We’ve been unable to pay a particular bill for three months now because our operating expenses are so high that we simply can’t sacrifice other obligations for it. Recently our creditor informed us that they will be petitioning to wind up my company if I do not pay the requested amount within three weeks. Is there a way to stop my creditors from issuing a winding up petition even if I don’t have the money to pay them what I owe?
Unfortunately, if you do not pay your debt, or are unable to otherwise come to an agreement with your creditor regarding payment of the money owed, it is likely that they will take further action which may involve issuing a winding up petition (WUP) against your company. A WUP will begin the process of forcing your business into compulsory liquidation.
Once creditors begin threatening legal action, such as a WUP, you need to take appropriate steps – and quickly – in order to stop your company from being wound up against your will. If your creditor opts to commence the winding up of your company, they will serve a WUP to the official address of your business and then must wait 7 days before they can advertise it in the Gazette. Once the petition is advertised, the bank will take notice of the procedure and respond by freezing your company’s bank accounts in accordance with section 127(1) of the Insolvency Act 1986. You will only be able to unfreeze the bank account by obtaining a validation order which can be extremely difficult to achieve. With no access to company funds, challenging the WUP may simply not be possible for some companies.
Once the WUP becomes a winding up order, the compulsory liquidation of your company will begin. During compulsory liquidation the court orders all of the company’s assets to be liquidated and the business is then forcibly closed for good. To stop your company from being wound up, you’ll need to either attempt independent negotiations with creditors, or you may have to explore the possibility of entering into a voluntary formal insolvency process before the WUP is served. This could take the form of a Company Voluntary Arrangement (CVA) which is a process designed to rescue an ailing business by restructuring current liabilities.
If your creditor has not yet served you with a winding up petition but is threatening to do so, then you may want to consider entering into administration as this creates a moratorium (essentially a protective ring-fence) on any legal actions creditors might take against your company for a period of at least 8 weeks while a way forward is plotted. Arranging a CVA during administration is sometimes easier because the company is under the control of an insolvency practitioner who knows how to negotiate with creditors and draft professional proposals, with the added benefit that the company is also temporarily protected against creditors taking legal action.
If a CVA cannot be arranged during administration the insolvency practitioner may try to organise a sale of the business without the debt burden that has been hampering the company's ability to trade if possible. Ultimately, the only way to avoid a winding up petition or stop it from happening is to take action as soon as the creditor starts applying pressure.
16th September 2019
There was around a 25 per cent increase in the number of restaurant businesses entering insolvency over the course of the year to June 2019, according to the latest figures on the subject.Read More