When a company receives a winding up petition, it is the most serious action a creditor can take to recover an unpaid debt. After the petition goes through court, a winding up order follows, which eventually forces the debtor company into a compulsory liquidation. Once the order has been issued by the court, it is very difficult for a company to stop the liquidation from happening.
Why and how would creditors apply for winding up order against my company?
The winding-up of a company is not usually something that will occur out of the blue. It will often follow months of debt chasing from creditors in the form of letters, demands as well as the possible issuing of a CCJ and/or bailiffs visiting your business premises. If all of these attempts to collect the debt fail, your creditors may apply for a winding-up order against your business.
The cost of issuing a winding-up petition is quite high so it is often used as a last resort. If creditors think there is a good chance of the debt being recovered, they may see it as an effective solution to the problem.
An application for a winding-up petition is likely to be accepted if a creditor can successfully prove that:
- The debt is unchallenged by the debtor company
- The debtor company is not willing or is unable to pay or discuss terms
- Attempts have been made, by the creditor and/or a third party working on their behalf, to recover money that is owed
What happens once the petition has been applied for?
The petition will be advertised in The London Gazette which is bad news for any company because as soon as this happens your bank and any lenders will freeze your company accounts. This will make it virtually impossible for you to trade as you will not be able to pay debts or receive any monies into your account so in effect the business will usually cease to trade.
Once the winding up petition has been issued in the High Court, a date will be set for the court to appoint a liquidator, usually the official receiver (OR), who will wind up your company. Between the issuing of the petition and the date for liquidator appointment, your company will have the opportunity to pay off the debt or defend its actions for not paying the debt.
As both hearings take place at the High Court, your company will require suitable legal representation. This additional cost can make defending your company’s actions very expensive when a petition has already been served.
What happens next for your company depends entirely on whether you pay the debt or decide to do nothing about the petition.
- If you pay off the debt to your creditor before the appointment of a liquidator, you will still have to attend the winding up hearing.
- You should be aware that once the petition has been advertised, even if you pay off the initial debt, this may not get the petition removed. It’s is possible that any other creditors you owe money too, will look to take action on the back of the winding up petition issued.
What happens if I do nothing
After receiving a winding up petition, if nothing is done, the advertisement of the company will still run in the London Gazette following the procedure. The court will grant a winding up order, which results in the company being liquidated. Once a winding up order has been issued, there is very little that anyone can do. The faster the reaction to a winding up petition, the better options a business has of avoiding facing compulsory liquidation.
When your company has been issued with a winding up petition, you are facing the most serious action a creditor can take to reclaim money they are owed. Your company will first be advertised in the London gazette, which will also result in company bank accounts being frozen. Once the winding up petition has been issued a date will be set for a court hearing. If the petition is successful, a liquidator to be appointed, who will then proceed to liquidate your company. Where possible there are ways that you can deal with debt issues with your creditors, prior to being issued with a winding up petition.
How we can help
If you are worried about the prospect of a winding up petition, or you have already received one, then it’s important to act as quickly as possible. If you believe your company still has a viable future and it can be salvaged, then you must take action to stop the winding up petition. We have the experience and expertise to help you in these situations. Operating nationwide and offering a free face-to-face consultation, we can help guide you on the best way forward.