What is a Winding Up Petition and How Does the Process Work?January 14, 2020
There is only so long you can delay creditors. If you’ve been unable to pay your debts, then the best option is to come to an arrangement with your creditors.
If this fails, then your creditors have the right to start a winding up petition.
This could have dire consequences. If you can't quickly pay up or lodge a solid defence, your business could be over.
We're going to explain what a winding-up petition is and let you know exactly how the process works.
What is a winding up petition?
A winding up petition is a petition to the court to close your company down, leaving your assets to be sold off to repay your debt. It is seen as a last resort for a creditor after having obtained a court decree to claim their money back.
If a company owes a creditor £750 or more, the creditor can issue this petition in court.
There will be a hearing date on the petition, which the creditor serves to the registered office of the company that owes the debt.
If the court hearing is in favour of the creditors, the in-debt company will be liquidated, leaving the assets to be sold off to pay the creditors.
It’s important to remember that a winding up petition is the nuclear option for a creditor and won't come out of nowhere - they'll give you plenty of chances to repay before this.
Receiving a petition puts the existence of your company in peril - and you need to act fast.
What happens when a winding up order is issued?
The winding-up petition is relatively simple. If you've received one, it's worth seeking immediate financial advice from our experts to guide you through the process.
Here's a quick rundown of exactly what happens:
- Prior to lodging a petition, the creditor will have successfully obtained a decree against the company which shows how much debt is owed. At this point, the company will be served with a demand for payment by the creditor, with a time limit. The company should either look at seeking an administration order or a Company Voluntary Arrangement. This is where the court orders you to only pay what you can afford to your creditors.
- If this time expires without full payment, the creditor will lodge a winding up petition which will be delivered to the company’s registered address. The company either must pay what's due or oppose the petition.
- If the company decides to oppose it and can make an excellent case to the court, then a winding up order won't be issued. However, they may need to seek an injunction to stop public advertisement. If the company neglects to do this, the winding-up petition will be advertised immediately in the Edinburgh Gazette (or the London Gazette for England/Wales). This means the banks will become aware and could freeze your accounts.
- You should be aware that even if the petitioning creditor backs down if you owe money to multiple creditors, they are allowed to “take over”, “adopt” or “attach” to the petition.
- If the company is unable to put a hold on proceedings, the winding-up order will be approved, and the company will fold.
How long does a winding-up petition take?
It's worth noting that in England and Wales, you have a period of time (7 days) before the petition is advertised in the Gazette.
This gives the company a bit of time as the banks tend to only find out about the winding-up when it's advertised in the Gazette. When they do find out, they'll typically freeze company accounts.
In Scotland, however, we're not so lucky. The 7-day rule doesn't exist here! As soon as the winding-up petition is filed, it's 'walled' - meaning that it's published in the Gazette for all to see. This means that your company bank accounts could be frozen instantly.
What are the consequences of receiving a winding-up petition?
After the petition has been advertised, you'll have eight days before the winding up hearing. If you’re unable to fully pay the amount owed by the time of the hearing, then the company will end up liquidating. There’s no defence at this point and no way out other than paying up.
During the 8 days prior to the winding up hearing, your company's bank accounts could be frozen. In this case, the company directors would need to use their personal funds to replace the normal company cash flow to do the following:
- Settle fees for legal action.
- Pay suppliers directly so normal business can resume.
- Fund a proposal for a Company Voluntary Arrangement.
Clearly, the company is in a tight spot. Proposing a CVA is your best hope to prevent your business from closing. This is an arrangement with creditors to repay money owed.
Unfortunately, it's unusual for this to be successful. If the creditor were open to this option, likely, they wouldn't have initiated a WUP - remember, it's typically a last resort.
If you can’t come to an arrangement and don’t pay what’s due, a liquidator will be appointed to put your company through compulsory liquidation (compulsory winding up).
This can be a time consuming and frustrating process for both the company involved and the petitioning creditor. Unfortunately, it can take a long time for the company’s assets to be sold off.
A successful winding-up petition means the end of your business. Fortunately, it doesn't come out of the blue.
If you're seeing warning signs from your creditors, and notice that you may be on the verge of running an insolvent company, then know that a winding-up petition could be imminent.
It's crucial that you're proactive about this and seek financial legal advice.
Our licensed insolvency practitioners are highly experienced at handling winding up petitions and will offer you the best advice possible for your situation. To get in touch, contact us by phone on 0141 280 3221 or email us at email@example.com