Compulsory Liquidation is when a court orders the winding up of a business because it cannot pay off all of its debts. The court may do this following a petition from the company, its directors or shareholder or from a creditor who is owned more than £750.
Compulsory liquidation usually signals the end for a business, as the process involves the business being wound up and its remaining assets being distributed between the relevant creditors. Compulsory liquidation usually occurs when a business can no longer pay its debts and all others options have been tried, this normally signals the final resort for creditors wishing to recover their money.
The risks of compulsory liquidation
There are many risks associated with compulsory liquidation, not least loosing your business, but also being pursued through the criminal courts for fraud.
Compulsory liquidation can be initiated by creditors demonstrating that they have attempted to recover what they are owed, and that the business is unwilling or unable to repay their debt. A liquidator is appointed and has responsibility to investigate the possibility of misconduct by those managing the business; the liquidator can bring action of those responsible for wrongful or fraudulent trading.
Once one creditor has lodged a petition with the courts it is likely that any other creditors will hear about it and may choose to continue the petition even if the initiating creditors have been paid.
How to avoid compulsory liquidation
The majority of petitions are started by HMRC for the money owed through VAT and PAYE. Therefore if your business is finding it hard to make its payments, don’t just ignore it or hope that by skipping a few payments you will buy yourself some time to resolve this, you should take immediate action and consider deferral options offered by the Business Payment Support Service.
If your business is still having problems then you should consider other options for increasing your cash flow.
Some of these options include:
- Invoice Factoring
- Invoice Discounting
- Stock financing
- Asset financing
- Debt recovery services
Each of these options will help your cash flow situation and will make it easier for you to make your essential payments to your creditors on time.
As soon as your business starts struggling with cash flow or is unable to pay its debts you must address it and take action to resolve it. When creditors begin thinking about taking any kind of insolvency action they will always be more understanding if they can see that you have already begun taking steps to address the problems that you are experiencing.
The best place to start is by talking to a business turnaround specialist.
To understand the whole range of options and to get help choosing the right one for your business contact us on 0800 597 4757 or enquire online using the form opposite.
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