2nd December 2021
If you have been issued or threatened with a statutory demand or a winding up petition, you may be wondering what this means for the future of your company. While the two processes are different, both are extremely serious actions taken by creditors and pose a very real threat to the future of your business.
A statutory demand usually comes before a winding up petition. This is a formal request for payment issued from an outstanding creditor. While any creditor can serve you with a statutory demand, they are frequently utilised by HMRC chasing unpaid tax debts.
Statutory demands are only served after a creditor has exhausted all other avenues of recovering the money you owe them. If a statutory demand is served on your limited company you must answer within 21 days or face further action. You can either pay the money you owe in full, or otherwise come to a mutually agreeable plan on how you will clear this debt.
Although issuing a statutory demand requires no court involvement, you should not underestimate the seriousness of being served with such a notice. A statutory demand is usually the first step towards legal action which could lead to the liquidation of your company if you do not respond to it appropriately. Simply ignoring the demand is not an option.
Your creditor can petition the courts to wind up your limited company if you owe them in excess of £750; if the demand has been issued on you personally, you can be made bankrupt if the amount you owe is at least £5,000. This figure has increased to £10,000 as per the Government's temporary measures which will apply for the period 1 October 2021 to 31 March 2022. Creditors often view a statutory demand as a pre-cursor to serving you with a winding up petition; be warned that if a creditor has gone to the trouble of issuing a statutory demand, it is likely they will not hesitate to wind up your company should payment not be forthcoming.
This is the most serious action a creditor can take against a non-paying company. Any creditor you owe at least £750 to and have failed to pay the amount due within 21 days (temporarily £10,000), can petition the courts to wind up your company. By issuing a winding up petition (WUP), the creditor is asking the courts to liquidate your company in order for any proceeds realised to be put towards settling its outstanding debts. Issuing a WUP costs a creditor £280 in court fees plus a £1,600 petition deposit, so you should not underestimate how serious they are about forcing your company into liquidation.
Once a WUP has been issued against your company, your options are few and far between unless you are unable to pay the amount asked of you. It may be possible to propose a Company Voluntary Arrangement (CVA) in order to restructure your liabilities, although time is very much of the essence so you must act quickly. Administration is another tool which may help if your business is viable going forwards.
Failure to respond to the WUP will result in a winding up order being issued, at which point there is nothing you can do to prevent your company being forcibly liquidated.
Neither a statutory demand, nor a winding up petition will come out of the blue. Instead these are the final steps in what is often a lengthy process chasing up a non-paying customer or client. If you owe a company money and are unable to pay it, you should be proactive at an early stage to stop the situation escalating out of control. Speak to your creditor and see if you can come to an arrangement to pay back the money you owe in a way which is affordable and sustainable going forwards.
If you feel your company’s debt situation has spiralled out of control, you should make it a priority to speak to an insolvency practitioner at the first available opportunity. Continuing to trade and increasing your level of debt is a breach of your duties as a company director which can carry severe repercussions. Real Business Rescue’s team of licensed insolvency practitioners can help you understand the options available to your company and advice you as to the most appropriate course of action. Regardless of whether you are looking to close your company, or would like to investigate all possible rescue options, we can help. Call our expert advisers today on 0800 644 6080 to arrange a free no-obligation consultation at any one of our 100+ offices.