If your company owes £750 or more to one or more of its creditors and fails to keep up with its payments, it can face legal pressure. This pressure can lead to a winding up petition being filed against the company.
A winding up petition is a legal petition issued by a creditor in order to wind up, or liquidate, your company. Having a winding up petition filed against your company is an extremely serious step that could, if ignored, lead to compulsory liquidation.
Creditors typically use a winding up petition only in extreme cases, such as when a debtor defaults and ignores a statutory demand letter. Winding up petitions rarely emerge early in the collections process due to the costs involved in the process.
If your company is subject to a winding up petition, you need to respond quickly to prevent the creditor from being granted a winding up order and liquidating your company through the court.
Thankfully, there are options available for your company. These include proposing a Company Voluntary Arrangement to repay creditors over time, paying the creditors or attempting to have the court dismiss the petition.
A winding up petition is a serious step in the process of liquidating your company, so it’s essential that you respond quickly. Read on to learn more about the winding up petition process and the options that are available to your company.
Quick facts about winding up petitions:
- Filing a winding up petition is a serious step for any creditor that can cost over £1,500, making it an extremely clear statement of intent to liquidate your company.
- If your company fails to respond to a winding up petition, the creditor can begin the process of winding up the company through the court, resulting in your company’s closure and dissolution.
- Even if a creditor launches a misleading or malicious winding up petition against your company, such as for a debt that you do not believe is valid, immediate action is still important.
- Although a winding up petition is an extremely serious step for a creditor to take, there are options available for your company, such as raising cash to pay the creditor or proposing a CVA.
- Even if you believe liquidation is the best option for your company, you need to respond to a winding up petition. Failing to act responsibly after a winding up petition is filed could result in directors facing wrongful trading charges.
What is a winding up petition?
A winding up petition is an application made by a creditor to wind up your company due to non-payment of its debts. Filing a winding up petition is a powerful option for creditors that, if successful, will result in the liquidation of your company.
After a creditor issues a winding up petition against your company and the petition is accepted by the court, a hearing is arranged. At this hearing, the creditor may be able to receive a winding up order granting the closure of your company.
Winding up petitions are public in the UK, and your company will be listed in The Gazette prior to the petition hearing. As the process is public, it can result in your company’s customer relationships suffering even if the petition is unsuccessful.
Due to the publicity that a winding up petition can generate, it’s not uncommon for a petition to result in your company’s bank accounts being frozen. This can result in a serious disruption to your company’s ability to operate.
If the winding up order is granted, your company will be closed and its assets will be sold to pay its creditors. An investigation will typically be carried out by the court to determine if your company’s directors have broken the law.
If you have not carried out your duties as company director, you could face penalties based on the results of the court’s investigation. These can include wrongful trading, which could affect your ability to direct a company in the future.
Because a winding up petition can result in the closure of your company, you need to respond immediately to protect your company from liquidation. Several options are available to prevent your company from being wound up by its creditors.
How can a creditor file a winding up petition?
Not all creditors can file a winding up petition against your company. For a creditor to apply to the court to wind up your company, your company needs to owe at least £750 and have failed to respond to previous demands to pay the debt.
A creditor also needs to prove that your company cannot pay its debts. To submit a winding up petition, the creditor will need to provide either a certificate or personal service or substituted service indicating that a statutory demand has been delivered.
If the creditor has a court judgment against your company and is filing a winding up petition to recover unpaid funds, a winding up petition can be filed using a bailiff’s statement, with no need for a certificate or personal or substituted service.
In almost all winding up petition cases, your company will have received notice that the creditor was actively pursuing your company, typically by receiving a statutory demand requesting payment of the debt.
What happens if your company ignores a winding up petition?
Receiving a winding up petition is a serious event that requires prompt action from your company. If your company ignores a winding up petition and a court order is granted, the company will be closed and its assets will be liquidated.
If you fail to act in response to a winding up petition, you could also face personal liability for part or all of the company’s debts. Even if you believe liquidation is the best option for your company, you need to respond.
