What Is a Winding Up Order or Petition by Creditors including HMRC?
A winding up order is a court order that forces an insolvent company into compulsory liquidation – a process in which the court appoints an Official Receiver (OR) to liquidate all of the company’s assets in order to repay creditors. It results when HM Revenue & Customs or another creditor sends a winding up petition (WUP) to the court after the insolvent company fails to repay a debt of more than £750 which has gone unpaid for at least 21 days.
Upon a Winding Up Petition being advertised, a company’s bank account will typically be frozen meaning business is immediately halted. While a WUP does not necessarily mean the end of your company, you will have to move fast if you want to save it and stop it being wound up.
Can a Winding Up Order Be Stopped?
Once the court has issued a winding up order there is nothing that can be done to stop the company from being completely liquidated. However, there is a short period of time during which you can take action to prevent the order from being issued in the first place.
It is important here to note the distinction between a Winding Up Order and a Winding Up Petition.
A Winding Up Petition (WUP) is the first stage of the process, and it is here where you can challenge the petition before it goes any further. You have a relatively short window of just seven days to mount a challenge or else pay the amount owed. A Winding Up Order occurs once the WUP is accepted by the court. This sets the wheels in motion for the court to wind up your company and it is extremely difficult to save the business once things reach this stage. Once you have been served with a WUP moving quickly is vital; you should contact a licensed insolvency practitioner without delay as every day that passes limits the options available.
Options after a Winding Up Petition
When HMRC or another creditor issues a winding up petition to the court it is reviewed, and once approved, issued to the insolvent company. After receiving a WUP options are severely limited. You cannot sell the company or any of its assets, nor can you issue a Notice of Intention (NOI) to appoint an administrator. The company cannot be placed into pre-pack administration, and the likelihood of putting the company into Creditors’ Voluntary Liquidation (CVL) is extremely slim.
Upon receiving a WUP, the insolvent company has 7 days to do one of four things:
- Pay all debts owed to the petitioner (whoever is petitioning to liquidate your company, whether it be HMRC or another creditor).
- Arrange and propose a Company Voluntary Arrangement (CVA) to come to an agreement with the petitioner. Such an arrangement could allow you to repay the debt gradually over a period of up to 5 years, while also letting your company escape liquidation.
- Obtain an Administration Order to have the company put into administration, which would involve a licensed Insolvency practitioner being appointed as an administrator to evaluate and sell some of the company’s assets. During a court ordered administration all legal actions are stayed, which means the court will not issue the winding up order against your company.
- Dispute the debt. In order for this to be an option there has to be substantial proof that the debt claim is unfair or inaccurate. This is a serious allegation against the creditor known as “abuse of court process.”
What to Do If You’ve Been Issued a Winding up Petition
Of the four options above, pursuing a CVA is often the best course of action as this would allow you to come to a formal agreement with the petitioner as well as your other creditors at the same time while allowing you to continue to trade. This would effectively save your company from liquidation and give you the time and space needed to trade out of its current debt problems. Unfortunately, the chances of getting a petitioner to agree to a CVA during this 7-day period are slim, especially if the CVA proposal is not drawn up by a professional. Having a CVA proposal created and introduced by a licensed insolvency practitioner is the best way to increase the chances of an agreement being reached.
If the petitioner refuses to agree to a CVA then seeking an Administration Order may be the next-best course of action. This would involve the company being placed into administration and an insolvency practitioner being appointed to market and sell some of your company’s assets. Although the possibility of a pre-pack administration is not possible after a WUP has been issued, administration can still be a highly useful tool during this time.
In order for this to work the company will have to contact an insolvency firm immediately to give them enough time to assess the situation, draw up an effective administration proposal, and present it to the court before a Winding Up Order can be granted.
What Happens If a Winding Up Order Is Issued?
If you’re unable to successfully utilise one of the above options, and a winding up order is issued, there is nothing you or anyone else can do to stop the company from being liquidated. Still, there are preliminary measures you can take to minimise the possibility of directors being brought under post-liquidation scrutiny.
After liquidation the Official Receiver (OR) is given the task of investigating all actions taken by the directors during the time the company was trading insolvent. If evidence of wrongful trading is found the directors could be held personally liable for some of the company debts, or may even be banned from acting as the director of any company for up to 15 years.
By consulting with an insolvency practitioner as soon as you’re issued with a winding up petition you can receive valuable guidance and learn how to record the actions of your company to show the court that the directors fulfilled their duties while trading insolvent.
Contact us today and participate in a free consultation to find out how we can help your company avoid a winding up order after being issued a WUP. Our team of licensed insolvency practitioners can work quickly to devise a workable and robust strategy to combat your current issues. Call us today on 0800 644 6080 to arrange a same-day meeting with a licensed insolvency practitioner.
