Understanding the court-ordered compulsory liquidation process
Compulsory liquidation is a form of legal action which can be forced upon a limited company in Scotland should they fail to pay their creditors the money that they owe.
A company is wound-up through compulsory liquidation by order of the courts following a Winding Up Petition being presented by creditors.
Who can apply for the compulsory liquidation of a company in Scotland?
While any creditor can petition the courts for the compulsory liquidation of a company, in many cases it is HMRC that take this type of action against those companies which refuse to pay the tax they owe.
Creditors are only likely to take compulsory liquidation action against your company if you repeatedly refuse to pay the money you owe and fail to take steps towards resolving the problems your limited company is experiencing.
This is because petitioning to wind up a company is an expensive process, and therefore creditors are only likely to do this once they have exhausted all other avenues to get you to pay back what you owe them.
What happens when a creditor petitions to force my company into compulsory liquidation?
The process of compulsory liquidation starts with the issuing of a Winding Up Petition and ends with the company being stuck off the Companies House register. Much important activity takes place between these two stages, however.
The step-by-step process of compulsory liquidation in Scotland is as follows:
- Creditor issues a Winding Up Petition against the company for unpaid debts which must be at least £750
- The Winding Up Petition will be advertised in the Gazette making this public knowledge
- Company has eight days to lodge an objection or challenge against the Winding Up Petition, or else clear the debt owed to the petitioning creditor
- The Winding Up Petition will be heard in court whether the company has answered or not
- A Winding Up Order will be made if objections are not upheld and the court believes the company to be insolvent. This will seal the company’s fate, and it will be forced into Compulsory Liquidation at this point.
- An Insolvency Practitioner is appointed by the courts and the liquidation will begin
- Company assets are identified and sold. Proceeds will be distributed to creditors to repay them as far as possible. The petitioning creditors costs will be prioritised for repayment as part of this process
- An investigation will be conducted into the conduct of the insolvent company’s directors during the time leading up to the liquidation. If any misconduct has occurred, this will be referred to the Secretary of State via the Insolvency Service for further investigation
- The company will then be closed down and its name removed from the register held at Companies House. The company will cease to exist as a legal entity at this point.
How can I stop my company being placed into compulsory liquidation?
If you know your company is unable to pay its debts, you should seek the services of a licensed insolvency practitioner as a matter of urgency; this will help protect you, your company, as well as your creditors should the company be found to be insolvent.
The input of a licensed insolvency practitioner can also help you avoid compulsory liquidation as you may be able to voluntarily place your company into an alternative insolvency process in order to deal with the challenges you are facing.
This may involve one of the following:
- Company Voluntary Arrangement (CVA) – A CVA is a formal and legally-binding repayment plan entered into with creditors which gives a company the opportunity to repay the debt it can afford via a series of monthly instalments over 3-5 years. In order for a CVA to be accepted by creditors, you will need to demonstrate that your company is viable as a going concern and able to keep up with the proposed repayments for the duration of the CVA.
- Administration – Company Administration is a formal insolvency process which can be used to facilitate a restructuring of the company’s finances and/or operations in order to bring about a turnaround of the company’s fortunes. Alternatively, it can be used maximise the value of assets for creditors should the company be beyond rescue.
- Creditors’ Voluntary Liquidation (CVL) – A Creditors’ Voluntary Liquidation (CVL) is an alternative liquidation process which can be entered into voluntarily instead of being forced into Compulsory Liquidation by the courts. A CVL is a director-initiated liquidation procedure which brings about the end of a company which is insolvent and has no viable future. While the end result of compulsory and voluntary liquidation is the same, by voluntarily choosing to place your company into liquidation you are demonstrating your desire to shield your creditors from further losses and deal with the problems your company is experiencing.
How Scotland Liquidators can help
If you believe your company may be at risk of Compulsory Liquidation, the experts at Scotland Liquidators are here to help you understand your options. Whether you want to save your company or arrange for it to be liquidated voluntarily, our team of licensed insolvency practitioners can be with you every step of the way.
Take the first step by contacting the team today for immediate help and advice.
