How to stop a winding up petition

How to stop a winding up petition becoming a winding up orderWhen faced with the distressing prospect of a winding up petition, the situation demands immediate attention to stop it, as it could propel a company towards compulsory liquidation.

Issuance of a winding up petition triggers Section 127 of the Insolvency Act 1986, which strictly prohibits directors from making payments from the company’s bank accounts without the court’s permission.

These stringent constraints can gravely jeopardize the company’s viability, significantly impacting job security for employees and the ability to meet salary obligations.

Notably, creditors resort to the winding up petition as a last resort, often due to frustration with unresponsive debt repayment requests.

It is essential to remember that winding up petitions rarely arise unexpectedly, instead, they emerge when a company’s relationship with a creditor deteriorates to the point where an imminent threat of a winding up petition looms, or one has already been issued.

Ways to stop a Winding Up Petition

Here are some crucial steps to help prevent a winding up petition:

1. Repay the money owed

Repaying the money owed is a prudent strategy to avert the initiation of a winding-up petition and provides a preferable alternative to entering compulsory liquidation.

When a company faces financial distress and accumulates debts, creditors may resort to filing a winding-up petition as a means to force the company into compulsory liquidation.

By repaying the outstanding debts, the company demonstrates a commitment to addressing its financial obligations responsibly. This proactive approach not only helps maintain a positive relationship with creditors but also underscores the company’s commitment to solvency.

Opting to repay the debts rather than undergoing compulsory liquidation allows the business to retain control over its assets and operations, facilitating a smoother path to financial recovery and stability.

It is a strategic move that not only mitigates the immediate threat posed by a winding-up petition but also positions the company for a more sustainable and secure financial future.

2. Agree a Time to Pay Plan with the Creditor

Negotiating and agreeing upon a Time to Pay Plan with creditors is a constructive approach to forestall legal actions such as a winding-up petition, offering a mutually beneficial resolution for both parties involved.

This strategy involves open communication and collaboration between the indebted company and its creditors to establish a realistic timetable for debt repayment.

By engaging in transparent discussions and demonstrating a commitment to resolving financial challenges, the company can persuade creditors to refrain from pursuing legal action in the form of a winding-up petition.

This proactive measure not only provides the company with a structured framework for debt settlement but also showcases a genuine intent to meet financial obligations.

Agreeing on a Time to Pay Plan underscores the company’s dedication to resolving its financial difficulties responsibly, fostering goodwill with creditors and averting the potentially detrimental consequences of a winding-up petition in the courts.

3. Dispute a Winding Up Petition

Disputing a winding-up petition is a legal recourse that can be pursued to halt the progress of such a petition and protect a company from involuntary liquidation.

There are several valid reasons to dispute a winding-up petition, each forming a critical component of the defense strategy:

  • Disputed Debt: If the company believes that the debt claimed by the petitioner is inaccurate or unjustified, it can dispute the amount owed. This may involve presenting evidence of payments made or disputing the validity of the underlying transactions.
  • Unfair Prejudice: If the company can demonstrate that the winding-up petition was filed with unfair prejudice or malice, it may have grounds to dispute the petition. This could involve proving that the petitioner is acting in bad faith or with an ulterior motive.
  • Procedural Errors: Any procedural errors in the filing of the winding-up petition can be a legitimate basis for dispute. This might include failure to follow proper legal procedures, provide sufficient notice, or adhere to the required timelines.
  • Negotiation and Settlement: The company may propose a negotiated settlement with the petitioner, indicating a willingness to address the outstanding debt through alternative means. This demonstrates a commitment to resolving the issue without resorting to liquidation.

Successfully disputing a winding-up petition requires a comprehensive understanding of the legal grounds for dispute and a well-documented defense strategy. Companies often engage legal professionals to navigate the complexities of such disputes and protect their interests in court.

4. Apply for an Injunction 

Applying for an injunction to halt the progress of a winding-up petition and prevent its advertisement in the London Gazette is a strategic legal move that can be essential in safeguarding a company’s interests.

