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.
A winding up petition is when a creditor, who is owed more than £750, petitions the court to liquidate the company as they believe the company is insolvent. The consequences of such a petition can be very serious.
Once a petition has been served on a company, a court date is set for the hearing, usually six to eight weeks after. This immediately puts 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.
When a winding up petition has been advertised, your bank will hear about it as it is published in the London Gazette. Following this they will freeze your bank account. This is because any transaction after a winding up petition has been served can be reversed by the court. Consequently, no more payments can be made from or into the account causing 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 weaken to zero. Once the petition is advertised other creditors may “piggy back” onto it and add their claims. This results in more claims against the company. Consequently, in order to settle the petition, you then have to settle with all other creditors.
The company will have to cover any related expenses and inconveniences in dealing with the petition itself. For example, working with solicitors or having legal advice on the petition. If the petition leads to a winding up order the company will be obliged to pay the petitioner’s costs of the petition as well as the petition debt itself.
Following the advertisement of the petition in the London Gazette, your company is at risk of (in addition to those above):
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 household name, the petition will appear on court papers and reporters are known to look through the lists without fully understanding the process.
Notwithstanding the financial state of the company, the most important thing is to face up to the challenges the company has and try and engage with creditors (don’t ignore them). Most importantly you should seek independent professional advice and assistance.
In Scotland, the consequences are more serious 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 mean that the court will issue a winding up order and the company will be put into 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!
If you have had a winding up petition against you, seek expert advice. Call one of our team today on 0800 970 0539.
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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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