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What happens when a Winding Up Order is made?
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What does a Winding Up Order mean and can I challenge it?
A Winding Up Order is an instruction from the court that forces your company into liquidation. The High Court will appoint the Official Receiver to sell the company’s assets to repay its creditors before closing the company down. If you want to save your business, you can challenge a Winding Up Order, but you must act quickly.
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A Winding Up Order is a legal process that creditors (someone you owe money to) can use to enforce the payment of a debt. The Winding Up Order is the final step in the process and will only come after a creditor has made many unsuccessful attempts to collect the money they’re owed.
If you owe a creditor more than £750 and do not pay the debt, they can issue you with a Statutory Demand. After 21 days, the creditor can serve you with a Winding Up Petition. If you do not challenge the petition or pay what you owe, the court can grant a Winding Up Order to liquidate your company.
The expense of going through the courts to obtain a Winding Up Order means creditors who pursue this action are determined to force a repayment and prevent you from accumulating further debts. Large creditors like the banks and HMRC most commonly take this type of action.
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When you are issued with a Winding Up Petition by a creditor, a court hearing will be set. At the hearing, the judge will establish whether the debt is due and if the company can pay. If they believe the company is insolvent and cannot pay, they will likely grant a Winding Up Order. Once the court has made the order, you have just five working days to save your company.
If you do not challenge the Winding Up Order, the company will go into Compulsory Liquidation. The court will appoint an Official Receiver to act as the liquidator. They will identify and sell the company’s assets at auction and distribute the proceeds among the creditors. Finally, the company will be struck off the Companies House register and will cease to exist.
As part of the process, the Official Receiver will investigate the period leading up to the company’s liquidation. If they find any evidence of misconduct or wrongful trading, you could be made personally liable for company debts or disqualified from acting as a company director for up to 15 years.
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You can challenge a Winding Up Order but you must act quickly and have a legitimate reason. You can apply to the court to:
- Reverse the order
If the court didn’t have access to all the relevant facts during the petition hearing, you can apply to have the order rescinded. That could be an option if you’re now able to pay the debt or couldn’t attend the petition hearing in person.
- Stay the order
The Official Receiver, a creditor or a shareholder of the company can apply to ‘stay’ the liquidation proceedings after a Winding Up Order has been made. The most common reason for a stay is to give the company more time to appeal the decision or make a Scheme of Arrangement with its creditors.
- Appeal the order
You can also appeal the order on the grounds that it was either wrong or unjust. That could be the case if your creditor did not follow the proper procedure. You usually have 21 days to appeal the decision.
Challenging a Winding Up Order is not easy and you’re unlikely to be successful unless you have a good reason. Your chances of preventing liquidation are far greater and you will have more options if you act earlier in the process. For example, you might be able to negotiate a Company Voluntary Arrangement (CVA) with your creditors to give you more time to pay what you owe.
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Once a Winding Up Order has been granted, you’re legally obliged to cooperate with the Official Receiver (OR) and assist them in liquidating the company. If you do not fulfil your duties, it will be reflected in the Official Receiver’s report. You must:
- Give the OR information about the company’s affairs
- Hand over the company’s records, paperwork and assets
- Attend an interview with the OR
During the interview, the OR will ask for information about the company’s accounts, assets and liabilities. They will ask about the reasons for the company’s failure and your role in it. They may also ask you about dividend payments, payments made on behalf of the company, director’s loan accounts and your general business practices.
In most cases, the liquidation investigation is nothing to worry about. However, if the OR finds that you have not acted in accordance with insolvency law, for example, by transferring assets away from the business, making preferential payments to connected creditors or continuing to trade while insolvent and worsening your creditor’s position, you could face serious consequences.
If you have been issued with a Winding Up Petition or a Winding Up Order has been made against your company, you must act fast. We can discuss your circumstances with you and help you understand your options. Call today for a free, confidential consultation or arrange a same-day meeting at one of our 100+ offices throughout the UK.
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