A winding-up order is a matter of last resort and a petitioning creditor will have exhausted all alternatives to secure payment. It will certainly be a costly process for the creditor, as the court fees and deposit are £280 and £1,350 respectively.
In addition, the creditor will have spent several thousand pounds in legal costs and depending on the nature and complexity of the debt and whether you decide to appoint your own solicitors to defend it, will result in an expensive day out in court.
What Happens When a Winding up Order is Issued?
If your company has received a winding-up petition from a creditor or HMRC, a court hearing date will be set to hear the petition. At the hearing, the judge will consider whether the debt is actually due and establish whether the company can pay. If the company is proved to be insolvent, then a winding-up order will be made and the company will automatically be placed into Compulsory Liquidation.
The Winding up Petition Court Hearing
If you decide to oppose the petition, you will need to file in court a witness statement that will demonstrate the grounds of your opposition. A copy of this witness statement will also need to be sent to your petitioning creditor.
Every person that intends to appear at the court hearing will need to give the petitioning creditor, a notice of their intention to appear in court. In addition, the notice will need to include whether they intend to support or oppose the petition and the amount and nature of their debt.
If you are successful in dismissing the winding up petition, then the court will direct that the petitioner will need to give notice of the dismissal in the London Gazette.
What is Involved in a Winding up Order?
The judge will consider the evidence presented and if the company is deemed insolvent a winding up order will be made.
Once a winding up order has been made, the court will as soon as reasonably practicable, give notice of the fact that the company is in Liquidation to the Official Receiver.
The Official Receiver will receive the sealed copy of the winding up order and will then send it to Companies House for filing and then advertise the Liquidation in the London Gazette.
What is the Winding up Process?
(i) The Official Receiver will become the liquidator of the company and in due course will ask you to attend a meeting. You will receive a preliminary information questionnaire form (PIQC) which is a booklet containing around 50 pages of questions which you will need to answer by return.
(ii) The Official Receiver will now have the duty of investigating into the company affairs for any signs of misconduct or insolvent trading. As a director you can be personally liable for any actions deemed to be a breach of your fiduciary duty as a director.
(iii) Your powers as a director will now cease and you will have a duty to co-operate with the Official Receiver in relation to disclosing all financial information concerning the company. Failure to cooperate into the inquiries made by the Official Receiver could result in the court to issue a warrant for your arrest and the seizure of any books or paperwork belonging to the company in your possession.
(iv) The liquidator will take control over the company’s assets.
(v) All employees will automatically be dismissed by virtue of the winding up order. They will need to contact the Redundancy Payments office in order to claim for any arrears of wages, holiday pay owed, redundancy pay and pay in lieu of notice owed.
If following the presentation of the winding up petition, a creditor distrained over the company’s assets, or perhaps there was a disposal company asset, or a payment from the bank, following the winding up order, these transactions will be considered void. The Official Receiver will therefore consider pursuing remedies to undo these transactions.
How Serious is a Winding up Order?
Extremely serious. A winding up order can be a stressful time for any director and part of this anxiety is the uncertainty over an insolvency process which you cannot control. Unlike in a Creditors’ Voluntary Liquidation, where as a director, you can put forward your nomination of Liquidator, this will not happen in a Compulsory Liquidation.
The Official Receiver will be chosen by the Insolvency Service and investigate into your director’s conduct and you may face potential director disqualification proceedings.
Moreover since 1st October 2015, a new law has come into existence with the introduction of Compensation Orders which are designed to target directors once they have become disqualified. This can result in a director being made to contribute to the insolvent estate in the event that it is proven that the loss to creditors arose as a result of their misconduct as a company director.
Can a Winding up Order be Stopped or Reversed?
Although it is uncommon, it is possible for a winding up order to be reversed in a number of ways. However, this will undoubtedly be an expensive process as you will need to instruct both solicitors and other professionals to assist in this process.
i. Recession Order
Once your company has been wound up you will be sent a copy of the winding up order to the registered office address. One can apply to cancel (‘rescind’) the winding up order, if your company is able to pay the debts owed or alternatively if you could not attend the original hearing.
You will need to completed Form 7.1A and provide a witness statement which give details of the company’s assets and liabilities. Clearly, your argument may be that the court did not have all the relevant information when making the decision of the winding order and you will need to persuade a judge to reverse the decision.
You will need to apply to court within 5 business days of the order and will need to file the documentation in the same court that the winding up order was made and there is a court fee of £155.
Once you file the witness statement you will get a court hearing date (normally in 1-2 weeks’ time) and you will need to serve the copy of the application with both the Official Receiver and the petitioning creditor.
At the hearing you will need to explain to the judge why you consider that the order should be rescinded and either the Winding up will be allowed to continue or alternatively a rescindment order will be made.
ii. Stay of Proceedings
Another possible route to reverse a winding up petition would be for an application for a ‘stay of proceedings’. This is an order by the court to stop the insolvency from proceeding any further. This application can be made at any time and the court may order that the winding up be stay either permanently or for a specific period of time.
In these cases, the Official Receiver, a Liquidator, a creditor or shareholder of the company may make this application for a stay of proceedings.
iii. Administration will Rescind a Winding up Order
A Liquidator is able to make an application for an Administration Order which will have the effect of rescinding the winding up order and will allow an Administrator to be appointed over the company provided that one of the purposes of going into Administration can be achieved.
iv. Company Voluntary Arrangement
A Liquidator can propose a Company Voluntary Arrangement and if the requisite majority of 75% of more vote in favour of the Proposal then the court will make an order to stay all proceedings in connection with the winding up.
It is therefore imperative that you act fast and as soon as you receive a statutory demand or a winding up petition that you take immediate action and contact us at AABRS for professional advice. The chances of rescuing your business are increased if you take matters in to your own hands at the earliest stage.
What Happens After a Winding up Order?
Once the order has been granted, the court will appoint an Official Receiver to act as company liquidator. The OR will deal with creditors, investigate the actions of the directors in the period running up to the insolvency, or they may recommend the appointment of an insolvency practitioner.