A winding-up petition is an extremely serious statement of intent by a creditor in shutting down your company due to unpaid debts. It is the strongest action a creditor can take against your business and is often the natural next step in the debt-chasing process after a statutory demand for payment has gone unheeded.
A statutory demand and, even more importantly, a winding-up petition require immediate action on your company’s part. We know this might be a testing time for you as a director and your priority might understandably be on your business but if you have received a statutory demand or a winding-up petition, we cannot emphasise enough how important it is to take action now. A company that cannot pay its debts when they fall due is insolvent and you need to speak to a licensed insolvency practitioner immediately.
Within a matter of days, the winding-up petition to your company may be advertised in the Gazette which will alert other creditors and possibly stir them into action too. If your bank sees the public petition, they will freeze the company bank account and no further payments will be allowed. Obviously this can cause numerous problems for yourself and the business. It is therefore imperative that you speak to us as soon as the petition has been received rather than attempt to ‘trade out’ of the problem as once your account is frozen, options available for your company are dramatically reduced.
We can help you postpone or avoid a winding-up process and subsequent liquidation, and depending on the circumstances, we may even be able to get the business operating normally again. We help companies of all sizes from large international firms to smaller businesses including new start-ups.
For more information you can arrange your free consultation with a Real Business Rescue specialist at one of 35 offices across the UK. Alternatively you can call our specific director hotline for immediate advice from a licensed insolvency practitioner or you can download a number of business insolvency guides – including guides which discuss winding-up petitions in greater detail – from our website to help shed more light on your company situation.
After receiving a winding up petition it can be easy to feel that all is lost and that your company will soon be placed into liquidation and put out of business. However, it may well be possible to adjourn or actually have the petition dismissed with the help of our experts at Real Business Rescue. The most important fact to note is that every moment you wait to take action lowers the chances of saving your company. In the following guide we discuss everything you need to know about a winding up petition and how to stop one from putting your business to an end:
I understand that the last people you would ever want to speak to would be a business rescue firm, but I also know that being faced with a winding up petition or order can be equally challenging. It is taking your next steps that is vital.
Note: If the creditor already has a County Court Judgement against your company they can go straight to issuing a winding up petition without serving a statutory payment demand.
A copy of the winding up petition is served at your registered office and the Court sets a date for the petition hearing. One week after the petition is served the details of the petition hearing are published in the London Gazette, and at this point the bank will usually notice and freeze your company accounts in accordance with Section 127(1) of the Insolvency Act 1986.
First, we should mention that receiving a winding up petition is quite literally the most threatening legal action your company can encounter. It is essentially a warning that you have about one week to take action before your company is put out of business. A creditor has to pay a filing fee, court deposit, and other expenses out of their own pocket just to issue the petition, so at this point you can be sure the process is fully underway.
The future of your company will depend on the actions you take and how long you wait to react to the petition. In general you have the following 4 main options for avoiding liquidation and dissolution:
If you cannot raise the funds needed to repay the debt then you would need the assistance of a licensed insolvency practitioner to facilitate the first three options above. If you are unable to respond or mount a defence within 7 days of receiving the winding up petition it is almost certain that the Court will grant the winding up order. Once the winding up order is granted compulsory liquidation commences and matters are taken out of your hands.
By the time you've received the petition your creditor will have already incurred an issuing fee of about £300-£800, as well as a court deposit of about £1,200 (altogether about £1,500-£2,000), so before anything can be done you would have to cover these expenses. In addition to this initial cost you'd also have to consider the cost of appointing a solicitor to instruct a barrister to attend the hearing on behalf of your company.
We offer competitive fees and have maintained a high rate of success in helping our clients protect their businesses from liquidation after being issued a winding up petition. Altogether the cost will be a few thousand pounds, but to many this is a nominal price considering it could help you retain the assets, client relationships, and brand reputation you've worked so hard to build.
If a CVA can be arranged, or you're able to raise the funds to repay the debt, keep in mind that the amount owed will be greater after the petition has been issued due to the aforementioned expenses incurred by the creditor (the cost of the filing fee/court deposit is added to the amount you owe the petitioning creditor). Therefore, if your creditor has not yet issued a petition but is simply threatening to do so you need to take action immediately, because if you act before the petition is issued you won't have to cover the creditor's issuing expenses.
One thing to realise when you have received a winding up petition from creditors is that this was no easy decision for them to make. It is quite a serious matter that could eventually cost a great deal of money..
If the winding up petition has already been advertised in the Gazette and your bank accounts are already frozen you're in a particularly bad situation. At this point you may still be able to seek an adjournment, but any further delay will completely eliminate the chances of recovery. It should be noted that you may be able to unfreeze your bank accounts by obtaining a validation order.
Realistically, you'll have to start taking action within days of being issued the petition if you want to avoid liquidation. Even so, if the hearing has not yet taken place there is still a glimmer of hope! Contact one of our insolvency practitioners immediately to find out what can be done in the later stages of the winding up process.
If the winding up order is granted, the Court will appoint an Official Receiver or liquidator to begin the process of valuating and selling your company's assets in a liquidation sale. At this point the compulsory liquidation process would commence and there would be no feasible prospect of preserving the business, so the focus then shifts towards preparation and protecting yourself and the other directors of your company from being accused of misconduct.
Finally, the main concern to be aware of if the Court does grant the winding up order, is that there will be an investigation conducted by the liquidator or Official Receiver, during which the activities of your company's directors will be examined. The liquidator will be checking to make sure there is no evidence of wrongful or fraudulent trading committed by the directors during, or leading up to, the time the company was known to be insolvent. A company is considered legally insolvent when it owes a debt of more than £750, is unable to meet its financial obligations, and/or has debts and liabilities that exceed the combined value of its assets.
If a director is found guilty of misconduct they could be held personally liable for any company debts that they were responsible for creating while the business was insolvent. Furthermore, directors convicted of fraudulent trading could face steep fines, imprisonment, and a directors' disqualification ban that could keep them from acting as the director of any limited company in the UK for a period of up to 15 years.
Still have questions about winding up petitions or the winding up process? Check out our winding up petition FAQs.
We have experienced insolvency practitioners standing by waiting to take your questions on 0800 644 6080, or you can send us an email. Contact us for a free consultation and we'll help you devise a suitable course of action for rescuing your business.
Thursday 30th June, 2016 Written by Keith Tully
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Every day we help companies just like yours turn things around against seemingly impossible odds, regardless of your situation we can help. Find your nearest office today.