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What is the Winding up Petition Process?
The winding up petition process usually follows these six stages:
1. Winding up Petition presented by Creditor or HMRC
A winding up petition can be served at the Registered Office address of the company or alternatively hand delivered to any director, company secretary or shareholder of the Company. A creditor is able to petition the winding up of a company if they are owed more than £750.
Ordinarily, a winding up petition will have been preceded by a statutory demand which has not been satisfied or alternatively the creditor will have obtained a county court judgement against your company.
A processing server may be instructed by your creditor’s solicitor to serve the document, as from their perspective it is important that the proper insolvency rules have been complied with in relation to serving the petition.
In some circumstances, when directors are unable to be located, the processing server may attach the winding up petition on the door of the registered office address.
Once the winding up petition has been served, it is important as directors you call us as there are ramifications for you to consider and possible alternatives in order to prevent the winding up petition proceeding which will ultimately lead to your Company going into Compulsory Liquidation.
Once a winding up petition has been presented the assets of the company cannot be sold or transferred
2. Choose Your Options within 7 Days
It is important that directors’ at this stage recognise the serious ramifications of the winding up petition as potentially they could face having their Company taken away from them within a few months.
Once the petition has been served, the company will have a grace period of 7 business days when the creditor cannot advertise the petition. This is your time as a director to deal promptly with the matter in hand.
a) Doing Nothing will Likely Mean Compulsory Liquidation Process Begins
Typically, the worst thing to do in this situation is to Do Nothing. Often we find that directors have a syndrome of burying their heads in the sand, as they do not know who to approach for specific insolvency advice.
If the winding up petition is simply left unaddressed and the directors continue to trade without recourse, then the Company will eventually end up in Compulsory Liquidation. From this point, the Official Receiver will investigate the position of the Directors’ at the time that the Winding up Petition was presented and if payments or assets have been transferred following the presentation, the directors’ may be personally liable for any additional debts incurred.
b) Pay the Debt
You may be in a position to pay the debt in full, pursue an informal arrangement with the petitioning creditor, or dispute the debt with the creditor.
In any of these given scenarios, it is vital that you engage with the creditor or their solicitors immediately in order to prevent the matter escalating beyond the 7 day period when they could advertise the petition.
c) Stopping a Petition Involves an Injunction to Restrain the Presentation or Advertisement of the Winding up Petition
An application can be made for an injunction restraining a creditor from presenting a petition for the winding up of the Company or advertising the petition in the Gazette.
The application will have to be made to court and you will need to instruct solicitors which will be costly.
d) Creditors Voluntary Liquidation (CVL)
It is vital that you seek professional advice and the recommendation will be that it is inevitable that the company is insolvent and that a formal insolvency process is required.
If you decide that you are willing to pay the petitioning creditor costs you may be able to obtain their agreement for the company to enter into a voluntary liquidation and the benefit is that you will have more control over the liquidation process.
We deal with a number of petitions from creditors and HMRC that are willing to allow a CVL to continue on the basis that their costs are paid.
e) Company Voluntary Arrangement (CVA)
Once you have had the opportunity to consult with one our insolvency practitioners, it may appear from cash flow forecasts that there is a viable business and that a CVA might be a suitable solution.
Depending on the attitude of the petitioning creditor, they may consider that a CVA will indeed ensure that they get a better return than if the Company were to enter into Liquidation.
In the event that company assets are jeopardised by the threat of the winding up petition, you may consider as directors to make an application to court to place the Company into Administration.
This maybe a costly process as the court fees will be excessive and the judge will need to consider that an Administration will achieve a better outcome for creditors as a whole.
3. The Winding up Petition Is Advertised
The next step once the petition is issued to the court is in relation to the matter in which the petition is advertised.
The creditor must allow at least 7 clear business days after presenting the winding up petition to place the advert in the Gazette. Similarly, the petition must be advertised at least 7 days before the hearing date.
The petitioning creditor will either advertise the petition in the London, Belfast or Edinburgh Gazette depending on the company’s location.
Other creditors will shortly become aware of the petition as credit agencies will begin to pick up the advertising from the Gazette and they will inform your suppliers that credit terms have been terminated with you.
Do not be alarmed that you begin to receive various phone calls from business advisors as your company name will be published in various lists. They will appear to be acting in your interests, however, more often than not, they are not qualified insolvency practitioners. Therefore, you should be conscious of the advice that they are providing and whether it is regulated or not.
4. Company Bank Account Becomes Frozen
The company’s bank account will become frozen as the bank monitor on a daily basis the winding up advertisements placed in the Gazette. The banks have a responsibility to ensure that the insolvent company does not dispose of the funds in the company bank account or increase the liability to creditors.
Whilst monies are prevented from leaving the company bank account, customers may sometimes still be able to pay funds into the bank account.
Obviously, the freezing of the bank account will be detrimental to trade as you will be unable to pay suppliers, employees and run your business.
If your bank account has been frozen as a result of a winding up petition, whilst it may be too late to avoid liquidation, there is still an opportunity to consider other forms of insolvency which may achieve a better result overall.
5. Adjourned Hearing
At the first hearing, it may be possible to obtain an adjourned hearing for the judge to consider further evidence to prevent the winding up order being granted.
However, this will be costly as you would need to fund the solicitor personally to represent the company, bearing in mind that the company bank account is frozen and unable to pay for the legal costs.
If you are successful, the judge may rule in your favour, however the damage to your business might be irreversible as the company has been unable to trade for perhaps several months. Therefore, it would need some form of insolvency solution to rectify the position.
6. Winding up Order Is Issued
If the winding up order is passed the Company will automatically be placed into Compulsory Liquidation which will bring an end to the business. There is nothing that you as the Company director can do, to reverse this winding up order.
The Official Receiver (OR) will be appointed as Liquidator to the company and will have a duty to investigate into the financial affairs of the company. The OR will have the power to consider your conduct as a director and recommend whether disqualification as director maybe required. In addition, the OR may consider any wrongful trading or other misfeasance claims against the former directors which you may be personally liable for.
Act Promptly Before the Winding up Petition Process has Progressed
If a winding up petition has been served against your limited company, this is a very serious position and time is of the essence. Feel free to call Simon Renshaw on 020 8444 2000 or email firstname.lastname@example.org.
Written by: Simon Renshaw