When companies receive a winding-up petition, it marks the start of a process which, if not dealt with swiftly, will result in the compulsory liquidation of the company and the sale of its assets. Seeking professional advice quickly is the best way to defend against the petition and increases the chance of reaching a more favourable outcome.

What is a winding-up petition?

A winding-up petition is a formal document issued by a creditor in the court, intending to force a company to cease trading and enter compulsory liquidation. A creditor must be owed at least £750 to apply for a winding-up petition and will usually be implementing it as a last resort, having already tried to reclaim their debt via a statutory demand or bailiff action. A winding-up petition will result in a company’s bank account being frozen as soon as the bank becomes aware, and additional creditors will have the opportunity to ‘piggy-back’ and attach to the original petition. The court will set a date when the petition will be heard and considered.

You can check for a winding-up petition in the London Gazette, which publishes all petitions for England and Wales.

What do I do if I receive a winding-up petition?

If you have received a winding-up petition, or suspect one is on the way, you need to act fast if you wish to stop it. If you don’t move to stop the winding-up petition, the courts will issue a winding-up order, effectively forcing an end to trading.

Can a winding-up petition be challenged?

If a director disputes a petition and the petitioning creditor refuses to withdraw, a defence will need to be lodged in court at least five days before the hearing. The defence will need to include detailed reasons for the dispute and any supporting evidence. If the company agrees with part of the claim, they need to deal with it separately and ideally pay it in full, with costs, before the hearing.

If an application to withdraw the petition is refused, and the directors feel they have bona fide reasons for the dismissal, it is possible to apply for a court injunction. An injunction prevents the petition from being advertised in the London Gazette. If the petition is advertised, the company bank accounts will freeze, and other creditors can find out about the hearing.

If a defence is submitted before the first hearing, the Judge will listen to the defence and assess whether to adjourn the hearing. Doing so gives the two parties a chance to resolve the dispute before the second hearing. If the dispute has not been resolved before the hearing, then the directors can choose to defend the winding-up petition.

London Gazette and Validation Orders

Once the petition has been served, within seven days the petition is advertised in the London Gazette, informing creditors of the company’s insolvent position. This allows other creditors to ‘piggy-back’ the petition, or start a new one if the original creditor is paid.

All company bank accounts will be frozen, once their bank knows that a petition has been served. Afterwards, the petition is advertised in the Gazette. If the company needs to make payments from any of the frozen bank accounts, you must apply for a Validation Order.

The Validation Order application should be made to the court in which the petition is being heard. It also needs to be served on the petitioning creditor. The application will need to include a cash flow forecast, a statement of affairs and a proposed payments list including an explanation of why the payments should be paid. This application needs to convince the court that making payments will benefit both the creditors and the company.

What happens if I do nothing?

If a creditor has grown tired of trying to recover a debt amicably, and is threatening to, or has already issued a winding-up petition, failure to act will most likely result in the courts issuing a winding-up order.

What is a winding-up order?

A winding-up order is the next stage of the winding-up procedure. It is a court order placing your company into compulsory liquidation. If a winding-up order is made, a liquidator will be appointed by the court, selling all company assets, and distributing any proceeds to creditors.

Compulsory liquidation

Compulsory liquidation is the process which follows a winding-up order. The sale of assets is followed by the closure of the company, then an investigation into the director’s conduct and company practices.

The official receiver will become liquidator, but they may appoint an insolvency practitioner to act as one. The directors will not be able to nominate their preferred liquidator unless they are a creditor of the company. The official receiver must investigate the cause of the company’s failure and the directors’ actions. The company will be forced to stop trading, staff will be made redundant, and the assets (if there are any) will be sold.

Compulsory liquidation is often regarded the least favourable insolvency process, as there are potentially higher fees, lower returns, and the removal of the opportunity for an orderly cessation of trade and a possible restart. That said, in some circumstances, it might be best to allow the petition to run its course and let the company enter compulsory liquidation. Alternatively, if the directors would prefer to nominate their own liquidator for a Creditors Voluntary Liquidation (CVL), this can be done quickly if the petition has only been threatened. If a petition has been issued, the permission of the petitioning creditor is usually required.

I have a winding-up petition. How can I save my company?

If the core business is viable, but overwhelming debts have made it unworkable, there are several rescue alternatives available. The amount of time the company has before the petition is issued will dictate which of these options are feasible.

Restructure your business

You can apply for administration and pre-pack administration via the courts. We will make the application as part of the process after the winding-up petition.

If the core business structure is solid, pre-pack administration can also help towards rescuing your business. The process allows you to buy back the business’ assets and restart in a new limited company, unburdened by the old company’s debts.

Repay your debt in affordable instalments

A Company Voluntary Arrangement (CVA) is a formal repayment arrangement which allows companies to repay their debts in affordable monthly instalments over five years. The petition fee and solicitor costs paid by the creditor will usually need to be repaid, and the creditor may request some provisos before dropping the petition. This process would enable you to keep the business running and pool creditor debts to be paid off.

Close your company, and walk away

Creditors Voluntary Liquidation (CVL) is for where continuation of the business isn’t practical, and it would be better off closing its doors. Liquidation is only available if the petitioning creditor agrees to drop the petition — petitioning costs will usually need paying, and the creditor may request some provisos before doing so. A CVL will allow you to appoint your own insolvency practitioner during the liquidation.

It is essential that the petitioning creditor is not paid off without conducting a financial and business review, as well as receiving some professional advice about the company’s options. Paying off the petitioning creditor does not automatically mean the petition is dismissed. If another creditor becomes aware of the petition, they will be able to ‘take over’, ‘adopt’ or ‘attach to’ it when the other creditor drops it. The attaching creditor would need paying to have the petition dismissed.

How we can help rescue your company from a winding-up petition

If you’re aware that your company is struggling, acting quickly can open opportunities for rescue.

Discuss the options

If you want to rescue the company, it is always better to do this when the petition has only been threatened. Once issued, your options are limited and more complex to implement. However, whether a winding-up petition has been issued, or just threatened, it’s crucial that you get professional advice quickly. The first step is to get in touch with one of our initial advisors, who will discuss your company’s financial position and the options available. This will be done initially via telephone, with a more in-depth assessment being conducted in a free face to face consultation later. During this meeting, we can give you an idea of how viable the future of the company is and help decide an appropriate course of action.

Instruct us to work for you formally

When a decision is made to have us act on your behalf, the directors will need to do this by board resolution. We can supply the required documentation if you are unsure of how to do this.

Implement the rescue plan

Once instructed, our professional team will work with you to formulate a plan of action that will best suit your aims and objectives. The options available will depend on what stage the winding-up petition is at (whether it has been threatened or issued). There are many more options available when the petition has only been threatened, so directors must seek help at the earliest opportunity.

More ways to stop a winding-up petition

In summary

Winding-up petitions are a serious matter which shouldn’t be ignored. If you are being threatened with a winding-up petition, it is better to act before the threat is actioned. Otherwise, it may escalate into a situation where all control is taken out your hands as a director. Contacting us regarding your debts before a winding-up petition is enforced against you opens the possibility of other routes forward for the business, such as administration, a CVL or a CVA.

How we can help

We can assess the situation of your company and go through the available options open to you and their appropriateness for your circumstances. Our advisors are friendly, empathetic, and guided by heavily regulated insolvency guidelines to ensure we reach the best possible outcome for you and your creditors. Get in touch today for a free chat with our advisors. All initial consultations are given on a no-fee, no-obligation basis.

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