Creditor Problems – How to Deal with a Winding up Petition

Creditor problems leading to a ‘Winding up Petition’ can have major consequences for your company’s future. If you are served with a petition, it is crucial that you act immediately as even if you are able to adjourn a petition during the winding up hearing there are likely to be consequences that could deliver a mortal blow to your business.

This article will help you to understand the major elements of winding up petition, the processes involved and what you can do about it.

What is involved in a Winding up Petition?

If your company fails to pay a creditor, they can ultimately issue a ‘Winding up Petition’. As part of this process the petition is published in the London Gazette – the official public record. This means that all your company’s creditors and other interested parties may find out that a Winding up Petition has been issued, and allows them to attend the Court hearing if they so wish. This Petition will result in your company’s bank accounts being frozen, credit lines being closed and other creditors joining in the process with the petitioner to liquidate your company.

Under certain circumstances, for example if the debt is disputed, the Petition can be blocked by acting quickly by way of injunction to restrain the advertisement. There are a number of other possible courses of action open to you to stop the Winding up Petition, including entering a Company Voluntary Arrangement (CVA) to pay your company’s creditors some or all of the monies they are owed over a period of time, choosing to enter administration or appointing an Insolvency Practitioner to place the Company into Voluntary Liquidation.

It is important to understand that there are some actions such as selling any of the company’s assets, paying certain creditors and incurring further credit amongst few are not permitted and can reversed by the Court.

7 Crucial Days

After the petition has been issued, there is a period of 7 days before it is advertised. As previously stated in this article, if this happens the banks will freeze the company’s accounts and other creditors will become aware of the financial problems. It may be possible to apply for a Validation Order by the Court (under section 127 of the Insolvency Act 1986) to ‘unfreeze’ the bank accounts. However, the Court would need a substantial amount of evidence and information to assess the situation before allowing this to happen. You should seek legal advice before looking at this option.
The alternatives during the waiting period before the hearing for the Winding up Petition is to

1. Pay the creditor the full amount outstanding together with their costs for issuing the petition. If other creditors are attached to the petition, these will also need to be paid as part of the debt recovery process.
2. If the company is placed into administration, the court may not be able to issue a Winding up Order.
3. Take advice form an Independent Insolvency Practitioner to place the Company in to Creditors Voluntary Liquidation.
4. Negotiate a Company Voluntary Arrangement (CVA) with the company’s creditors. This process requires the appointment of an Insolvency Practitioner.
5. Negotiate with the creditor so that they don’t advertise the petition in The Gazette. This will help to give you time to pay the creditor before the company’s assets and bank accounts are frozen.
6. Request that the Court adjourns the hearing in order to allow time to arrange for a payment to be made to the Petitioning Creditor.
7. Dispute the debt. This step should only be taken where you have evidence that the debt claimed by the creditor is not correct and can be disputed. If you are successful in the dispute then it is likely that the Petition will be dismissed, or adjourned.

The Court Hearing

At the hearing of the Petition, the Judge will hear your creditors’ application for the Winding up of the company and will decide whether to:
1. Adjourn the hearing;
2. Dismiss the petition;
3. Grant an order to place the company into compulsory liquidation
4. Make any other order that the court may think is appropriate in the circumstances

So what are the circumstances that will lead to a successful petition? There are some basic conditions that must be met:

1. The debts is due and not disputed
2. The debt is above £750
3. The director/ company has been given every chance to pay

What Happens Next

If all the grounds have been met then following a successful petition the court will issue a Winding up Order and this will normally result in the Company being placed into Compulsory Liquidation with the Official Receiver being appointed as Liquidator.

Consequences

Finally it should be noticed that the Official Receiver has to investigate the conduct of the directors as part of the compulsory liquidation process. In serious cases where the directors are found to be liable for misconduct, they can be disqualified from acting as a director of any company for a period of two years, up to 15 years, and made subject to compensation orders.

The directors could also be made personally liable for any debt if a court decides that they acted wrongfully in some way (e.g. in breach of Companies Act duties, or by paying one creditor in preference to another). This also applies to shadow directors (those acting in the capacity of a director, although not officially appointed as such).

You Need to Act Now!

If you have received a Winding Petition the very last thing you must do is ignore it. Contact us now to get the professional advice that could save your company.

If you require additional information, or some formal advice please do not hesitate to contact me on: 01494 786 000 or 07961 116 321 or email me vee@navigatebr.com

DISCLAIMER This blog / article is for information and interest only. It is not a substitute for full professional advice, which will take account of the specific and individual circumstances surrounding your matter. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.

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T: 01494 786000 - M: 07961 116321