How To Stop A Winding Up Petition?
A winding up petition triggers Section 127 of the Insolvency Act 1986, which will prevent directors from making payments from the company’s bank accounts without the permission of the Court.
. Receipt of a winding up petition requires prompt action.
If you have been issued a winding up petition, there are several ways the process can be stopped in its tracks.
One option is to pay the money owed in full. This course of action may also require paying all creditors and the petitioning creditor’s costs. Strategically, it is also possible to pay back all the money apart from a residual £9,999. This action reduces the debt below the threshold for a winding up petition if one is imminent.
You may also be able to agree on a payment plan with the creditor to pay back the money in instalments. Such a plan may involve setting up a CVA or Company Voluntary Arrangement, which can protect the company with a moratorium on its debts from creditors. A CVA also allows the directors to maintain operational control of the company.
An insolvency practitioner is usually appointed to manage a CVA and will look at the company’s financial situation in the round and create payment plans for all creditors.
If the debt is owed to HMRC, there is a system whereby the company can negotiate affordable monthly instalments based on the business’ unique financial position.
A company may dispute the winding up petition, but the time frame for this is short — just a seven-day window to apply to the Court for either a validation order or an injunction.
A validation order requires the company to give details about the payments they intend to make to clear the debt if they intend to do so. A solvent company will typically be able to gain a validation order from the court, but an insolvent company’s application will probably fail.
In some situations, it is possible to deflect a winding up petition if the company can demonstrate that the debt is legitimately under dispute.
Another alternative is to put the company into administration, which can protect it from creditors. Administration allows breathing space to reorganise the business.