Grounds For Compulsory Liquidation

Running a business is like riding a rollercoaster – there are exhilarating highs and stomach-churning lows. But sometimes, the ride comes to a screeching halt you didn’t see coming: compulsory liquidation. Here at Blackstone Solicitors, we understand this can be a terrifying and confusing time. This article aims to shed some light on the grounds for compulsory liquidation and what you can do about it.

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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of a business in financial distress, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

What is Compulsory Liquidation?

Compulsory liquidation, also known as compulsory winding up, is a formal legal process where a court orders the closure of your company. This typically happens when the company is insolvent, meaning it cannot pay its debts as they fall due.

There are two main ways a compulsory liquidation can be initiated:

• A Creditor Applies: Often, a frustrated creditor owed money by your company can petition the court to wind it up.
• The Company Applies: In some situations, the directors of the company may themselves apply to the court for liquidation if they believe it’s the only option left.

Grounds for Compulsory Liquidation: When Does it Happen?

So, what exactly can trigger a compulsory liquidation? Here are the main grounds:

1. Inability to Pay Debts: This is the most common ground for compulsory liquidation. If your company cannot pay its debts as and when they fall due, a creditor can petition the court to wind it up. This could be due to a variety of factors, such as a sudden decline in sales, unexpected expenses, or bad debts from customers.
2. Statutory Demand: A creditor can also issue a statutory demand, which is a formal demand for payment of a debt exceeding £750. If your company fails to pay the debt within three weeks (or a longer period if the court allows), the creditor can then petition for compulsory liquidation.
3. Just and Equitable: This ground is a bit broader and allows the court to order a company’s liquidation if it deems it “just and equitable” to do so. This could apply in various situations, such as a complete breakdown in trust between shareholders, internal disputes that prevent the company from functioning, or a company that continues to trade while insolvent, causing further losses for creditors.

Red Flags: Warning Signs You Might Be Headed for Compulsory Liquidation

While it’s never pleasant to contemplate, here are some signs that might indicate compulsory liquidation is a looming possibility:

• Mounting Debts: Are unpaid bills piling up faster than you can handle them? This could be a sign of deeper financial problems.
• County Court Judgments (CCJs): Have you received CCJs from creditors for unpaid debts? These are serious legal markers of insolvency.
• Inability to Secure Funding: Are you having trouble getting loans or other forms of financing to keep the business afloat?

If you’re experiencing any of these issues, don’t bury your head in the sand. Seeking professional advice is crucial.

What Can You Do Now?

If you’re facing the prospect of compulsory liquidation, here are some steps you can take:

• Seek Professional Advice: This can help you understand your options, the legal implications of compulsory liquidation, and navigate the process smoothly.
• Open Communication with Creditors: Being upfront and honest with your creditors, while difficult, can help build goodwill and potentially lead to more favourable arrangements before a court order is sought.
• Explore Alternative Solutions: Depending on the circumstances, there might be alternative solutions like restructuring the company, entering into a Company Voluntary Arrangement (CVA) with creditors, or even selling the business as a going concern to avoid liquidation.

Remember, You’re Not Alone

Compulsory liquidation is a challenging situation, but it doesn’t have to be the end of the road.

How we can help

We have a proven track record of helping clients deal with the legal process involved with a business in financial distress. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/

How to Contact Our Corporate Solicitors

It is important for you to be well informed about the issues and possible implications of a distressed business. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Blog, News Tagged as

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