A Winding Up Petition is usually filed in court by a disgruntled creditor who feels that liquidating your company represents his best chance of receiving payment, or at least some payment, from your company. It is the second of the typical 3-step sequence to a hostile liquidation of your company. It is an extremely serious matter and needs to be dealt with immediately. Time is of the essence here.
Step 1 Statutory Demand
In the most common course of events, a creditor who is owed at least £750 is entitled to issue a Statutory Demand on the company (or individual) that owes the debt. It costs nothing to do and does not involve court proceedings. The claimant simply completes the relevant form and serves it to the company’s registered address. That can be done by post, with proof of postage all that is required as evidence that it was served. It can, of course, be served in person or by an official process server.
The critical aspect of a Statutory Demand is that a company cannot apply to have it set aside. The company must respond within 21 days and satisfy the claimant’s demand by:
- Making payment of the full amount
- Agreeing a schedule for full repayment in instalments
- Applying to have the company voluntarily liquidated
- Applying to have the company placed into Administration
A company can apply to prevent the claimant from making a Winding Up Petition but the Statutory Demand must be responded to.
Step 2 Winding Up Petition
21 days after serving the Statutory Demand, the claimant may serve a Winding Up Petition in court. HMRC will always take this option. Unlike the Statutory Demand, this process is relatively costly. The claimant must pay the court fee and also a hefty deposit against the costs of possible liquidation, which possibly may not be recovered if/when the company dies undergo liquidation. The current costs are in the region of £2,000 and full details can be found on the Government website.
You may not be aware that the claimant has filed a Winding Up Petition until it has been served on your company. That is because the claimant will have requested a date from the court, and the court will have accepted the petition and granted a date. You will have received no formal notification of this.
All actions for Winding Up Petitions must be advertised in the London Gazette, which is printed daily and is also available online. Advertisements appear about two weeks before the court hearing. There are three significant outcomes from this advertisement:
1. The winding up hearing must proceed and there is no further opportunity to restrain it from occurring.
2. Banks are very likely to freeze all the company’s accounts, effectively paralysing it as staff and suppliers cannot be paid from company funds.
3. Other creditors will also file their claims so as to be considered, which means that any action to prevent an eventual winding up order being issued must satisfy all the represented creditors.
There are very strict guidelines for publication in The Gazette and any breach may provide an opportunity for the company to extricate itself on this occasion. An experienced insolvency practitioner will be able to guide you.
Step 3 Winding Up Order
On the day on which the Winding Up Petition is heard, the court may decide to agree with it. If so, it will immediately issue a Winding Up Order. At that point, the company no longer belongs to the owners and is no longer under the control of the directors. Control passes to the Official Receiver who is appointed by the court to liquidate the company and attempt to recover monies for the creditors.
Actions To Take When You Receive A Winding Up Petition
It is vital to engage the services of an experienced insolvency practitioner before the court hearing, and the earlier the better. We can investigate all possible avenues and also deal with the pressure from creditors and the legal process. That alone relieves you of immense stress immediately.
There are many options available should it not be possible to put together a rescue package. Talk to us in confidence to find out more.
Meanwhile, please download our free Guide To Business Recovery & Turnaround for more information about insolvency, business financing, restructuring and voluntary liquidation options.