Supplier pressure is often the first sign that a company’s cash flow has tipped into dangerous territory. A missed payment here and there can quickly escalate into final demands, threats to stop supply and, in some cases, letters warning of legal action.
For many directors, this feels like the moment everything is unravelling. But supplier threats are usually a symptom of a deeper issue rather than the cause. Acting quickly gives you more control, more options and far better protection than waiting for the situation to escalate.
How suppliers escalate unpaid invoices
When invoices are overdue they follow a predictable escalation:
- Polite chasers and reminders
- Stronger demands for payment
- Threats to suspend supply
- A statutory demand
- A County Court Judgment (CCJ)
- A winding-up petition
If pressure is building on several fronts (not just suppliers but also HMRC, lenders or landlords) it’s likely the business is insolvent. In this case, you have legal director’s duties to fulfil, especially around protecting creditor interests.
Check whether your company is insolvent
When suppliers are threatening legal action, the first step is to understand whether the company can still pay its debts. UK insolvency law uses two tests to identify insolvency:
The cash-flow test
Your company is cash-flow insolvent if it can’t pay bills in full and when they fall due. Late supplier payments, unpaid VAT or unpaid PAYE, and juggling creditor priorities are all warning signs.
The balance-sheet test
If your liabilities exceed the realistic value of your assets, the company is balance-sheet insolvent even if cash is still moving day to day. This matters because it changes your responsibilities as a director.
If either test confirms insolvency, the law requires you to protect creditors as a whole. Ignoring the signs of insolvency risks accusations of wrongful trading, which could lead to personal liability if creditor losses increase.
What happens if you ignore supplier threats?
Once legal action begins, control shifts quickly:
1. County Court Judgment (CCJ)
A supplier can apply for a CCJ for overdue invoices. While a CCJ alone does not automatically lead to liquidation, it damages credit terms and often prompts other creditors to act.
2. Statutory demand
A statutory demand gives you 21 days to pay. If this doesn’t work, a creditor might choose to present a winding-up petition.
3. Winding-up petition
This is the most serious step. Once a petition is accepted by the court and a winding-up order is issued, your company faces Compulsory Liquidation. At this point you lose control over the future of your business, and the process is driven by the court and the Official Receiver.
What to do when suppliers threaten legal action
Acting earlier always gives directors more control, more choice and better protection.
1. Stop trading if you suspect insolvency
If the business cannot pay its debts, continuing to trade or try to “trade out of it” may expose you personally. UK law expects directors to take every step to minimise creditor losses once insolvency becomes clear. Putting the brakes on avoids making the situation worse and helps to protect you from later penalties.
2. Review your financial position
Gather your most recent:
- Management accounts
- Aged creditors and debtors
- Bank statements
- Tax liabilities
These will help you understand whether the company can realistically recover or whether a formal solution is needed. Insolvency practitioners use the same information when advising directors.
3. Be cautious with part-payments
Paying one supplier to quieten them, while leaving others unpaid, can be seen as a preference payment, which may later be challenged by a liquidator. Preferential payments can be reversed and may raise questions in a conduct review.
4. Don’t ignore letters before action
Engage professionally but don’t agree to unaffordable plans. Overpromising may worsen your position if you fail to deliver, especially when there are multiple creditors.
5. Seek advice from a licensed insolvency practitioner
Speaking to an insolvency practitioner doesn’t commit you to liquidation. It gives you clarity on what is legally safe. Only a licensed insolvency practitioner can advise on formal options such as a Company Voluntary Arrangement (CVA), Administration or Creditors’ Voluntary Liquidation (CVL).
Early advice also demonstrates responsible behaviour if your conduct is ever reviewed by the Insolvency Service.
Your options when supplier pressure is escalating
1. Try to save the business: rescue and recovery options
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) restructures unsecured debts into affordable monthly payments while allowing you to keep trading. Included creditors, which can be suppliers if they agree, are bound by the arrangement. A CVA works well when the business has a realistic future and needs breathing space .
Administration
Administration provides immediate legal protection through a statutory moratorium. This stops suppliers from taking legal action while an insolvency practitioner works to rescue or sell the business. It’s suited to firms with jobs, contracts or brand value worth preserving.
2. Close the company safely
Creditors’ Voluntary Liquidation (CVL)
If recovery is not realistic, a Creditors’ Voluntary Liquidation (CVL) is often the safest step. Directors choose a licensed insolvency practitioner to close the business in a structured, compliant way. A CVL:
- Stops supplier pressure and legal action
- Ensures all creditors are treated fairly
- Can write-off unsecured debts (including suppliers, landlords and HMRC) unless misconduct is found
- Reduces personal risk by preventing wrongful trading
Liquidation is often the cleanest route when suppliers have already escalated enforcement, especially if a winding-up petition feels imminent.
Key takeaways if suppliers are threatening legal action
- While supplier pressure is stressful, it’s often the push directors need to step back and look honestly at the numbers. Taking decisive action early:
- Reduces pressure
- Protects you from personal exposure
- Maximises the chance of saving some or all of the business
- Gives you control over timing, rather than waiting for a creditor to force the issue
- Directors who deal with insolvency proactively are viewed far more positively than those who ignore the signs.
Get advice on supplier threats and legal action
Supplier pressure doesn’t need to end in court action or forced liquidation. Early guidance from a qualified insolvency practitioner gives you clarity, protection and a clear next step. Whether your company can be rescued or needs a structured closure, we’ll give you straightforward, confidential advice based on your exact situation.
Acting early could also protect your position as a director. It shows you’ve taken responsible steps, helps prevent accusations of wrongful trading and gives you more options than waiting for suppliers to escalate.
A short conversation can quickly confirm whether your business is still viable, whether legal threats can be defused or whether liquidation would give you the safest path forward. Get in touch today for free, confidential guidance before supplier action escalates.
