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Understanding a Creditor’s Petition and the process that follows
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What happens when a creditor issues a Winding Up Petition against your company?
A creditor’s petition, more commonly referred to as a Winding Up Petition (WUP), is typically the final step a creditor can take in order to collect a debt which has repeatedly gone unpaid.
A WUP is expensive to issue and has serious consequences for the company it is lodged against; therefore in the vast majority of cases a creditor’s petition is only ever issued as a last resort following a lengthy collection process consisting of several failed attempts to get the debtor to pay. Should a creditor lodge a WUP against your company this shows their determination to recover the money you owe them and failure to pay will see your company forcibly wound up by the courts.
For this reason, it’s crucial to seek professional advice as soon as possible. This will help you decide on your next step, and to ensure that you protect not only the company, but also your own personal level of liability.
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In most cases, the creditor must issue a 21-day statutory demand for payment prior to making an application for winding-up. If this demand goes unheeded and the money remains unpaid, it becomes proof that the debt exists and also indicates that the debtor’s company is insolvent; this allows the court to take further action.
However, if a County Court Judgment (CCJ) has already been filed against your company, the creditor doesn’t need to issue a 21-day statutory demand; instead they can file a winding up petition for your company’s liquidation straight away. Following a period of seven days, a notice of the WUP will be publicly advertised in your local Gazette, and events will move very quickly from this point.
This seven day period between the WUP being issued and it subsequently being advertised is vital if you want to save your business. It is advisable to seek the help of an insolvency practitioner as soon as a statutory demand or CCJ is received. However, if you are now at the stage where a creditor has presented you with a winding up petition, the short period of time before the WUP is advertised can be used to take preventative action and possibly save your business from compulsory liquidation.
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A week after serving your company with a WUP, your creditor can ask for this to be advertised in the Gazette. You will find that your ability to trade will be affected almost immediately upon the WUP being advertised. This is because once other creditors become aware of your company’s situation they are likely to refuse to partake in future business with you while your immediate future is balanced so precariously. Additionally, once your bank is notified of the winding up petition, your accounts will be immediately frozen, making day-to-day business no longer possible unless you can obtain a validation order from the court to regain access to your funds.
The WUP will then be presented at court, and if the creditor is successful, a winding up order will be granted. This begins the process of the compulsory liquidation of the company, and at this stage, there is nothing that can be done to halt the process.
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- From being issued with a WUP, you have around a week to take action, during which time you could try negotiating informally with your creditor to see if you can come to a mutually agreeable plan. The involvement of an insolvency practitioner will increase your chances of success in these negotiations. If you’re able to repay the debt, or are successful in negotiating a repayment plan, you’ll find that the amount owed will have increased in order to cover your creditor’s costs in issuing the petition.
- If you have the money available to settle the debt with your creditor then you should look to do this as a matter of priority. Alternatively you may wish to consider whether you could source additional finance in order to settle the debt. You should seek expert help and advice from an insolvency practitioner before accruing further borrowing as this may be a breach of your director duties if your company is insolvent.
- Alternatively, a formal payment plan might be suitable. A Company Voluntary Arrangement (CVA) would halt all legal action against your company, freeze interest and charges on the debt, and allow you to repay the money over an extended period of time.
- If you have reason to dispute the debt, you’ll need to present your case to court, or hire a representative to do that for you.
- You could look to obtain an administration order if appropriate. This will provide a legal ring-fence around the company protecting it from creditors pursuing legal action allowing you more time to identify the most appropriate exit out of administration. This could be through either liquidation, a CVA, or a sale of the business.
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If the court issues a winding up order, business assets will be sold and your company liquidated. A liquidator takes over control of the business, and sends a report to the Secretary of State on the conduct of all directors leading up to insolvency.
If you need advice on what to do in this instance, or any general guidance about how to deal with creditors, Real Business Rescue offers a free same-day consultation and can discuss your needs in confidence. Call us today.
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