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Winding Up Petitions
If you are struggling to pay your creditors in a timely manner, you may be presented with a Winding Up Petition. This is the most serious action that HM Revenue & Customs or another creditor can take against your company in order to settle a debt and will certainly be an action of last resort to procure payment. A creditor is able to present a winding up petition if there is a debt of more than £750 outstanding to them.
Once the Winding Up Petition is presented, a court hearing date will be set at which the Court will decide whether there is sufficient grounds to pass a winding up order for the Company to be placed into Compulsory Liquidation.
How will you know about the Winding Up Petition?
A statutory demand will have preceded the presentation of a Winding Up Petition and this enables a period of 21 days for your company to either settle the debt outstanding or alternatively have the statutory demand set aside.
The statutory demand will have been served on the Company using Form 4.1 and will have been delivered by:
– Leaving it at the registered office of the Company
– Giving it to the company director, company secretary, manager or principal officer
– Getting a ‘process server’ to service it to you
Alternatively, if the creditor has a County Court Judgment against your company then it can automatically proceed with a Winding Up Petition being presented against the Company and there is no need for a statutory demand to be issued.
Therefore, the petition will come as no surprise to you, as a creditor cannot simply present a Winding Up Petition without any prior warning.
The Winding Up Petition
The petition will be presented using Form 4.2 and your creditor will have given a reason for the winding up. For example, they presented a statutory demand for an amount of money and there has been no settlement in the 21 day period. Alternatively, they will have included the court judgement award against your Company.
The petition will be presented to you by either a ‘process server’ or the creditor themselves. The petition can be served by attaching it to the company’s front door or leaving it at the office if the petitioner is unable to locate you.
Having petitioned the winding up of your company the petitioning creditor would have incurred court fees of £280 and in addition paid a deposit of £1,350 in order for the winding up petition to be presented. The petitioning creditor will have also typically incurred legal fees in excess of £1,000 and process serving costs in presenting this petition too, all of which may be recoverable as part of any liquidation process.
Clearly, this is not a cheap process for your creditor and therefore they will try to enforce the winding up of your Company as their debt is still outstanding.
The creditor will file a certificate of compliance to the court at least 5 working days before the hearing to ensure that the relevant insolvency rules have been followed in serving the petition.
What happens once the Winding Up Petition is presented?
It is vital that you act quickly in dealing with the petition as within a matter of days the petition can be advertised in the London Gazette. It is imperative that you seek professional advice as soon as the Winding Up Petition has been presented as there are a number of options that can be taken in order to avoid Compulsory Liquidation.
The creditor must allow 7 clear days after the serving of the petition, before the petition can be advertised. Similarly, the petition must be advertised at least 7 days prior to the court hearing date.
Once the petition is advertised in the London Gazette, this will result in your bank account being frozen and your Company will be unable to trade.
Therefore, assuming that the Courts take at least 2-3 months to schedule a hearing date, the petitioning creditor might use the tactic of advertising the petition at the earlier stage, to ensure that your business cannot continue.
As a director you will fall under further scrutiny in the event that the Company goes into Compulsory Liquidation from the date that the petition is presented. This is because under s127 of the Insolvency Act 1986, there should be no disposition of the Company’s assets from this date. Therefore, you should ensure that there are no asset disposals and that there are no payments from the Company bank account.
If the Company then follows into Compulsory Liquidation the Official Receiver will be appointed as Liquidator of the Company and as part of his duty will be to instigate into the company’s financial affairs. In some cases, the director may face accusations of misconduct if it is proved that they continued to trade knowing that the Company was insolvent and this could result in you becoming personally liable for these debts.
What can be done to avoid Compulsory Liquidation?
There are a number of options available to your company in dealing with the
Winding Up Petition, however it is important that you do not wait until the winding up hearing to take action, as this will be too late. You need to call us and act promptly once you have received the petition. The following alternatives may be considered:-
• One can pay the debt or come to an agreement with the creditor. If the debt is paid in full prior to the advertising, then your other creditors will be none the wiser about the petition, as it will not be advertised.
However, if the petition is already advertised and you pay off the petitioning creditor, then other creditors may substitute the petition and take carriage over it. This means that they will effectively become the petitioning creditor and the hearing will continue.
• You may decide to dispute the amount outstanding in court by arguing that the creditor has used the Winding Up Petition as an “abuse of court process”.
• An injunction may be taken out to adjourn the hearing or prohibit the advertising in the London Gazette. This would allow the bank account to remain open, however this is quite a costly exercise and the Court will need to have sufficient grounds to allow this injunction to be put in place.
• A Creditors’ Voluntary Liquidation (CVL) might be considered a better alternative, if HMRC or the petitioning creditor is agreeable for their legal costs to be paid and then seek for the hearing to be adjourned to allow this voluntary process to continue.
The CVL will allow the shareholders’ to nominate their own liquidator and provide a mechanism for the directors’ to be in more control of the insolvency process than in a Compulsory Liquidation.
• The Company may consider proposing a Company Voluntary Arrangement (CVA) and put forward a Proposal to creditors to make repayments over a period of time. This will allow the Company to continue to trade and make contributions from surplus profits.
If the company is still viable and there is a better return to creditors than if the Company were placed into Compulsory Liquidation, then provided that more than 75% of creditors in value accept the Proposal, the petition eventually will be dismissed.
• If there are sufficient grounds, you may consider an application to place the Company into Administration.
As a winding up petition has been presented, a formal Court hearing will assess the basis of the Administration and provided that the objectives can be achieved, the Administration Order will be made and the winding up petition will be dismissed.