Protect your limited company from compulsory liquidation

Last updated: 8 November 2017

Your limited company may be liquidated (wound up) if it can't pay people or organisations (creditors) it owes money to.

Get professional advice from a solicitor or insolvency practitioner.

Your creditors have asked you to pay your debts

When your company owes money the creditors may try to recover the debt by:

Dealing with a summons or an initial writ

The summons or initial writ will ask you to advise the court what you intend to do by a specified date. You should not ignore this date.

Your options are:

  • paying the debt
  • telling the court you owe the money, and ask for a time to pay direction or a time order under the Consumer Credit Act 1974.
  • telling the court you do owe the money but do not ask for time to pay.
  • telling the court you don't agree you owe the money.

If you do nothing, the court will presume you do owe the money. They will then issue a decree, which will order you to pay the debt, along with interest and court expenses.

Your assets could be affected.

Issuing a statutory demand

You can find the form for issuing a statutory demand (form SD1) on the GOV.UK website.

Dealing with a statutory demand

You have 21 days to respond to a statutory demand.

Your options are:

Your creditors can apply to the court to have your company wound up if you don't deal with the statutory demand.

Someone has asked a court to wind up your company

Your creditors can apply to a court to close down your company if you don't pay your debt or deal with the 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 petition can be dealt with. This usually means shutting the company and putting property and assets under the control of a court official.

The court has issued a winding-up order

The court issues a winding-up order if it decides your company can't pay its debts.

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 company's directors must co-operate with the insolvency practitioner.

You can be banned from being a director for 2 to 15 years or prosecuted if you've failed to carry out your duties as a director or broken the law.

Read Accountant in Bankruptcy's guide on Debt and the Consequences, which gives information on dealing with creditors and debt.