What can an unsecured creditor do if a company is facing financial distress?

An unsecured creditor facing a company in financial distress has the right to apply to the court for a compulsory winding up of the company. This legal process effectively seeks to close the company and appoint a liquidator to manage the distribution of the company's assets among its creditors.

This choice is appropriate because it is a definitive legal recourse that an unsecured creditor can take when a company cannot meet its debts. By initiating compulsory winding up, the creditor aims to recover as much owed money as possible through the liquidation of the company's assets.

In contrast, appointing a financial advisor is typically a proactive step taken by companies for guidance, not by creditors trying to resolve their own claims. Beginning negotiations for debt restructuring is more of an action that a debtor might undertake to address financial difficulties, rather than a specific option available to unsecured creditors who have little leverage without a court's intervention. Increasing interest rates on loans is unlikely to be a feasible choice for unsecured creditors, as they possess no collateral and alterations to loan terms must be mutually agreed upon and are limited by law and the initial agreement. Therefore, applying to the court for a compulsory winding up remains the most direct and legally recognized option for unsecured creditors in the scenario of a company in financial distress.