For insolvent companies, being served a winding up petition is a very real possibility. The procedure can be used by creditors as a means of trying to recover a debt they are owed. Being on the receiving end of a winding up petition can be catastrophic for a company, and stressful for the directors.
If a winding up petition is allowed to run its course, it will result in the closing of a company regardless of its directors’ wishes. Given the severity of this procedure, directors would be wise to understand how it works, especially if their company is facing insolvency.
In this article, Clarke Bell will discuss the winding up petition procedure, how it impacts limited companies, and what you can do to prevent your company from receiving a winding up petition.
What is a winding up petition?
Winding up petitions are a legal procedure available to creditors of companies when they are owed money. If they so choose, these creditors can submit a winding up petition to the courts, which will decide whether action should be taken. If the court approves it, the company in question will be served a winding up order, beginning the process of compulsory liquidation.
Winding up petitions are not the first port of call for creditors looking to recover debts. It is a stressful and time-consuming procedure from a creditor’s perspective, one that doesn’t always result in a positive outcome. Bridges will be burned, the company in question closed, and creditors may well only receive a part of their debt for their trouble. Additionally, winding up petitions aren’t cheap, with the procedure costing upwards of £3,000. As such, creditors generally turn to a winding up petition when all other options have failed.
How does a winding up petition work?
A winding up petition has a fairly lengthy process that can take anywhere from 2-4 months. The process is broken up into several key steps that must be followed in sequence for the petition to be valid. These steps are as follows:
- The first step is for one or more creditors to sign a winding up petition, then submit it to the relevant court. For companies with a share capital in excess of £120,000, then the signatories will submit the petition to the High Court. If not, then the petition should be sent to the local court nearest the company’s registered head office.
- Once the winding up petition has been submitted, the case will be considered by the courts. If approved, the petition will be served to the company in question’s head office. This starts the winding up process in earnest, and begins a countdown to a court hearing.
- Creditors that signed the petition must publish it in the Gazette no more than seven days after the company receives the order.
- Relevant documents, such as a copy of the Gazette notice, must be filed with the appropriate court at least five days in advance of the court hearing.
- The final step of the winding up petition process is the hearing itself. In this hearing, both the petitioners and representatives of the company can speak, offering whatever evidence they may have to support their case.
There are two possible outcomes of this hearing; either the court sides with the petitioners and places the company into compulsory liquidation, or it sides with the company and allows it to remain in operation.
Can a winding up petition be reversed?
It is possible for companies to stop a winding up petition. The simplest option is to repay outstanding debts. However, for insolvent companies, this is not possible. Instead, the directors may be better off negotiating with outstanding creditors. This won’t necessarily remove the possibility of a winding up petition, but communicating with creditors can help delay a petition until you can improve your company’s finances. A Company Voluntary Arrangement (CVA) could be an option if you choose this approach.
Using a CVL to prevent a winding up petition
A Creditors’ Voluntary Liquidation is a voluntary insolvency procedure that allows directors to close their companies of their own accord. The procedure can be invaluable to insolvent companies, offering several key benefits that allow directors to reach a positive outcome.
As a voluntary procedure, directors of insolvent companies may appoint an insolvency practitioner of their choice to the role of liquidator. This liquidator will be responsible for the execution of the CVL, and will take control over the company to do so. The liquidator will identify any company assets, dispose of them for as high a value as possible, and distribute the proceeds amongst outstanding creditors. Once all funds have been dispersed, the company will be wound up and removed from the Companies House register. Any debts that remain after this point will be written off, assuming none are secured by personal guarantees.
While CVLs are excellent tools for closing insolvent companies, they offer more than just an efficient method of voluntary liquidation. One of the main benefits is that the procedure is voluntary. This demonstrates the directors’ willingness to act in the interests of their company’s creditors. This makes it difficult for accusations of misconduct to stick, and provides a strong defence should they ever make it to the courts.
Closing your company with a CVL is often the best option if you believe your creditors are planning to serve a winding up petition and you cannot pay the debts.
Let Clarke Bell help you
If your company has been served a winding up petition, or you think one is on the way, you should seek professional help now.
Clarke Bell can help you find the best option available to you and your situation. Our advice is free.
If you appoint us to liquidate your company, our CVL fee is from just £1,995 +VAT.
We have been helping company directors deal with debt problems like this since 1994. Our team is both professional and friendly, and are ready to help you.
A lot of directors tell us that they wish they had dealt with their problems sooner than they eventually did.
Give us a call now, sort out your company’s debt problems, and have a fresh start.