Winding Up Petition
Winding Up Petition
Dealing with a Winding Up Petition?
Speed is of the essence when dealing with a winding-up petition, as such it is essential to act as quickly as possible.
A winding-up order focuses the debtor on dealing with a winding-up petition as it is time-sensitive. It is an insolvency tool applied by creditors to force payment of the outstanding debt by a company.
This process is the last opportunity for the company to petition the court to have the company placed into liquidation.
If your business has become the subject of a Winding Up Petition due to a creditors action, this puts your company at risk of being put into compulsory liquidation. If you have a legitimate reason to contest the winding up petition and attempt of liquidation, then you should do so. There is a limited amount time in which to oppose the winding up petition. Acting quickly can prevent this action from being made public and your bank account being frozen. It will also stop you being required to attend court.
If you are in a position where you are able to repay your creditors, this is the first path of action to consider as this will avoid the situation escalating. If you have already started a voluntary formal insolvency situation the company may well be protected from any further legal action from creditors and will be unaffected by a winding up petition.
Repay debt or enter into a formal payment agreement
If you pay the debt and costs in full, the winding up petition must be cancelled. If you do this more than 5 business days before the hearing and before the petition is advertised, it must be withdrawn. If you delay and the winding up is then advertised in the London Gazette, there must still be a court hearing. You will be obliged to attend and present evidence that the debt has now been repaid. Ending up at a hearing runs the risk that another creditor obtains ‘carriage’ of the petition and you still get wound up even if you have paid the petitioner.
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Adjourn Winding Up Petition
If you are in the process of collecting the funds required to pay the creditors from the likes of a pending sale, cash injection or investment return – in these circumstances, you can request a reasonable adjournment until this payment has been received.
Creditors’ Voluntary Liquidation
If a Creditors’ Voluntary Liquidation (CVL) process has begun then you are protected from nearly all creditor legal action, the same as with a winding up petition. A voluntary liquidation can help settle debts with creditors by realising the company assets and distributing the assets value in order to repay any outstanding debts. This is often the route taken when debts have built up and the business inevitably closes on a voluntary basis.
Company Voluntary Arrangement
Another option is a Company Voluntary Liquidation (CVA), this is a formal insolvency procedure that can be used to restructure a company’s liabilities into more affordable instalments that are payable over several years. Beginning the CVA process provides the business with protection from creditors legal action and nullifies a winding up petition. A proposal to enter a CVA can dramatically improve the chances of generating a return for creditors, if the business is able to maintain the payments.
Company Administration
If a business is insolvent but wishes to prevent liquidation, placing the company into administration is another suitable option. This is a formal procedure that can help a company recover, if a business has poor cash flow but is rich in assets this is an option that can help the business avoid a compulsory liquidation and other actions such as a winding up petition.
Dispute winding up petition
If the debt in question is in dispute, a winding up petition cannot be used by the creditor to apply pressure, forcing the business into submission. If you disagree with the petition, you can apply to the courts for an injunction and prevent it from being advertised in the Gazette.
If the debt is in dispute, then a creditor cannot use a Winding Up Petition to put pressure on the business and push them into paying. If you do not agree with the petition, then you are able to apply to the court for an injunction that will stop this from being advertised in the Gazette.
There are often warning signs that can suggest a creditor is considering taking action, these can include a statutory demand for payment, this is a formal request from the creditor for you to make a payment. This allows 21 days for the payment to be made, you should begin to negotiate, or formal insolvency procedure ought to be pursued. However, a formal 21-day notice is not required with a winding up petition and the demand may simply be a letter.
Another warning sign is that a County Court Judgement may have been obtained prior to this. This is a major concern as a failure to comply can damage the company’s credit score and affect the company’s future finance options.
Do you Have to Serve a Statutory Demand Before a Winding-up Petition?
Although not obligatory, a court will usually require a formal proof that demand for payment has either been ignored or remained unpaid.
A winding up petition is a serious threat which can quickly lead to the forced closure of your business. Speak to your accountant for tailored advice as each situation is unique or contact help@lucasross.co.uk.