What does Compulsory Liquidation mean?
Any creditor who is owed at least £750 can apply to wind up an insolvent company. They do this by sending a petition to the court to request that your company be liquidated allowing them to recover their outstanding debt. This is a very serious situation for a Scottish company director and you will need to act quickly if you wish to save your company. Fortunately there is a small window of opportunity open to you which you must make use of.
Is the Compulsory Liquidation process different in Scotland than in England?
Yes. The main difference, and difficulty for Scottish company directors is that you are given very little time to act. In Scotland when a winding-up petition is granted the petition is advertised (Walled – pinned to the court notice board) for all to see.
This means that the banks who continuously monitor these wallings often react immediately and freeze your company bank account. This differs from England as advertising the petition cannot happen for seven days after the petition is served. This gives English directors more time to react and put measures in place.
Unfortunately, this is why so many companies are subjected to compulsory liquidations in Scotland and most do not recover once a winding-up order is received from the court.
Which Scottish court will process my insolvency case?
The court that handles your case will depend on the share capital of your company;
- Company’s share capital below £120,000 – your case will be handled in the Sheriff court local to you company’s registered office.
- Company’s share capital exceeds £120,000 – your case will be handled in the Court of Session in Edinburgh.
What is the process of a Winding-Up petition in Scotland?
Winding up a company in Scotland is a last resort measure taken by creditors to recover what you owe them. Compulsory liquidation is the most common type of liquidation in Scotland with an HMRC winding-up petition being number one in forcing companies into liquidation through unpaid tax and VAT debts.
Your creditor, who is owed more than £750 first has to issue you with a 21-day Statutory Demand before they can petition the court for the winding-up order. This official order is what then forces the company into Compulsory Liquidation.
Do not ignore a 21-Day Statutory demand if you receive one. Call us and we will arrange for you to speak with a licenced Insolvency Practitioner for FREE who can advise you on what to do before your creditor approaches the court.
Your creditor has legal requirements before they can petition the court.
- Prove that your company owes more than £750 to at least one creditor.
- Prove that your company cannot pay its debts.
- Issue a 21-day statutory demand.
- Not receive an answer to the 21-day statutory demand,
- or you have broken a written promise that you made with the creditor.
What are my options during the 21 day period?
If you can come to an agreement with your creditors they can still withdraw the winding-up petition from the court.
If your 21 days have elapsed then the creditor can petition the court. If the court accepts the petition things will now move very quickly;
- The court will arrange a hearing date.
- The winding-up petition is walled (banks can now see this!).
- The winding-up petition is advertised in the Edinburgh Gazette and a local newspaper.
- Sheriff Officers will officially serve the company.
- 8 day period starts where you can submit Answers (lodge defence).
Can I stop a petition becoming an order?
Maybe! If you do one of the following;
- Pay all debts and court fees of the creditor who brought the action.
- Negotiate a Creditors Voluntary Arrangement (requires cash flow).
- Dispute the existence or amount of the debt (do not do this if you may be wrong).
- Apply to court for Adjournment in the hope of pursuing other company administration options (requires cash flow).
If your company has any chance of survival you would have to prove to the court that the company is still financially viable or that an alternative administration option would benefit your creditors. You would need to demonstrate how your creditors would be paid.
If no answers are lodged and no arrangement made then the court will issue the winding-up order.
The following will then happen;
- An interim liquidator (licenced Insolvency Practitioner) will be assigned.
- Company accounts are frozen (banks have normally done this already).
- Liquidator must start within four weeks.
- Company assets will be sold to pay creditors.
- Company name will be struck from the register at Companies House in Edinburgh.
- Stricter investigation will be conducted into the conduct of the directors compared to Creditors Voluntary Liquidation (CVL)
- Company is normally dissolved in around three months.
Can I be held personally liable during a compulsory liquidation?
As a director, it is your responsibility to act in the best interest of your creditors. As long as you do not continue to trade when you realise that your company is insolvent and cannot recover you will be fine.
It benefits you far more to continuously examine your company’s financial health. Should you find yourself in a position where you cannot pay your debts and especially if you have been issued a 21-day Statutory Demand then that is your signal to seek help.
The advice of an Insolvency Practitioner is invaluable and can stop or at least control how your company enters into liquidation. It is far better to do these things on your own terms and maintain control over the companies bank accounts.
Contact Local Business Rescue and we will put you in touch with a licenced Insolvency Practitioner who you can talk to for FREE.