How Can I Stop a Creditor Putting My Company into Liquidation?

Reviewed by

Christopher Andersen

Reviewed by Christopher Andersen

Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,. He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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29th April 2024

Stopping a Creditor from Putting Your Company into Compulsory Liquidation

As a director, the threat of a creditor forcing your company into liquidation can be extremely stressful. In fact, there’s no more serious challenge a limited company can face.

You’ll need to understand your options quickly and follow that up with immediate, practical steps that include professional assistance.

Negotiating with Creditors

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

Of course, if they’ve already issued a winding up petition, this ship may have sailed but its nevertheless worth considering.

Reach out to them with a viable plan for repayment over time, and don’t forget to document any agreements in writing to formalise the negotiation outcomes.

HMRC Time to Pay Arrangement

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

This option entitles 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.

Our advice is 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 quick cash flow to settle your debts, potentially stopping the liquidation process.

Of course, you’ll need to choose the right type of alternative finance for the company’s specific situation. For instance, invoice financing allows you to borrow against the value of your outstanding invoices, while asset finance can help you purchase essential equipment by spreading the cost over time, preserving your cash flow for debt repayment.

Enter into a Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) offers a formal route for companies 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 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.

Enter Company Administration

Entering company administration is aimed at rescuing an insolvent company, bringing 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.

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 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.

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