A winding up petition is when a creditor, who is owed more than £750, puts forward a legal notice to ask for the court to liquidate the company as they believe the company is insolvent. Many consequences can occur and unfortunately, these are negative, as follows;
The time left to help the company will be reduced.
Once a petition has been served on a company a court date is set for the hearing usually a couple of months in the future. This immediately puts a time pressure on the directors of the company to either reach a settlement with creditors, restructure their debts or raise new finance. No banks or loan providers will lend to a company with a winding up petition, so any funds will have to come from elsewhere.
Bank will freeze the account following a petition
When a winding up petition has been advertised, your bank will hear about it as it is published in the London Gazette and freeze the account. This is because any transaction after a winding up petition has been served can be reversed by the court. As a result, no more payments can be made from or into the account. This will obviously cause serious problems for the company. The bank account can be opened again but only if a validation order is obtained. In addition, the credit rating of the company will be pretty much 0. Once the petition is advertised other creditors may “piggy back” onto it and add their claims as well, so starting a snowball effect of more and more claims against the company.
Even if the winding up petition is not advertised, and perhaps even paid, it can take up a lot of management time. If the company is a well-known household the petition will appear on court papers and reporters are known to look through the lists without fully understanding the process.
What can be done to stop a petition being served in the first place?
Notwithstanding the financial state of the company the most important thing is to face up to the challenges the company faces and try and engage with creditors (don’t ignore them) and perhaps most importantly seek independent professional advice.
Scottish Winding Up Petitions
In Scotland, the consequences can be are even worse as the moment the petition is lodged it is “walled” at the court i.e. put on public display in the court offices. The banks can then read this and freeze the accounts. It is possible to get a caveat in the Sheriff’s court to stop the petition being “walled”. This would need to be done through a lawyer.
In the end there are no good outcomes if you ignore a winding up petition. Failure to pay the amounts due or to come to an arrangement will be that the company will be wound up by the court in what is termed a compulsory liquidation. That will be the end of the company and there may be personal repercussions if you have personally guaranteed any debts. So talk to your creditors and don’t bury your head in the sand!
No matter the circumstances, if you have had a winding up petition against you, seek expert advice. Call one of our team today on 0800 970 0539.
Categories: Winding up petition