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Winding-up petitions and frozen bank accounts

A winding-up petition (WUP) is one of the most severe actions a creditor can take. Used after previous attempts at debt collection have failed, a winding-up petition means a creditor is serious about recovering their money. Unless dealt with quickly, the business bank accounts are frozen, effectively forcing them to cease trading. If you want to save your business, you should do everything you can to stop a winding-up petition before your bank accounts are frozen.

The winding-up process

The winding-up process begins when your creditor issues a petition to the court for an amount larger than £750. Usually, the creditor will have tried other methods of recovering the debt they’re owed before resorting to a WUP. Seven days after the petition is issued, it can be advertised in The London Gazette, and other creditors can attach themselves to it for amounts you owe them. If your company hasn’t paid the debt after seven additional days, the petition is heard at the High Court. If approved, the winding-up petition will become a winding-up order, and the banks will freeze your company accounts.

More on the winding-up process

winding up frozen bank accounts

Consequences of a frozen bank account

A frozen bank account can be disastrous for a business. Not only will it stop employees, suppliers or utilities being paid, but there would be no access to funds for legal counsel or an insolvency practitioner to help you deal with the WUP.

An insolvent business should immediately stop trading and seek professional insolvency advice if a winding-up petition is issued.

If your company’s account is frozen, you would be responsible for any court fees, legal representation and payments for outstanding debts owed to the original petitioning creditors.

If as a director, you allow your company to continue to trade with suppliers, knowing that it won’t be able to access its accounts to pay them back, then the company would be trading whilst insolvent. In turn, you could be held personally liable for any company debts amassed in this way.

What is trading whilst insolvent?

Can I unfreeze my company bank accounts?

When a winding-up petition reaches this stage, a business has very limited options. Unless it goes down the route of obtaining a validation order from the court, which allows temporary access to funds for specific purposes, a company would not be able to utilise its accounts or have them unfrozen.

What is a validation order?

Can I continue trading after a winding-up petition?

If the business genuinely has a viable future and wishes to fight the petition, there are options available. As previously mentioned, you can apply for a validation order; a process which allows the company to temporarily unfreeze its accounts for specific purposes. The court would have to be convinced that doing so would be in the best interest of the company’s creditors. However, a validation order can only be used for one transaction and even if approved, costs a significant amount.

An insolvency practitioner may be able to negotiate a Company Voluntary Arrangement (CVA) with your creditors; a formal repayment arrangement wherein you repay what you can afford in monthly instalments. For this to happen, the insolvency practitioner (IP) would first have to go through the courts, convincing the creditors that a CVA would be the most beneficial option. If the CVA is approved, then the business bank accounts will be unfrozen.

Depending on the circumstances, entering administration could be another option for larger companies, as an opportunity to salvage the business or provide a better outcome for creditors.

More ways administration can help an insolvent company

Closing the company down

Despite your attempts and wishes to save it, the only feasible option might be to close the company down. If the directors decide to do nothing, then eventually, the business will be wound up and forced into liquidation through the court.

If you don’t wish to continue trading through your limited company, and have appropriate assets, you can explore voluntary liquidation before a winding-up petition is issued. Voluntary liquidation is generally a faster and tidier process than compulsory liquidation, means employees may be better compensated and shows the directors are willing to do the right thing.

How voluntary liquidation can help a company

In summary

A winding-up petition is the most serious action creditors can take to get their money back. Even if a business is solvent, frozen bank accounts will stop further trading and lead to much bigger problems. So, don’t ignore the threat of a winding-up petition. Whether that action is attempting to obtain a validation order, putting the company into a Company Voluntary Arrangement, administration, or even commencing a voluntary liquidation, take professional advice and act before your company is forced into compulsory liquidation.

How we can help

Whether your company is falling behind on its payments to creditors, or you’re worried that a winding-up petition could be on its way to freeze your bank accounts, speak to us today. We can help you come to the best solution going forward, whether it is helping the business to continue trading, or closing it down. Our licensed insolvency practitioners have years of experience in the industry, and our initial advisors can offer you free, impartial advice with no obligation.

Beverley Horton Christopher Callaghan Stephen Hall

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