An injunction is sought when there are compelling reasons to believe that the winding-up petition is unwarranted or legally flawed. Companies may apply for an injunction to protect their reputation, business relationships, and overall operational stability.

By securing an injunction, the company aims to prevent the petition from being advertised in the London Gazette, a publication widely accessed by creditors and the public.

This can be crucial in averting potential damage to the company’s reputation and business relationships, as the advertisement may lead to loss of customer confidence, supplier trust, and investor support.

An injunction provides a legal mechanism to pause the winding-up process temporarily, affording the company an opportunity to present its case, negotiate with creditors, or rectify any misunderstandings before facing the severe consequences of publicised insolvency proceedings.

5. Enter Administration

Opting to enter administration can be a strategic move for a company facing a winding-up petition, offering a more favourable outcome for creditors compared to compulsory liquidation.

Administration provides a breathing space, during which a licensed insolvency practitioner takes control of the company’s affairs with the primary goal of maximising returns to creditors. This process allows for a thorough assessment of the company’s financial position and exploration of potential avenues for recovery.

Unlike compulsory liquidation, where assets are immediately sold off, administration seeks to rescue the business as a going concern. This approach often results in a better return for creditors, as the company’s assets and operations may be sold as part of a carefully managed process, generating higher value than a fire-sale scenario.

By entering administration, creditors have a chance to recoup a greater portion of their outstanding debts while contributing to the potential revival and ongoing viability of the business. This approach emphasises a more balanced and strategic resolution, addressing the interests of both the distressed company and its creditors.

6. Creditors Voluntary Liquidation

Opting for a Creditors’ Voluntary Liquidation is a proactive step that a company can take to halt a winding-up petition and address its financial challenges in a controlled manner.

In the context of a CVL, the company’s directors voluntarily decide to liquidate the business, and a licensed insolvency practitioner is appointed to oversee the process.

It’s important to note that if a winding-up petition has already been advertised, the company requires the permission of the advertising creditor to proceed with the liquidation.

This involves obtaining a consent order from the court or reaching an agreement with the creditor who initiated the petition. The CVL process allows for a more orderly distribution of the company’s assets among creditors and ensures a fair and transparent resolution.

While navigating a CVL may involve complexities, obtaining consent to proceed from the advertising creditor is a critical step to initiate the liquidation process and work towards settling the company’s outstanding debts in a structured and legally compliant manner.

7. Company Voluntary Arrangement

A Company Voluntary Arrangement serves as a constructive mechanism for a company to stave off a winding-up petition by proposing a formal agreement with its creditors to repay outstanding debts over a specified period. The CVA process allows the company to continue trading while addressing its financial difficulties.

In the context of stopping a winding-up petition, the company proposes a repayment plan to creditors, outlining how and when debts will be settled.

The success of the CVA relies on a voting process, wherein creditors must approve the proposed arrangement. For a CVA to proceed, it typically requires the support of 75% or more, in value, of the creditors who cast a vote.

Once approved, the CVA binds all creditors, including those who voted against it, providing a legally binding framework for debt repayment and protecting the company from further legal actions, such as a winding-up petition.

The voting process ensures a fair and democratic decision-making mechanism, allowing creditors to have a say in the company’s financial restructuring while facilitating a more consensual resolution to its financial challenges.

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To sum up

Navigating the complexities of a winding-up petition requires strategic and informed decisions to protect a company from involuntary liquidation.

Whether through debt repayment, negotiation, legal action, or formal insolvency procedures like administration or a Company Voluntary Arrangement, each approach involves careful consideration of the company’s financial position and its relationships with creditors.

The ultimate goal is to secure a more favourable outcome for all parties involved. If your business is facing the threat of a winding-up petition and you need professional guidance, it is crucial to seek expert advice.

For assistance and tailored solutions, contact the Business Insolvency Helpline at 01246 912052. Expert advice can provide clarity on the available options, helping your business navigate through challenging financial circumstances and working towards a more stable and sustainable future.

If you have received a winding up petition and need to get it stopped simply complete the online enquiry.

Insolvency & Restructuring Expert at Business Insolvency Helpline | + posts

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.