"We have been threatened with or served a Winding up Petition. What is a Winding Up Petition and what can we do about it? What is a winding up order"?
A: getting a threat of a petition or being "served" a petition, is often a result of directors leaving debt matters too long and creditors have got upset with the company and or the director's inaction. Free valuable advice follows... please read on or call for advice.
What is a Winding Up Petition?
This is the most serious action that can be taken against the company. Often the company has breached any trust the creditor had, payment deals have failed, cheques bounced and generally the directors have not kept their word to pay. So the creditor reacts with the “nuclear” option. Of course sometimes its not as simple as that; in some cases we have seen creditors issue malicious petitions as a means of trying to settle disputes.
If a creditor decides to wind the company up, it is usually serious in its intent to recover the money it is owed and or put the company out of business.
Generally a winding up petition (WUP) costs say £800 to £1,800 to issue. This is because the petitioner has to put money on deposit with the court as well as paying legal fees to solicitors. So it is a serious step to take.
Process of issuing a petition: A creditor asks a solicitor to "wind the debtor company up" to recover debts, or to stop the company making its debts worse. An application is made to the high court (PETITION) to ask the court to wind the company up. The process is a very legal and technical one but the main thing to remember is you must act as directors when this threat or petition is received. YOU MUST ACT quickly. Or face possible personal liability for the debts.
The Court will grant a hearing date to "hear" the petition. If the company does not respond, or if no defence is mounted, then its usually a matter of the judge issuing a WINDING UP ORDER.
What can I do if we receive a winding up petition? What should I do?
Other than pay up there are only a few other options. There may still be time to propose a Company Voluntary Arrangement if you act FAST....call Keith Steven on 07974 086779 for a chat.
Other options include taking legal advice on defending the petition (if is not an agreed debt for instance).
If the business IS VIABLE and has a good future then administration is a very powerful means to defend the company against the petition. Administration will “stay” (or stop) the winding up petition and prevent a winding up order being made and any other legal action (except with leave of court).
The administrator may propose a Company Voluntary Arrangement to protect the business and allow a repayment of debts for up to 5 years. Or it may be sold to a new company or buyers (including you as directors). See the administration guide pages here.
If you decide to pay the debt, remember it will have increased because of the costs of the plaintiff (creditor).
What if we do not agree with the debt, or owe the debt claimed?
If the action is clearly unfair or an “abuse of court process” then you MUST take legal advice immediately. You may be able to stop the petition being advertised and indeed have it rescinded if it is an "abuse". If the petition is fair and indefensible, then in due course the petition hearing will be advertised in the London Gazette and the hearing will be heard in the High Court.
We can provide advice on this and one of our legal partners can assist you rapidly.
What is a Petition Advertisement?
The creditor must have advertised the 7 days petition before the High Court Hearing. It is advertised in the London Gazette or the Edinburgh Gazette for Scottish registered companies.
The creditor must allow 7 clear days after the serving of the petition on your registered office, before the petition can be advertised. It must generally be advertised 7 days before the petition hearing date. It is possible to stop the advert if you act fast. We can advise on taking an injunction out to stop advertisement.
Case Study 2010, Winding Up Petition
If the petition has not been served at your place of business we suggest you check with your registered office quickly. We had an example in January 2010 of a company having its bank account frozen by Barclays Bank because HMRC had issued a petition against the company, which had removed from its business premises in May 2009. the petition had been served at the FORMER registered office address. But the director had forgotten to change the registered office address and had no awareness of the petition, until it was advertised in the London Gazette!
After the Petition Advertisement.
At this stage the bank will find out and they will generally FREEZE the company’s bank account to prevent any "disposition" or sale of assets at undervalue or other illegal acts by the directors. This can paralyse the company and stop it trading. Actually it is not legally necessary for the bank to freeze the bank account, but most banks tend to do this.
Why do bank's freeze accounts? Well the technical answer is under section 127(1) of the Insolvency Act 1986, if a company is wound up, any sale of the company's property, any transfer of shares made after the commencement of the winding-up is void, unless otherwise ordered by the court.
This means that it is very difficult for a company to continue to trade after a winding up petition is advertised. So banks assume that they have to freeze the accounts to stop assets being dispositioned. It is a safe step in their eyes.
Once a company has been ordered to be wound up by the court, the Official Receiver or the appointed liquidator must investigate the activities of the company directors to ensure that they have acted properly and according to their legal and fiduciary duties. If the liquidator believes that the directors are guilty of wrongful trading (see guide by clicking link) they may recommend that the directors are banned from all current and future directorships for a period of time up to 15 years.
If company directors are found guilty of continuing to allow a business to trade while they KNEW it was insolvent, they may become personally liable for the debts incurred by the company from the time they knew the business was insolvent.
Paying the debt and then obtaining a “validation order” is generally the only way to get a new account opened and the assets released by the bank. We can advise on this process which requires an application to court and obviously not insubstantial legal fees. If you need advice on a validation order contact us.
We have a very aggressive law firm ready to help your company.
If the petition is advertised and the company does not pay the debt, this will generally lead to the Official Receiver (OR) or a court appointed liquidator taking over to wind the company up. If the company has assets then an insolvency practitioner may be appointed by the OR.
How do I protect myself from personal liability if the company is wound up?
Read our guides for wrongful trading here. Director’s disqualification here and compulsory liquidation here.
Make very sure that all board and management actions have been carefully noted and the assets of the business have not been disposed of. DO THIS FROM AN EARLY STAGE OF INSOLVENCY. Make sure all management accounts, company books and records and bank statements are available and protected. Act sensibly and promptly. Don't leave it too late to get help, the faster you get help, the more KSA can do to help your company.
If the business is wound up by the Court, you MUST respond to any requests for information and records by the Official Receiver or an appointed liquidator. Failure to do so, is a criminal offence.
If you have a threat of a winding up petition ACT NOW while you still have time. Call our expert advisors who can quickly help you choose solutions. 0800 9700539, or 01289 309431.
Or call Keith Steven on 07974 086779. If you have had a petition served already, call 0800 9700539 today for advice.