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

What should I do if a winding up petition is issued against my company?

A winding up petition is the start of a legal process whereby a creditor asks the court to compulsorily liquidate the debtor company by way of a winding up order.  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 to stop the petition, then your company will cease to exist in a few months. It is always best to seek expert advice from an insolvency practitioner. Try to do this as early as possible so they can assess your situation and act accordingly.

How to stop the winding up petition resulting in the liquidation of your company

There are several options available to you throughout the winding up process.

However, the method you use to stop a winding up petition depends on where you are in these proceedings. We’ll outline them here:

The main options available to you are;

• Pay the debt
• Agree a payment plan with the creditor
• Dispute the debt
• Prove that you are not actually insolvent and the winding up petition is an abuse of process and is being used to collect debts.
• Enter into a formal insolvency process such as administration or company voluntary arrangement (CVA)

Paying the debt.

Obviously if you pay the debt in a timely manner then creditor should withdraw the petition, or it may be dismissed by the court.  This will stop the winding up process.

Agree a payment plan with the creditor.

If you can’t pay the debt in full then 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.  We can advise on this. 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, then it is less likely that a creditor will issue a petition.

Dispute or challenge the debt

If a creditor is threatening a winding up petition, given the potential damage that it can do, 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. A form is available from the Insolvency Service website. It will normally need to be supported by a witness statement from either a director or an employee of the company.

If the petition has already been served on your company, then you will need to;

File a Witness Statement: Submit a witness statement to oppose the petition at least five business days before the hearing (Rule 4.18(1), Insolvency Rules).

Provide Evidence: Provide a copy of the evidence to the petitioning creditor as soon as reasonably practicable (Rule 4.18(2), Insolvency Rules).

Sometimes it can be shown that the debt is an abuse of process.  Ali Akram from Lexlaw has a good article on his website about this.  You can read it here

If you try to dispute the debt with insufficient evidence or mislead the court, you may face severe consequences.

If the company’s bankers are aware of the petition, then they may well freeze the company’s account to stop any disposition of assets.  A validation order may be required that will unfreeze the account and allow the company to continue to trade.

Enter Formal Insolvency Procedures

Enter administration

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 either be sold or refinanced so the business can continue.  This will stop any winding up petition from being served on the company.

Negotiate a Company Voluntary Arrangement (CVA)

A CVA is a repayment plan agreed between your company and at least 75% of your creditors. It is binding on all unsecured creditors so if any have served a winding up petition or thinking of doing so are unable to proceed with the court action.  The winding up petition will be dismissed by the court.

You could also try an informal financial arrangement. However, this is not legally binding and may cause you difficulty if you default on payments.

Go Into Liquidation

This very rarely happens unless the creditor agrees to withdraw the petition. Once they have served it why would they withdraw it and allow the directors to chose a liquidator.  The creditor will be able to appoint their own liquidator at a creditors meeting but only if they hold the majority of the debt.

Do I have any options after the winding up order has been issued?

The winding up order issued at the hearing starts the compulsory liquidation process. You will have to work quickly if you want to pause or stop the winding up proceedings at this stage.

You can, however, apply for the following actions to stop your company being liquidated:

• Rescission order – Demonstrate that the company can pay or that you are unable to attend the hearing, so the judgement is rescinded, and a new hearing date is set
• Administration order – Appoint an IP who can effectively override the winding up order by moving the company into administration. The IP will be appointed as the administrator.
• 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.