A winding up petition is a petition that a creditor files with the courts with the intention of forcing a debtor company into compulsory liquidation. A creditor must be owed more than £750 before they are able to bring a winding up petition against the company.
The simplest way to avoid a winding up petition is to ensure that your company pays all its debts to all its creditors on time and in full. Unfortunately, if the company is going through a difficult period, or is insolvent, that is not always possible. In this case, the best thing you can do is to communicate with unpaid creditors and try to reach an agreement as to how the company can repay the outstanding debts.
If your company is insolvent, you may want to consider taking action and implementing a company rescue process such as a company voluntary arrangement or entering the company into administration. Alternatively, if it’s clear that the company will have to be liquidated, entering the company into a creditors’ voluntary liquidation gives the directors more control over the company’s dissolution and is a less public process than compulsory liquidation.
If the company is unable to pay its debts due, it is likely to be insolvent. When a company is insolvent, the directors have a duty to act in the best interests of the company’s creditors, so you should be very careful about the actions that you are taking to avoid being in breach of your director’s duties.
As an initial step, you should try and come to an agreement with each of the company’s creditors about how you can repay outstanding amounts. If you owe money to HMRC, you can negotiate a Time to Pay Arrangement where you repay the outstanding taxes over an agreed period of time. You can try to negotiate similar agreements with the company’s other creditors.
Company Voluntary Arrangement
A company voluntary arrangement is a formal process to achieve agreement between a company and its unpaid creditors. It is used to allow the insolvent company to repay its debts over an agreed period (of between 1-5 years). In order to implement a CVA, you will need the agreement of at least 75% of the company’s creditors – you’ll need to demonstrate that the company can be turned around in order to achieve agreement from the creditors.
Going into administration is a process aimed at rescuing insolvent companies. The company appoints an administrator (who is a licensed insolvency practitioner) who will manage the company during the administration with the aim of restoring it to profitability. A moratorium is placed on companies in administration, meaning that creditors cannot take legal action or issue winding up petitions against it, so it can be a powerful tool to avoid a winding up petition.
Creditors’ Voluntary Liquidation
A creditors’ voluntary liquidation is a statutory process used to liquidate an insolvent company. Instead of the company being forced into liquidation by a winding up petition, the company’s directors and shareholders voluntarily make the decision to close the company and appoint a liquidator in order to carry out this closure. It’s preferable to compulsory liquidation because it gives the directors more control over the process and is less public than compulsory liquidations.
If you’ve received a winding up petition or are being threatened with one, you should seek advice as soon as possible. At AABRS, we have significant experience with dealing with insolvent companies and can advise you about the possible steps that you can take. Call 0208 444 2000 for an initial telephone discussion.