Once a winding up petition has been issued against your company, there are several limitations placed on the company’s actions. As company director, you can’t initiate voluntary liquidation after a winding up petition has been received.
You also cannot sell any of the company’s assets, as these may be sold as part of the liquidation process to pay creditors. Selling assets after you have received a winding up petition can result in charges against you as the company’s director.
Although receiving a winding up petition may seem like a desperate situation, there are options available. Your company may be able to reach an agreement to pay back creditors over time or raise enough cash to pay creditors and stop the petition.
What options are available for companies that receive a winding up petition?
Receiving a winding up petition doesn’t need to mean the closure and liquidation of your company. There are several options available to protect your company, ranging from a Company Voluntary Arrangement to short-term financing solutions.
Before taking action to prevent your company from being wound up, consider the best option for your company. If your company can protect itself from the winding up petition, can it potentially recover and pay its creditors over time?
Insolvent companies that have received a winding up petition but can still become viable and pay creditors have several options available:
Company Voluntary Arrangement
A Company Voluntary Arrangement, also referred to as a CVA, is a type of insolvency procedure that, if successful, allows your company to continue trading while paying its creditors.
In a CVA, your company is shielded from legal action such as a winding up petition issued by a creditor. The CVA may allow some of the company’s debt to be written off, improving cash flow and ensuring creditors receive some of their debts.
CVAs are only a solution to a winding up petition for companies that can potentially become profitable and continue trading. Since creditors are repaid from cash flow, companies with no viable future can’t successfully propose a CVA.
If your company can turn itself around and start producing cash again, proposing a CVA can be an effective solution to a winding up petition that, if successful, will save your company from liquidation.
Loans and Financing
A winding up petition can often stem from short-term cash flow problems that stop your business from being able to pay its creditors. If your business has a reasonable track record and good credit history, it may be able to use a loan to pay its creditors.
Financing options for distressed companies are limited, particularly if a winding up petition has already been served. Your company may still be able to take out a loan to pay its creditors and end a winding up petition if you act quickly.
Similar to a CVA, using a loan to pay a creditor and stop a winding up petition is an ideal solution for companies that have a viable prospect of recovery and sufficient cash flow to manage the loan repayments without affecting future solvency.
If your company doesn’t respond to a winding up petition, a court order will likely be granted and the compulsory liquidation process will start. At this point, control over the company will be handed to a receiver and liquidator (or liquidators).
Your company’s assets will be valued and sold by the liquidator in order to pay its creditors. As a director, you will not be held liable for the company’s debts unless you have acted wrongfully after learning that the company was insolvent.
If you or other directors are found to have engaged in wrongful trading, you could face personal liability for some or all of the company’s debts. We can provide help and advice regarding the possibility of personal liability during liquidation.
How to prevent the winding up process
In order to issue a winding up petition, a creditors needs to show that your company is unable to pay its debts. One of the most effective ways to ensure your company is unlikely to be wound up is to keep open, clear communication with its creditors.
If your company is struggling to meet its financial obligations, it’s generally a better option to explore insolvency solutions or financing options prior to facing pressure from creditors than after.
Proposing a CVA before receiving a winding up petition can give your company a stronger negotiating position and improve its relations with creditors throughout the insolvency process.
Whenever possible, it pays to take action as early as possible to prevent a winding up petition from being filed. Acting quickly can improve your company’s relations with creditors and give it the resources it needs to meet its financial obligations.
Get expert financial help
If your company has received a winding up petition, you need to seek help as soon as possible to protect it from legal action and ensure the winding up petition does not develop into a court order against your company.
Even if your company is unviable and unable to recover, you need to seek advice in order to reduce the risk of being charged with wrongful trading. Unless you act as quickly as possible, your company will be rapidly wound up by its creditors.
No matter how dire your company’s future may seem, there’s likely a solution to the problems it’s facing. We can examine your company’s situation and plan a course of action to prevent it from being wound up by the court.
Contact us to speak to an insolvency expert and learn more about the options that are available to prevent your company from being wound up. We can provide help, advice and assistance to help your company start moving towards recovery.