What is a winding up order?

A winding up order is a legal order that requires a company to be closed down. The order is made by the court and is served on the company. It means that the company’s affairs will be wound up and it will no longer trade or carry on business.

The company’s assets will be sold and the proceeds used to pay off its debts. Any money left over will be distributed to the shareholders. If the company is unable to pay its debts, the shareholders may be liable for them.

A winding up order can only be made against a company, not an individual. If you are served with a winding up order, you should seek legal advice immediately.

The ramifications for directors are serious, this means that as a directors you must undergo investigation by the Insolvency Service.

It’s possible to challenge a winding up order, but you will need to act quickly as there is a limited time period in which to make a challenge. So what is the process for challenging them?

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Why are winding up orders granted

A winding up order is a court order that forces a company to close down and liquidate its assets. Winding up orders are typically granted when a company is unable to pay its debts. The order is made by the court after a creditor has petitioned for the company to be wound up.

Once the order is made, the company’s assets are sold off and the proceeds are used to pay off the company’s debts. Any debt that remains unpaid is then written off. Winding up orders are also sometimes granted when a company has been found to be trading unlawfully or has been involved in fraudulent activity.

In these cases, the court may order the company to be wound up in order to protect the public from being harmed by the company’s activities.

Sometimes a company might deliberately refuse to pay, but in many cases it’s difficult for directors to know how to respond and deal with the problem. Winding up petitions can come at a huge cost for creditors, so this type of action is not undertaken lightly, however.

Professional advice is always seek help and assistance for qualified insolvency practitioners if your business experiences financial difficulty. You’ll find out your best options for the company’s future, which may include entering into a formal insolvency procedure.

What happens when a winding up order is granted?

Once a winding up order has been granted, this first thing that happens is that  The Official Receiver will try to make contact with the directors of the business.

The Official Receiver is initially appointed as liquidator in cases of compulsory liquidation, but dependent on the case an independent insolvency practitioner (IP) may be appointed at a later date.

The role of the office-holder is to take control of the company, sell its assets to generate funds for creditors, and distribute these funds accordingly. Once this process has been completed, the company name will be removed from the register at Companies House and the business is closed down

Ramifications of a winding up order for directors

Ramifications for directors of a winding up order include the potential for being disqualified or held personally liable for some of the company’s debts. The liquidator will carry out an investigation into the conduct of all directors during the three years leading up to insolvency, they look for potential cases of wrongdoing or misconduct.

Their investigation includes all transactions, such as showing preference for one creditor in favour of another, selling assets at undervalue, failing to meet crown repayments and excessive director payments.

How to challenge a winding up order

If you believe that the order has been made incorrectly and you have legitimate reasons to challenge a winding up order, you have five working days to act. The only two instances where a winding up order can be challenged are:

The court didn’t have access to all the facts

If the court didn’t have access to all the relevant facts and information to make their decision, you can apply to the court to cancel or rescind the winding up order. This type of action can be appropriate if you was not able to attend the hearing for the winding up petition or you are in a position to pay the debt in full.

The winding up proceedings are ‘stayed’

Apply to ‘stay’ the liquidation, on a temporary or permanent basis, various parties can apply to do this including the liquidator, the Official Receiver, a creditor, or a shareholder.

Further information on winding up orders and challenging liquidation proceedings can be obtained by making contact with our expert team members. We’ll offer free advice you need, as well as help you make a challenge if appropriate.