A winding up petition (WUP) is a petition presented to the court that, if approved, will result in the granting of an order that will force an insolvent company into compulsory liquidation. This is usually the last action a creditor will take in an effort to recuperate debts after all other attempts have failed. In order to issue a WUP a creditor must pay a fee of £300-£800, plus a court deposit of £1,190, so the procedure is quite costly in comparison to other debt collection methods. To help you understand the WUP process and procedure we’ve created the following step guide:
Creditors will usually attempt to recover a debt initially by issuing a claim. If this doesn’t result in compliance within 21 days and the owed debt is worth more than £750 they can ask a solicitor to assist in issuing a WUP. Because of the costs incurred (which total between £1,490 and £1,990), usually the debt will have to be greater than this amount for the creditor to pursue this option. The Court will review the petition and if accepted it will be forwarded to the insolvent company.
After the petition is issued you have a few options to consider, but regardless of the course of action you choose to pursue, it must be done without hesitation; if the Court grants the winding up order it will be too late. You have 7 days to either pay the debts in full, pursue an arrangement, or engage in a dispute with the creditor if the debts are questionable.
Once a WUP is issued you can only a pursue a creditors’ voluntary liquidation (CVL) with the permission of the creditor and you cannot sell the company or its assets. Such a sale could be reversed by the Court, however, there may be enough time left to propose a Company Voluntary Arrangement (CVA), or if the debt is disputable you may be able to seek the assistance of a lawyer in defending your company from the petition by having it adjourned.
Also, if it can be shown that your company is viable and may have a successful future you may be able to defend against the petition through administration. Unfortunately, once the petition has been issued you’ll need to go through a costly court process to have an Administration Order granted as the Court will need to consider the interests of the company’s creditors as a whole.
If an Administration Order is granted all legal actions against your company (including the WUP) will be stayed and the appointed administrator must be a licensed Insolvency Practitioner. It should be noted though that at this point the total debt will have increased because of the court costs incurred by the creditor (which will be added to the amount owed).
After the WUP is issued to the Court and is accepted and then forwarded to the insolvent company, the next step in the procedure involves a petition advertisement being placed in the London Gazette, making the situation a public matter. The creditor must wait at least 7 days after the petition is issued to the company before listing a petition advertisement that will display the date and basic details of the petition hearing, which at this point would be scheduled to be heard in the High Court of Justice (also referred to as Companies Court). If the petition has not yet been advertised it may be possible stop the advertisement through an injunction to restrain advertisement by negotiating with the petitioner. The petition must be advertised at least 7 days before the date of the hearing. If the advertisement has already been placed, it may still be possible to seek an adjournment, although you would need to be able to justify this with adequate reasoning.
Once the petition is advertised the insolvent company’s bank will become aware of the situation and will usually freeze the company’s account to prevent the directors from selling assets illegally. In fact, some banks have recently begun the practice of regularly searching through the court registers to discover which companies have recently had a winding up petition issued against them, in order to take precautionary measures (i.e. – freezing accounts) before the petition is even advertised.
If the Court grants the winding up order then an Official Receiver (OR) will be appointed to act as the liquidator of the insolvent company. At this point there is nothing that can be done to stop the company from being liquidated, which essentially means the end of your business. The OR will investigate the previous actions of the directors to see if they engaged in wrongful trading during insolvency. In rare occasions the directors will be found guilty and may be banned from acting as the director of any company for a period of 15 years, or they may be held personally liable for some of the company debts.
If your company has been issued a winding up petition, or you feel as though you’re in danger of being petitioned, contact us today to participate in a free consultation and find out how we can help you mitigate or reverse the procedure.
Wednesday 30th November, -0001 Written by Keith TullyLearn More…
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