Winding up Petitions – What Are They and How Do You Stop Them?

A winding up petition gives notice to directors and the public that a company is going to be forced into a compulsory liquidation via a court process.

The petition is usually presented to the court by a creditor (or their solicitors). The petition is then reviewed by a judge who will decide whether to issue a winding up order.

Once the winding up order is then issued by the court, this starts a process in which the official receiver (OR, a government official) is appointed to liquidate the company assets in order to repay creditors.

In the majority of cases, a winding up petition is sent to the court by HMRC after a large debt, such as PAYE or VAT arrears, which has not been repaid despite continual chasing.

If you have received a winding up petition then you need to call us now on 0800 975 0380 before it gets to a point that it can’t be stopped.

How do you stop a winding up petition?

Stopping a winding up petition is possible however, you must act immediately.

Once the Court has issued the winding up order, it cannot be stopped, but there is a grace period of 7 days before the order is granted to allow directors to take action.

Once you have been notified of a winding up petition, you have 5 available options.

 

1. Dispute the debt

If there is substantial proof to show that the claim is either inaccurate or unfair, then this should be your first port of call.

You should be aware, however, that by disputing a winding up petition, you are making a serious allegation against the creditor called ‘abuse of court process’.

 

2. Pay the debts owed

Of course, if the company has the money to pay the amount, it should do so in order to save the company in the quickest way possible.

However, you must be wary of showing preference to one creditor over another if there are others waiting for payment.

Not only is it classed as wrongful trading to pay only the creditor that has issued a winding up petition if you cannot pay the others; you run the risk of the other creditors taking over the petition, so the order may still be granted by the courts anyway.

 

3. Enter a Creditors Voluntary Liquidation (CVL)

In most cases, this is the path we recommend to our clients.

This is the way of liquidating the company on your terms; if the company is viable and you were planning on continuing to trade, there may be a possibility of buying back the company assets to use for a future venture. Of course, the process is similar, but you would be much more in control of a less invasive process.

Most directors wince at the price of a liquidation, but may not be aware that the process could be funded via a redundancy payment if the director was employed by the company.

Directors are entitled a pay-out if they have been on the company payroll for more than 2 years. The average award is £9,000 but this varies depending on the directors specific circumstances.

Read – Find out more about redundancy claims for directors.

 

4. Enter a Company Voluntary Arrangement (CVA)

At this stage, if the petitioner is going to agree to be repaid over a period of time, they are very unlikely to accept anything other than a Company Voluntary Arrangement.

This is because it is a legally binding arrangement (overseen by a licensed Insolvency Practitioner) to pay back the money owed to all creditors over an agreed period of up to 5 years.

In this case, your company would escape liquidation. Unfortunately, however, we find that without major re-structuring, the companies that enter CVAs tend to fail because the business model was flawed in the first place.

 

5. Obtain an administration order

If your company is put into Administration, a licensed Insolvency Practitioner would be appointed to evaluate and sell some of the company assets with a view to continuing to trade.

All legal actions are frozen while a company is in Administration, so the Court is unable to issue the winding up order. Bear in mind, though, that this is an expensive process that cannot guarantee that the creditors will back off as a result once the Administration period has ceased.

I’ve been served a winding up petition – what should I do?

The answer will depend on your company, personal situation and future plans; however, immediate action must be taken if you plan to avoid your company being wound up by a creditor.

Of the options above, our most recommended is usually to enter the process voluntarily and retain more control by entering a Company Voluntary Liquidation (CVL).

A Company Voluntary Arrangement (CVA) seems very attractive, but is not practical especially in this situation.

This is because the likelihood of instructing an insolvency practitioner and compiling your CVA terms, let alone ensuring that the creditor agrees to them within the 7 day period available are very slim.

You should know, however, that the chances will be greatly improved by seeking help immediately after learning of the winding up petition.

A winding up order has been issued by the court – what do I do?

If none of the above options have proved suitable or you simply haven’t acted quickly enough, the winding up order will be issued; from this point, there is nothing that anyone can do to stop the company from being forced into liquidation.

There are still steps that you can take to minimise the possibility of being brought under scrutiny, however.

The official receiver (OR) has a duty to investigate the company director(s) after liquidation, going back to actions taken up to 7 years prior to that point.

The most common way in which directors come under fire is due to actions taken during the period leading up to insolvency; trading an insolvent company is often found to be classed as wrongful trading, if specific actions weren’t taken and importantly, recorded.

If fraudulent or wrongful trading is found, company directors can be held personally liable for company debts, and disqualification of directorship is also possible for up to 15 years.

An insolvency practitioner may be able to help with this; guidance can be offered in the period leading up to the liquidation.

They could ensure that you are aware of the best ways to record the actions taken by your company, to show the court that directors’ duties were fulfilled.

Need to speak to someone?

If you have received a winding up petition, or you would like to discuss all of the above and the options available to your company, don’t delay action – give us a call now on 0800 975 0380 for free no-obligation advice.