful preparation and the guidance of an insolvency practitioner, who will assess your company’s financial situation, help formulate the proposal, and manage the negotiation process with creditors. The proposal outlines how the company plans to operate and make payments during the CVA period, offering creditors a clearer return than they might receive if the company were liquidated.

A CVA can provide your company with the breathing space needed to restructure, improve cash flow, and return to profitability, all while keeping creditors at bay.

Enter Company Administration

Entering company administration is a formal procedure aimed at rescuing a company in financial distress, providing protection from creditors while a plan is developed to save the business or maximise returns to creditors. An administrator, usually a qualified insolvency practitioner, is appointed to run the company with the goal of achieving the best outcome for creditors as a whole.

This process involves a thorough assessment of the company’s situation to explore all possible options, which might include restructuring, selling the business as a going concern, or agreeing on a CVA. The administrator takes control of the business, oversees its operations, and works on a strategy to pay off debts, safeguard jobs, and ensure the company’s survival, if feasible.

Entering administration signals a serious commitment to addressing the company’s challenges and finding a viable path forward.

Dispute the Debt

If you believe that the debt claimed by the creditor is incorrect, disputing the debt is a viable course of action. This involves challenging the validity or the amount of the debt on legal grounds or due to errors in the creditor’s calculations. Successfully disputing a debt can prevent liquidation by either eliminating the obligation to pay if the claim is found to be invalid or reducing the amount owed to a manageable level.

To dispute a debt effectively, you should:

  • Gather all relevant documentation related to the debt, including contracts, invoices, and any correspondence.
  • Analyse the creditor’s claim to identify any inaccuracies or grounds for dispute.
  • Seek legal advice to understand your rights and the best approach to dispute the claim.
  • Communicate your dispute to the creditor in writing, providing evidence to support your position.

It’s important to act quickly and efficiently when disputing a debt, as this can halt the liquidation process while the dispute is resolved.

Want to Stop a Compulsory Liquidation? Get Immediate Support from Company Debt

Facing the threat of liquidation requires immediate and informed action. At Company Debt, we understand the stress and complexity this situation brings. Our team of experienced insolvency practitioners is here to offer the support and guidance you need.

We are committed to helping you navigate through this challenging period with clear, practical advice and strategic solutions tailored to your unique circumstances.

FAQs on Stopping Compulsory Liquidation by Creditors

Begin by reviewing your company’s financial status to confirm the debt validity. Promptly engage in open communication with the creditor to express your intent to resolve the situation. Consider seeking immediate advice from an insolvency practitioner for strategic steps.

Yes, effective negotiation can lead to an agreement that prevents liquidation. It’s crucial to approach creditors with a realistic payment plan or settlement offer. Professional assistance can enhance credibility in these discussions.

If negotiations do not yield a positive outcome, explore formal debt resolution options such as a Company Voluntary Arrangement (CVA) or an administration process. These methods legally protect your company from liquidation while you work on a repayment plan.

Immediate action is essential. The time from a winding-up petition to a winding-up order can be short. Early intervention gives you more options to resolve the debt and potentially halt the liquidation process.

Key indicators include receiving formal demand letters, threats of legal action, or a sudden halt in communication from the creditor. Regular monitoring of communications and maintaining open lines can give early warnings that need proactive measures.

An insolvency practitioner can offer expert advice on debt management, negotiate with creditors on your behalf, and help implement formal procedures like CVAs or administration that can stop the liquidation process. They act as a mediator to find a feasible solution for both parties.

Yes, HMRC may agree to a Time to Pay arrangement, allowing your business to repay tax debts over an extended period while avoiding liquidation. Demonstrating a commitment to resolving the debt is key to negotiating such an agreement.