Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.
It is possible to stop a winding up petition being served against your business if you act quickly.
Here, we’ll explore the steps you can take to prevent a winding up petition from becoming a winding up order and the eventual liquidation of your company.
A winding up petition is the most serious action a creditor can take to recover money owed. If successful, it will result in the compulsory liquidation of the indebted company.
Here is a quick breakdown of the winding up petition process:
You can find out whether a company you’re working with has been issued with a winding up petition by looking in the Gazette, visiting Companies Court, asking your lawyer, or subscribing to receive the relevant information.
Do not panic. Many believe that a winding up petition is the end of a company. However, there are options available to stop your company from being wound up.
It is always best to seek expert advice from an insolvency practitioner (IP) to ensure everything goes smoothly. Try to do this as early as possible so they can assess your situation and act accordingly.
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:
1. Communicate with your creditors
When it comes to creditors, the most important thing is communication. If your company is experiencing cash flow difficulties or needs to arrange new payment terms, tell your creditors as soon as you can. This is really important as they might offer you a repayment plan.
For example, HMRC is one of the UK’s most prominent creditors. It offers Time to Pay Arrangements for companies with cash flow issues. However, it only offers these to companies who ask for them, so make your request as soon as you can.
Communicating with your creditors will help put their minds at rest, keep you in their favour and prevent the situation from escalating further.
2. Do not ignore their requests for payment
Making regular requests for payment will irritate creditors and push them to seek more serious recovery methods.
Often, a creditor will serve a statutory demand to try to provoke payment. This gives you 21 days to:
A creditor may also try to use a CCJ to recover debt. You will have 14 days to respond to the court either with a full payment plan or evidence that disputes the claim. If you fail to do either of these, you’ll have a CCJ on your company’s credit report for six years which will affect its access to affordable finance.
In both these situations, it’s best to take one of the options we’ve outlined. This will help you stop a winding up petition before its even begun.
You should act before your creditors advertise the winding up petition.
Once it becomes public knowledge, your bank may freeze your accounts and you’ll have to cease trading. Other creditors may join the petition and this announcement could damage your reputation.
Pay the creditor(s) in full
If you can, pay the full amount you owe to the creditor(s) who issued the petition. You may also be expected to pay the costs of bringing the petition to court (approximately £2,000 including solicitor’s fees).
To help with your payments, find out if your company is eligible for alternative funding including invoice factoring or asset-based lending. This will help you pay your debt in full and maintain business operations.
Dispute the debt
At this stage, you can inform the court that you disagree with the petition. This could be because you think the:
A legitimate dispute could allow you to apply for an injunction to postpone the advert, or even remove the winding up petition from the court’s records.
You must have evidence to back these claims up, and you will require assistance from a specialist solicitor.
If you try to dispute the debt with insufficient evidence or mislead the court, you may face severe consequences.
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.
At this stage, you could also consider voluntary liquidation. This will give you time to prepare to handle obligations such as personal guarantees, redundancies and lease terminations.
It may also put you in a better light when it comes to the liquidator’s investigation later. After all, if a director is found to have acted inappropriately it may result in their disqualification or being made liable for company debts.
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 one of the most common methods used to stop winding up petitions.
You could also try an informal financial arrangement. However, this is not legally binding and may cause you difficulty if you default on payments.
Both of these options are useful but may not necessarily stop a winding up petition. If you arrange payment terms with one creditor (or a group of creditors), another may come forward and ‘take over’ the petition to recover their own debts.
Therefore, you must try to get the petition withdrawn from the court records, whatever option you choose to take.
Request an adjournment
Use a separate application to request to adjourn or cancel the hearing. You will need to file a statement explaining the reasoning behind this. You could suggest you need time for:
Most of the options from the previous stage are still available once the petition has been advertised. However, they are far less likely to be accepted. You can still try:
You can also apply for a Validation Order. While a Validation Order does not stop the winding up process, it does unfreeze the company’s bank accounts. This will allow you to implement the other steps in this section and perhaps even release cash flow to pay off your debt in full.
To stop the winding up petition from becoming a winding up order, you must prove that your company is not insolvent and can pay its creditor(s).
You’ll need substantial evidence to support this and the assistance from an IP or legal professional.
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:
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 to prevent serious ramifications.
If you’d like advice about a winding up petition or compulsory liquidation, get in touch with our Company Rescue experts today.
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"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director. If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020. Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly. I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim. This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork". It isn't worth the risk. If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP) or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk
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