My company owes creditors money. Can they liquidate it?

Possibly. A creditor can attempt to liquidate your company if they are owed more than £750 and haven’t been paid within 21 days of serving a statutory demand to your company.

If your company receives a statutory demand, you should respond by paying the creditor or contacting an Insolvency Practitioner as soon as possible to avoid the creditor taking legal action.

Could I be charged with wrongful or fraudulent trading?

Every liquidation involves an investigation of your conduct as company director during your company’s period of insolvency. If you follow your directors duties, there is only a minimal risk of you facing wrongful or fraudulent trading charges.

If you’re concerned about the risk of being found guilty of wrongful trading, speak with an Insolvency Practitioner as soon as you learn your company is insolvent to learn more about your legal duties and minimise your risks.

My company isn’t viable. Should I just let creditors liquidate it?

Even if you’re certain your company can’t continue trading, it’s always better to liquidate your company voluntarily than to let creditors take legal action to close your company.

This is because liquidating voluntarily shows that you’ve considered all options to maximise creditor interests and reduces the risk of your company’s directors facing wrongful trading charges after their conduct is investigated.

What happens if I’m found guilty of wrongful trading?

If you’re found guilty of wrongful trading, you could be held personally liable for some of your company’s debts. In the past, some company directors have faced a significant sum after being found responsible for their company’s decline.

In addition to being held liable for company debts, you could be banned from acting as directors or any UK company for up to 15 years.

What happens when a creditor files a winding up petition?

When a creditor files a winding up petition, several things happen. The petition is listed in The Gazette, alerting other creditors to your company’s insolvency. When the petition is advertised, your company’s bank will usually freeze its accounts.

A court hearing is scheduled, at which your company can attempt to prevent the creditor from receiving a winding up order allowing the compulsory liquidation of your company to begin.

Can my company stop a winding up petition from being granted?

In certain cases, you may be able to stop a winding up petition from being granted, or prevent a winding up petition from developing into a winding up order.

If your company is concerned about a creditor taking action after being served with a statutory demand, contact the creditor immediately. Paying your debt could stop the creditor from taking legal action.

Your company can also dispute the validity of the debt. If you don’t believe a debt is legitimate, presenting this case to the court could prevent the creditor from gaining a winding up order against your company.

I have an overdrawn director’s loan account. What should I do?

If you’ve borrowed money from your company and have an overdrawn director’s loan account, you need to take immediate action. If your company is liquidated, all debts – including the director’s loan account – will be pursued by the liquidator.

Speak to an Insolvency Practitioner to learn more about the best options for paying back your director’s loan and ensuring you can’t held personally liable for repaying your company’s creditors.

Can I propose a CVA after receiving a statutory demand?

Yes. After you receive a statutory demand and learn that your company is insolvent, you may be able to propose a CVA. In order to enter into a CVA, your company will need to show that it’s the best option for the company’s creditors.

Can I continue trading after my company becomes insolvent?

No. As company director, you’re required to follow your duties in the Insolvency Act 1986 once you realise your company is insolvent. This means that you can’t keep on trading or enter into any new contracts after learning your company is insolvent.

Trading while insolvent is a civil wrong and could result in you facing a charge of wrongful trading following the post-liquidation investigation into your company.

How long does it take to close and liquidate a company?

The amount of time required to liquidate a company can vary based on the size of the company and its total assets. Compulsory liquidation, which involves a hearing and serving your company, can be more time consuming than other options.

How much does it cost to liquidate a company?

Not all forms of liquidation are equally costly. Compulsory liquidation is the least expensive way to liquidate your company, as the creditor will be required to pay court-related costs and provide a deposit when receiving a winding up petition.

Members Voluntary Liquidation is typically the least expensive liquidation option, while the cost of a CVL can vary based on the size of your company and the cost of liquidating its assets.

The costs associated with liquidating a company are typically paid using company bank account funds and cash raised from asset sales. In some cases, directors may be required to pay for the company’s closure and liquidation.

What happens if my insolvent company enters into an MVL?

By law, insolvent companies can’t enter into a Members Voluntary Liquidation. If a company is found to be insolvent after entering into an MVL, an investigation will be held to determine whether the event was accidental or intentional.

Intentionally falsifying a Declaration of Solvency is a serious crime that could lead to fraud charges, fines and imprisonment. However, if your company’s directors really believed the company was solvent, the MVL will likely develop into a CVL.

An MVL developing into a CVL is uncommon but not completely unheard of, due to contingent liabilities and issues accurately valuing company assets. These can both affect evaluations of a company’s solvency.

Can my company reduce its taxes by entering into an MVL?

There are several tax advantages of entering into an MVL. First, you’ll reduce your total tax obligations by extracting cash from the company as a Capital Gain, rather than as income.

You may also be able to reduce your Capital Gains Tax on company assets if your company qualifies for entrepreneur’s relief. In some cases, this could reduce your total taxes from 18% to as little as 10%.