The arrival of a winding up order can shock, alarm, frighten business owners so it’s crucial to understand what they mean and what can be done ….. asap
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Winding up orders are used by creditors to enforce payment of monies due by a company who fails to pay off its debts. It’s an aggressive and powerful tool and as an example in early May, the Aston Villa Former Players Association was issued with a winding-up petition by John Wade, a former AVFPA manager, for unpaid debts of over £20k.
Winding Up Petitions
Winding up petitions are usually threatened as a last resort, but can also be used as a bullying tactic. The creditor petitions the court to liquidate the business so that the debt can be repaid. Often the weapon of choice by institutional creditors, HMRC and high street banks, winding up orders represent the final stage of an expensive court process following requests to pay, a 21 day statutory demand and then a winding up petition. The cost of winding up a company isn’t cheap either with court fees/petition deposit of almost £2,000 – and this does not cover additional legal fees to defend it.
If My Business Is Threatened What Do I Do?
First check the initial criteria has been satisfied. The court will only consider creditor applications where the debt exceeds £750 and time to comply with a 21 day statutory demand has expired.
It is then imperative to act quickly.
The entire process cycle is quick and needs only 28 days to obtain the final order so careful thought and speed is of the essence. Upon receipt of the winding up petition, you have 7 days to choose to:
Pay Up In Full
Propose a company voluntary arrangement (a formal insolvency procedure offers extended payment terms over a period of years. This option avoids liquidation and lays the foundations for business recovery)
Place the company into administration. If the court grants an administration order then you will need to appoint an insolvency practitioner to value and sell the company assets to pay off your debt. This halts the winding up process)
Dispute the petition debt (but avoid using this method to try to gain more time as the courts view this kind of tactic as an abuse of the court process!)
If you run out of time, or are unable to stop the petition with one of the above, then the liquidation process will commence. The London Gazette advertises the petition and this usually prompts action from secured creditors to safeguard their assets, for example, by way of a freezing order on bank accounts.
The Official Receiver is then appointed to sell the assets, liquidate the company and investigate the directors for possible misconduct or insolvent trading.
There Are Only 3 Ways To Reverse A Winding Up Order:
- An application (within 7 days) to rescind the order on the basis that the court did not have all the relevant facts when the order was made
- An application (within 4 weeks) to appeal the order
- An application to ‘stay’ liquidation proceedings. This can be made at any stage by the Official Receiver, an appointed liquidator, a shareholder or other creditor
Winding up orders are very black and white.
The earlier you proactively deal with the threat, the greater your chances of success.
The government has published some useful guidance notes but it is really much better to avoid the winding up process and if in any doubt, try to talk to your creditors in the first instance (it’s amazing how communication can help calm most situations) and/or get legal advice quickly and also be aware, that if you are issued with a statutory demand then you should see this as a warning sign of things to come…
Do You Need Legal Advice After Being Threatened With A Winding Up Order?
We get that it can be a daunting experience being threatened with a winding up order. So if you still need help then get in touch with us and we’ll gather a full range of free quotes for you from vetted lawyers.