The number of Winding up petitions issued by creditors against Central London companies in October was 109 compared with 78 in September. This represents an increase of 39%. In the rest of the country the rise has only been 10.5%
This is a sign that creditors are becoming more impatient with companies that owe them money, especially so in London. Now that the economy is improving perhaps we are now seeing the first signs of the cashflow problems that companies encounter as they start to pull out of recession. We are also seeing greater use of the winding up petition by HMRC as it loses patience with companies that have built up tax arrears.
A winding up petition, once issued, is the the most powerful tool that creditors of a business can use to try and reclaim a debt.
Effectively a petition is served on the company by a solicitor and a court hearing is set. Once the court hearing is concluded and the company does not pay the debt, this will generally lead to the Official Receiver (OR) or a court appointed liquidator taking over to wind the company up. If the company has assets then an insolvency practitioner may be appointed by the court.
A winding up petition (WUP) costs say upto £800 to issue PLUS £1,190 court deposit and the filing fee. So it is a serious step to take.
What is a Petition Advertisement?
The creditor must allow 7 clear days after the serving of the petition on your registered office, before the petition can be advertised in the London or Edinburgh Gazette.
If the petition is advertised in the London Gazette all the credit agencies, receive notification of these petitions. The immediate consequence of that sounds bad but the main problem is that your Bank will be notified of the petition and they will in almost every case, freeze the company’s business bank account! How can the banks do this?
Well the technical answer is under section 127(1) of the Insolvency Act 1986, if a company is wound up, any sale of the company's property, any transfer of shares made after the commencement of the winding-up is void, unless otherwise ordered by the court.
This means that it is very difficult for a company to continue to trade after a winding up petition is advertised. So banks assume that they have to freeze the accounts to stop assets being dispositioned. It is a safe step in their eyes. This will happen even if your account is in credit
What can a business do if faced with a winding up petition.
It is possible to stop the advert if the company acts quickly. Talk to the creditor and seek an adjournment of the hearing. In many cases it is HMRC who issue winding up petitions so talk to them and say you are working on a rescue plan, Also double check all the paperwork. The petition has to be served at the registered address. Another possibility is that a WUP has been issued but doing so has been an “abuse of process “ by one creditor that could damage the interests of the other creditors. This might be where a creditor happens to be a competitor, or where the debt is in fact disputed.
Once a petition is advertised you can no longer go down the path of a creditors voluntary liquidation. It is unlikely that there would be sufficient time to propose a Company voluntary arrangement, CVA. A CVA gives you the ability to stop creditor pressure and come to an agreement with your creditors to pay off what is owed over a period of 3-5 years, much like an IVA for companies both these arrangements have to be overseen by an insolvency practitioner. A voluntary liquidation (CVL) means you can close the company without having a court appointed Official Receiver looking into your behaviour as a director.
In almost all circumstances that we get involved with in the turnaround and insolvency world, when a creditor issues a winding up petition, it is simply the fault of the company’s directors and management – they fail to act and keep thinking that muddling on will save the day.
So if you are threatened with a winding up petition ACT. Visit our London office for a no obligation meeting.
Or visit our London based website. http://www.companyrescuelondon.co.uk/