A winding-up petition begins the process of the compulsory liquidation of a company. This is a procedure initiated by creditors who are owed money as a means of retrieving payment.
If your company receives a winding-up petition, you will need to act quickly if you wish to stop it. To help advise on the best way forward, Clarke Bell has put together this guide on what to do if you have been issued a winding-up petition in 2021.
What is a winding-up petition?
A winding-up petition is a formal legal document that is issued by a creditor in the court. A winding-up petition aims to force a company into compulsory liquidation, meaning it will cease to trade.
For a creditor to issue a winding-up petition, they must be owed at least £750. This is usually the last resort taken after a creditor has tried to reclaim their debt. Whether by statutory demand or bailiff action.
Once the winding-up petition has been issued, the company’s bank account may be frozen. Any other creditors will also have the opportunity to join in on the winding-up petition.
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How will a winding-up petition impact you?
If the winding-up petition is successful, a licensed Insolvency Practitioner (IP) must be appointed to look into the company and its directors. Here, the IP will assess whether the situation arose due to fraudulent trading or wrongdoing.
The IP will look through the company’s transactions over the last 2 – 5 years. If they find any evidence of wrongdoing, they will report this to the Insolvency Service. This could lead to fines or director disqualification.
However, the main impact of a successful winding-up petition is that the company will be forced to liquidation and dissolve.
What to do if you receive a winding-up petition
If your company is issued with a winding-up petition, it’s best to act quickly if you wish to stop it. If you fail to take any action the court will issue the winding-up petition meaning the company will be placed into compulsory liquidation.
What is compulsory liquidation?
Just as it sounds, compulsory liquidation forces a company to close.
Following compulsory liquidation a company will:
- Cease to trade
- Its assets will be sold
- It will be dissolved and struck off the Companies House register
Can I challenge a winding-up petition?
If you act quickly there are ways to save your company or stop the winding-up petition. These include:
Creditors’ Voluntary Liquidation (CVL)
This gives company directors the option to close their business without being forced into liquidation. This is a good option for businesses that believe they would be better off closing their doors where options for business rescue seem unviable.
Creditors’ Voluntary Liquidation is initiated by the company director and as a voluntary liquidation process, means they are free to choose which Insolvency Practitioner they work with.
With this option, the director can close the company and always has the option to open another business in the future if they wish to do so.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is an option that allows company directors to come to a formal arrangement with creditors for the repayment of their debts. This lets the company pay back what they owe in affordable instalments and can last anywhere between 2 – 5 years.
A licensed Insolvency Practitioner must be appointed to create and schedule the Company Voluntary Arrangement. They will only do so if they believe your company has real chances of rescue and can restore sustainability and profitability.
To find out more about Company Voluntary Arrangement and what this would mean for your business, check out our handy guide here.
Another option is Administration. By obtaining an Administration Order and placing your company into administration, it will be given protection against any legal action.
An Insolvency Practitioner will be appointed as the administrator. Whilst they are overseeing the case, no other party can apply to wind up the company.
The Insolvency Practitioner will create a proposal to put forward to creditors outlining the best way to rescue the company and restore it to profitability. This will offer creditors a better outcome than if the company entered into liquidation.
The next steps if you have been issued a winding-up petition
If you have received a winding-up petition, or you suspect one is on the way, it’s best to act quickly.
By acting sooner than later, more options will remain open to you to stop the winding-up petition. From Creditors’ Voluntary Liquidation in which you will be able to voluntarily close your company, to routes for business turnaround including Administration or a Company Voluntary Arrangement.
However, if you fail to act, the winding-up petition will go ahead, forcing your business to close via compulsory liquidation, the most serious form of liquidation.
So, if your company has been issued a winding-up petition, or is experiencing financial distress, the next step is to talk to Clarke Bell’s team of insolvency experts to find out the best route for your business going forward.
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Winding-up petitions are serious matters, so if you are issued one, you should act quickly to avoid compulsory liquidation.
At Clarke Bell, our team of experts can advise directors on the best way forward for their company under the circumstances. We will assess your situation to find the best options available to you. To see what we can do for you today, or for some free initial insolvency advice, get in touch today