To many creditors, filing a winding up petition is the last resort. Not least because, if the company who owes money is compulsorily liquidated, creditors are likely to receive a much smaller proportion of that debts owed to them than through a negotiated settlement.
If your company has been threatened with a winding up petition – or one has been filed against you already – the most important thing to do is take action. We could help you halt the process, negotiate a settlement and ultimately save your business.
We explore your options in more detail in this article. But if your situation is urgent, our licensed insolvency practitioners can give you free and confidential advice.
What is a winding up petition?
It’s important to note the difference between a winding up petition and a winding up order.
A winding up petition can be issued by a creditor to a company one that owes it money, if the debt is more than £750 and older than 21 days. The petition is heard by the Court, which will judge the facts of the case, including establishing if the debt actually exists. If it finds that it does, it will issue a winding up order against the debtor company, which kickstarts a process of compulsory liquidation. This will be under the supervision of the official receiver or a licensed insolvency practitioner.
BE AWARE: Once the winding up order has been issued, there’s little chance of your company being rescued. It’s vital that you act as soon as you receive the winding up petition from your creditor.
What should you do if you’re threatened with a winding up petition?
If a creditor company threatens you with a petition it’s vital you talk to them about coming to a negotiated settlement. A winding up petition should be the last resort, when all other options have failed.
A licensed insolvency practitioner can help you with informal arrangements and provide valuable expertise when coming to the best settlement for both you and your creditors.
Something to bear in mind is that the Courts do not consider a winding up petition as a valid way to collect debts. Using them as such is frowned upon as an ‘abuse of process’. The Court’s job is to decide if the debtor company is insolvent. It’s not the arbitrator in a dispute over debt. If the Court considers a winding up petition to be an abuse of process it will likely rule against the creditor and may even order it to pay the legal costs incurred by the other party.
What should you do if you receive a winding up petition?
At this point you (and your fellow directors) must act. There are a number of options open to you at this stage that simply won’t be later in the process.
Pay the debt if you can. If not, talk to the creditor about setting up a repayment schedule. You can file a Notice of Intention to Appoint Administrators to buy you time while you work out a repayment plan. This prevents your creditors from pursuing legal action against you, initially for 10 days (a period that can be extended). This is a legal process so you should get help from a licensed insolvency practitioner.
In some cases, we can use a formal insolvency tool like a Company Voluntary Arrangement (as mentioned above). This protects you from legal action from creditors and allows you to carry on trading. Other advantages include:
- the directors retain control of the business.
- some of the debt is written off as creditors take an agreed percentage of what they are owed paid in instalments.
- it gives you a chance to make changes to the way you operate your business.
- it takes the pressure off – you don’t have to deal with creditors on a regular basis.
- you’ll avoid a lot of bureaucratic ‘red tape’.
A formal process like a Creditors’ Voluntary Liquidation could allow you to restart your business after liquidation, without the burden of debt. A Members’ Voluntary Liquidation (MVL) might also be an option, if your company is solvent and you decide that it has no future. Liquidation is a formal measure instigated by you, not one instructed by a Court. But it’s a complicated process and it’s paramount you seek the help of a licensed insolvency practitioner to guide you through it.
If you don’t think the debt exists, or want to contest the amount, you can dispute this with your creditors. You can contest this in Court when the winding up petition is heard but it’s worth talking to your creditors before this point is reached.
The key here is to avoid a winding up order and compulsory liquidation, as this will affect your career going forward.
Impact of a winding up order
Once the Court has issued a winding up order there’s nothing that can be done to stop the company from being liquidated.
If you’re a director of a company in compulsory liquidation you’re banned for five years from forming, managing or promoting any business with the same or similar name to your liquidated company. This includes the company’s registered name and any trading names it may have used. There are exceptions to this, which we cover in our article on ‘Reusing a liquidated company name’.
Furthermore, the liquidator (a licensed insolvency practitioner or official receiver) will likely investigate your company’s records, possibly going back five years, to ensure that there was no fraudulent trading or wrongdoing by the directors.
If there’s any evidence of such this will be reported to the Insolvency Service and could lead to a fine and/or director disqualification and compensation orders.
The directors could also be made personally liable for any debt if the Court decides that they acted wrongfully in some way, for example breaking the rules that surround insolvency proceedings. A licensed insolvency practitioner will help you avoid the common errors made by directors going through an insolvency procedure.
HMRC and winding up orders
The taxman is the biggest issuer of winding up petitions in the UK and is a skilled, experienced practitioner of the process. However, HMRC has dedicated services for companies struggling to pay their tax debts. These include the ‘Time to Pay’ scheme, which gives companies extra time (usually six to 12 months) to pay off their debt to HMRC, including Corporation Tax, VAT and PAYE tax.
Through this scheme, you – or your representatives – can negotiate a Time to Pay schedule. As well as examining your company’s historic dealings with HMRC, they will look at the viability of your company to make sure you can meet your repayments. You’ll need to create a business plan to back up your negotiations. We can help you create this and give you the best chance of success.
Facing a winding up petition is about as serious as it gets for a company director. But there is help out there – if you act quickly and decisively. If your company is facing a winding up petition, we can take action immediately to stop the situation going any further.
