Protect your limited company from compulsory liquidation
Your limited company may be liquidated (wound up) if it cannot pay people or organisations it owes money to (its creditors).
This is a general guide only. You should also get professional advice from a solicitor, your accountant or an insolvency practitioner.
Creditors have asked your company to pay its debts
When your company owes money the creditors may try to recover the debt by issuing an official request for payment, called a statutory demand.
Dealing with a statutory demand
Your company has 21 days to respond to a statutory demand.
The options are:
- paying the debt
- reaching an agreement with the creditor to pay the debt in the future, for example by using a Company Voluntary Arrangement
- putting your company into administration
- applying to liquidate (wind up) your company
Your company's creditors can apply to the court to have your company wound up if it does not reply to the statutory demand.
You should get advice from your solicitor, accountant or an insolvency practitioner if your company gets a statutory demand.
Someone has asked a court to wind up your company
Your company's creditors can apply to a court to close down your company if it does not pay its debts or deal with a request for payment. They do this by making an application called a 'winding-up petition'.
The creditor can withdraw the petition if your company pays the debt or makes an arrangement to pay it.
The court can put the company into provisional liquidation if there's a risk that the company's assets will be removed before the winding up order is granted. This usually means shutting the company and putting property and assets under the control of a provisional liquidator appointed by the court.
The court has issued a winding-up order
The court issues a winding-up order if it decides your company cannot pay its debts and is insolvent. A liquidator will be appointed. They will take control of the company and its assets.
You can appeal against a winding-up order, but otherwise:
- your company's bank account will normally be frozen
- its assets or property will be sold by the liquidator
If your company (or part of it) isn't bought with the intention of continuing to run the business (as a 'going concern') then any employees will lose their jobs.
You and any other of the company's directors must co-operate with the liquidator.
You can be banned from being a director for up to 15 years or prosecuted if you've failed to carry out your duties as a director or broken the law.
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