Steps to Stop a Winding Up Petition Before It’s Too Late

A winding up petition is the start of a legal process whereby a creditor asks the court to compulsorily liquidate the debtor company. A date is set for the hearing, normally in approximately 3 months’ time. If this happens and you ignore it or don’t act quickly, your company will cease to exist. It is always best to seek expert advice from an insolvency practitioner as early as possible so they can assess your situation and act accordingly.

The Main Options to Stop a Winding Up Petition

The method you use to stop a winding up petition depends on where you are in the proceedings. The main options available to you are:

• Pay the debt.
• Agree a payment plan with the creditor.
• Dispute the debt.
• Enter into a formal insolvency process such as administration or a Company Voluntary Arrangement (CVA).

Practical Steps for Each Option

Paying the Debt or Agreeing a Payment Plan

Obviously, if you pay the debt in a timely manner, the creditor should withdraw the petition. If you can’t pay the debt in full, you can agree to pay it over a set period. HMRC will often allow you to pay any tax debts over a 6-12 month period. The important thing is to communicate with your creditors and do not offer an unrealistic payment plan. It is often a good idea to have professionally put together business forecasts that show your company will be able to make the payments. If advisors are involved, it is less likely that a creditor will issue a petition.

Disputing the Debt

If a creditor is threatening a winding up petition, it is possible to seek an injunction to restrain the presentation of the petition. The court will only grant the application if there is clear evidence of a legitimate dispute, cross claim or counterclaim. The application is made to the High Court and will need to be supported by a witness statement from a director or employee. If the petition has already been served, you will need to submit a witness statement to oppose it at least five business days before the hearing.

Sometimes it can be shown that the debt is an abuse of process. If you try to dispute the debt with insufficient evidence or mislead the court, you may face severe consequences.

Using Formal Insolvency Procedures

Entering administration, whether a pre-pack or traditional administration, halts all legal action against a company. This moratorium will stop creditors from winding the company up and gives you time to explore restructuring options. It is also possible to file a notice of intention to appoint an administrator that stops all creditors’ actions and gives the company 10 days to be sold or refinanced so the business can continue. This will stop any winding up petition from being served. A CVA is a repayment plan agreed between your company and at least 75% of your creditors. It is legally binding on all unsecured creditors, so if any have served a winding up petition they are unable to proceed. The winding up petition will then be dismissed by the court.

What to Do After a Winding Up Order

The winding up order issued at the hearing starts the compulsory liquidation process. You can apply for the following actions to pause or stop the proceedings at this stage:

• Rescission order: Demonstrate that the company can pay or that you were unable to attend the hearing, so the judgment is rescinded, and a new hearing date is set.
• Administration order: Appoint an IP who can override the winding up order by moving the company into administration.
• Stay of proceedings: Pause the winding up process by negotiating a CVA with creditors. The court can order a permanent stay of proceedings in these instances.

In conclusion, it is best to avoid a winding up petition if possible. However, if this is not possible, there are several ways you can prevent a winding up petition from liquidating your company. The key is knowing your options, seeking expert advice, and acting quickly.