How To Stop A Winding Up Petition?
Threat of a winding up petition, also know as compulsory liquidation, is serious, and it’s imperative business owners act without delay.
Compulsory liquidation is often the result of frustrated creditors, due unpaid debts, and if a company is proven to owe monies that are due for payment but cannot pay, a court will usually always support liquidation.
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. Therefore, it’s essential that directors act swiftly to ensure their company isn’t forcibly wound up.
What’s a Winding Up Petition?
Winding up petitions often, but not always, follow service of a statutory demand which then either goes unanswered, isn’t paid in full and where the debtor company doesnt take steps to protect and improve its position.
A winding up petition is when creditors take legal action to force a company into mandatory liquidation. The creditor that’s filed the winding up petition wants to force the business into court-ordered liquidation.
Creditors typically file winding up petitions when a company fails to pay its debts. If the court grants the petition to go ahead, the business will be forced to ‘wind up’ and the remaining assets will be distributed amongst creditors. Further, the company’s directors’ conduct will be investigated by a court-appointed liquidator which may lead to a mandate for contribution to the company’s assets.
What To Do If You Receive a Winding Up Petition
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.
Option 1: Pay Money Owed in Full
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.
Option 2: Agree to Payment Plan
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.
Option 3: Dispute The Winding Up Petition
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.
Option 4: Demonstrate That the Debt is in Dispute
In some situations, it is possible to deflect a winding up petition if the company can demonstrate that the debt is legitimately under dispute.
Option 5: Put Company into Administration
Another alternative is to put the company into administration, which can protect it from creditors. Administration allows breathing space to reorganise the business.
The Margin For Error is Small — Helix Law Can Help
We act for both business owners and creditors in circumstances where it alleged companies cannot pay and are insolvent. We can both pursue liquidations, and defend them.
If your business has been issued a winding up petition, you must act immediately. The timeframe to negotiate or challenge a petition is small, and it’s easy to miss key deadlines that leave little, to no, room for preventative steps.
If you are a creditor looking to wind up a company, the process is complex and pursuing a debtor into insolvency might not be your only or best option. There are multiple errors that may invalidate your claim, expose you to a cost order, or give debtors time to distribute assets.
If you have received a Statutory Demand or a winding up petition we can assist you. If you are a creditor considering this option we are also well placed to help. In both instances, our advice is strategic and direct. We will tell you whether the route you are considering is likely to achieve what you need, and what the risks are if it does not. Our commercial litigation team handle these disputes nationally in a variety of different contexts.
If you need urgent advice on a winding up petition or are considering issuing one, contact Helix Law for a no-cost, no-obligation initial conversation. We’d love to help you.