Receiving a winding up petition against your limited company can be an alarming and daunting situation. It signifies that a creditor is seeking to force your company into compulsory liquidation, potentially leading to the closure of your business.
However, it is crucial to remain calm and take immediate action to address the situation.
By understanding the steps to navigate this challenging process, seeking professional advice, and exploring possible alternatives, you can potentially save your company from liquidation and work towards resolving the underlying financial issues
What happens once a winding up petition is served on me?
Once a winding up petition is served on you, it initiates a legal process that can have serious consequences for your limited company.
Here’s what typically happens once you receive a winding up petition procedure:
- Receipt of the petition: Upon receiving the winding up petition, it is essential to act swiftly and responsibly. Do not ignore or delay addressing the situation, as it can escalate the legal proceedings against your company.
- Court hearing: A court hearing is scheduled to review the petition and determine whether or not to proceed with winding up your company. The hearing is usually set around 7 to 14 days from the date of the petition being served. During this period, it is crucial to gather relevant information and seek professional advice to prepare a robust defense.
- Communication with creditors: It is advisable to engage with the petitioner or their legal representatives to understand the grounds for the petition and explore possible resolutions. Open lines of communication can potentially lead to negotiations and the withdrawal of the winding up petition.
- Company assets frozen: Once the winding up petition is advertised in the London Gazette, it becomes public knowledge, and your company’s bank accounts may be frozen. This is done to protect the assets of the company during the legal process.
- Appointment of a liquidator: If the court decides to wind up your company, it will appoint a liquidator. The liquidator’s role is to take control of the company’s assets, distribute them among the creditors, and close down the business.
- Directors’ duties and responsibilities: As a director, it is important to understand your duties and responsibilities during the winding up process. Failing to fulfill these obligations can have serious legal consequences.
It is crucial to seek professional advice from insolvency practitioners or solicitors experienced in company law to navigate the winding up process effectively and explore potential options to save your company.
What should I do if I receive a winding up petition?
Any company that receives a petition for winding up must take immediate action since things could get worse very quickly. Online guidelines from many advisors offer additional in-depth legal knowledge.
However, considering that the business itself may be at risk, consulting a professional consultant is nearly always a good idea.
Following the receipt of a winding up petition, the four most typical choices are, in general:
- Agree a repayment plan – If you present a convincing case for paying the debt off gradually, the creditor may agree to halt the winding-up process and refrain from publishing the petition (see below for more information on why this is crucial). It is frequently advisable to create a written agreement to prevent confusion. It can be possible to raise money through asset-based lending or invoice financing if your company has a solid foundation but is experiencing a cash flow crisis. Can you raise equity instead
- A company voluntary agreement (CVA) – All of a company’s creditors are covered by this comprehensive agreement, and they all receive partial or delayed payment. Retailers have made extensive use of CVAs in recent years to lower their post-Covid cost base. A licenced insolvency practitioner oversees the CVA talks while the company’s directors continue to run it. Creditors representing 75% of your company’s debts must approve the CVA.
- Dispute the debt in court – solely for actual disputes. It’s not an easy way to delay things, and the firm could suffer significant harm as a result.
- Put the company into administration – This not only stops business operations but also the winding up order. The assets of the company will be sold by an insolvency practitioner to pay off all of its debts.
What happens after a winding up petition?
After a winding up petition is filed, the process can progress rapidly if prompt action is not taken. Here’s what typically happens after a winding up petition:
- Advertisement in the London Gazette: Just seven business days after serving a winding up petition, a creditor can publish a notice in the London Gazette. This publication has significant implications as it leads to the company name appearing in commercial credit databases, potentially affecting its reputation. Banks usually freeze all company accounts upon seeing the advertisement, making it difficult to access funds.
- Ceasing of supply and lender reactions: Once the winding up petition becomes public knowledge, suppliers and lenders may choose to cease providing goods or services to the company. This exacerbates the company’s difficulties, making it harder to maintain normal operations.
- Application for a validation order: It is possible to apply for a “validation order” to unfreeze assets and allow the business to continue trading. However, this can be a complex process, highlighting the importance of seeking professional advice as soon as a petition is received.
- Winding up order and asset sale: If the process continues, the court may grant a winding up order in as little as 28 days. The Official Receiver is then appointed to sell all company assets and use the proceeds to repay creditors. During this phase, the actions of directors leading up to the company’s collapse are scrutinized, including the utilization of government support schemes like Bounce Back Loans or furlough payments.
Given the complexities involved, it is crucial to engage professional advisors immediately upon receiving a winding up petition to navigate the process effectively and explore potential alternatives to liquidation
Recovering from the winding up process
While the winding up process may seem challenging, many SMEs and large firms have successfully recovered from such situations during cash flow crises. Here are some avenues for recovery:
- Emergency finance and equity: Businesses facing a winding up order can explore options for emergency finance or equity investment to infuse much-needed capital. This influx of funds can help address outstanding debts and stabilize the company’s financial position.
- Company Voluntary Arrangement (CVA): A CVA is a formal agreement between a company and its creditors to repay debts over a specified period. It allows the company to continue trading while repaying creditors according to an agreed-upon plan. Successfully implementing a CVA can provide the opportunity for the business to recover and thrive.
- HMRC’s Time to Pay system: HMRC has established the Time to Pay system, offering flexible repayment options to businesses affected by cash flow challenges, including those caused by the Covid-19 pandemic. Exploring this option and engaging in dialogue with HMRC can potentially lead to more manageable repayment terms.
- Trade credit insurance: Maintaining trade credit insurance can help protect against the risk of major customers experiencing cash flow problems. If a customer fails, subject to policy terms, the company can be reimbursed for the outstanding amount. This can prevent a cash flow crisis from arising and potentially mitigate the need for a winding up petition.
By prioritising healthy cash flow management and implementing measures such as trade credit insurance, businesses can mitigate the risk of winding up petitions and navigate through financial challenges more effectively.
Frequent asked questions
These are the ways you respond to a winding up petition: 1. Repay the money owed. Pay back the money owed in full plus the creditor's costs. 2. Agree a Time to Pay Plan with the Creditor. 3. Dispute a Winding Up Petition. 4. Enter Administration. 5. Creditors Voluntary Liquidation How do you respond to a winding up petition?
Conclusion
In conclusion, receiving a winding up petition is a serious matter that requires immediate attention and professional guidance. Directors facing this situation should understand the potential consequences, the available options for resolution, and the complexities involved in the winding up process. Seeking expert advice from insolvency practitioners or solicitors experienced in company law is crucial to navigate this challenging process effectively and increase the chances of a positive outcome.
If you are a director who has received a winding up petition against your company, don’t face it alone. Take the necessary steps to protect your interests and the future of your business. We encourage you to complete our online enquiry form today to connect with experienced professionals who can provide personalized guidance and support tailored to your specific situation. By taking proactive measures and accessing the right expertise, you can maximize the chances of recovering from financial difficulties and finding a viable path forward for your company.
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.