How to stop a winding up petition
You can prevent a winding up petition from affecting your business if you act fast and take advice from legal, financial and insolvency experts.
We have extensive experience in this field, so we have compiled a comprehensive list of the steps you can take to stop a winding up petition:
What is a winding up petition?
A winding up petition is the most serious action a creditor can take to recover money owed.
A petition is made by the creditor to the High Court to have a company liquidated so they can receive payment. This results in a hearing 8-10 weeks after the petition was issued. The hearing will determine if the company will be liquidated via a winding up order.
If granted, the Official Receiver (OR) will wind up the business by liquidating assets and investigating the conduct of directors. In some cases, this could result in disqualification or a director being found personally liable for debts accrued.
How to stop a winding up petition
If you wish to stop a winding up petition, it’s best to seek expert advice from an insolvency practitioner. Do this as early as possible, so your advisors have time to assess your situation.
It's important to act quickly, as seven days after a petition is issued it is advertised in the London Gazette. This will alert your bank to your situation, as well as other creditors, and they may decide to freeze your accounts to protect their assets. At this stage, avoiding compulsory liquidation becomes significantly less likely.
You have three main options when it comes to trying to stop a winding up petition.
Option 1: Pay in full
If you are able to pay the debt, it is advisable to do so.
Assess whether you’re eligible for alternative funding methods (invoice factoring or asset-based lending) by talking to experts. Then pay the debt in full.
At this stage, voluntary liquidation should also be considered. This may help you, as a director, when it comes to the liquidation investigation.
Option 2: Formal/informal negotiations
Use an insolvency practitioner to help you come to an arrangement with the petitioning creditor.
This could be a Company Voluntary Arrangement (CVA) – which would prevent further legal action with regard to debts – or an informal payment plan.
However, paying the debt or arranging a payment plan does not mean that your company is safe from a winding up petition. Other creditors can come forward and ‘take control’ of the petition to recover their own debts. This is why it’s important to get the petition withdrawn from court records, if possible.
Option 3: Adjournment
An adjournment allows insolvency experts time to determine if a company is suitable for administration.
Whether it’s company or pre-pack, this formal insolvency procedure pauses any legal action being taken against your company while restructuring options are explored.
An adjournment could be put in place to allow a company more time to pay, or to delay the Gazette advert.
You could also argue that the winding up petition is invalid (due to being served incorrectly or misrepresentation), or that details about the debt are inaccurate. A legitimate dispute could allow you to apply for an injunction to postpone the advert. However, you would need help from a specialist solicitor.
All of these options stop a winding up petition becoming a winding up order. If the court grants the latter, you must comply with any requests from the OR. In some cases, these orders can be reversed, but this will require specialist legal advice.