Does The Intention To Liquidate Prevent Creditors From Forcing A Liquidation?

The simple answer to the question is that an intention to liquidate and telling your creditors that you have such an intention does not prevent them winding up your company and placing it into Liquidation.

What Is An Intention To Liquidate?

An intention to Liquidate is telling creditors that you have the intention of placing your company into Liquidation. Typically, this will be Creditors Voluntary Liquidation.

However, an intention to Liquidate is not confirmation that a company will be Liquidated but it will have implications.

Is Informing Creditors Of An Intention To Liquidate Enough To Stop Them Liquidating Your Company?

Informing creditors of an intention to Liquidate is unlikely to stop creditors issuing a winding up petition for a company to go into Liquidation through a Court Order which will lead to what is known as a Compulsory Liquidation.

It may be that if you inform creditors of an intention to Liquidate your Limited company, that they might then stop taking action to wind up the company. However, if the debt owed by a company to creditors is not disputed and if the company is unable to pay its debts when they fall due ie. insolvent, then creditors are entitled to a Court Order for Compulsory Liquidation.

If a Director informs creditors of an intention to Liquidate to simply stall them taking enforcement action against the company then not only is it unlikely to be effective but it is also not acting properly. Whilst it may buy a Director a little bit of time ultimately once a Director has informed creditors of an intention to liquidate he or she should take professional advice from the Insolvency Practitioner as soon as possible.

Coronavirus Exception To Issuing A Winding Up Petition

There are exceptions to this position but that will be due for example to Coronavirus restrictions on winding up companies.

This restriction was introduced to prevent unfairness arising from government measures due to Covid-19 that prevent the winding up of companies for a period of time and which are set out in Schedule 10 of the Corporate Insolvency and Governance Act 2020.

Wrongful Trading Consequence Of Intention To Liquidate

It is important for Directors of insolvent companies seeking a breathing space from creditors to remember their Directors’ duties. Directors duties mean that when a company is insolvent the Directors must act in the interests of the creditors. That means when seeking forbearance from creditors over unpaid company debts that the Directors are open, honest and transparent with them about the company’s financial position and its future.

However, once a Director informs a creditor of an intention to Liquidate they are putting on record their own recognition that the company is insolvent and that Liquidation would appear unavoidable. Therefore if Directors cause or permit a company to trade on and make the position worse for creditors, they could be accused of Wrongful Trading.

For a Director Wrongful Trading is a serious matter that carries the risk of personal liability for losses incurred during a period of Wrongful Trading. Wrongful Trading is not the same as Insolvent Trading which is not the subject of this article. However, if you want to know the difference between the two there is another article on this website that you can read about called ‘Wrongful Trading or Insolvent Trading: which is the unlawful act that you could be personally liable for?‘.