Winding up petitions – The end of your business?

What is a winding-up petition?

A winding-up petition is a legal action normally instituted by a creditor who requisitions the court that a debtor company be wound-up. It is a costly process for a creditor to initiate and is often seen as ‘nuclear’ option for enforcing a debt. If a winding up order is subsequently made, the company will be immediately closed, all employees will be made redundant, and a government agent called the Official Receiver (“OR”) is appointed as liquidator to realise assets and investigate the directors.

Procedure:

A winding-up petition can only validly be issued if a debt of £750 or more is indisputably owed, normally demonstrable by way of an unsatisfied statutory demand.  Once issued, the court lists a date for hearing the petition, and the petition is served on the company. The petition is then advertised in the London Gazette in advance of the court hearing.

Consequences:

Once the petition is advertised in the Gazette, the company’s bank account will be frozen, making it very difficult for the company to continue to trade regardless of whether a winding-up order is subsequently made.

If a winding-up order is made, any payment made by the company since the presentation of the petition, or any other disposition of the company’s property is, unless the court otherwise orders, automatically void.

If the company believes it will survive, the directors may apply to court for a validation order to allow various classes of transactions to be paid out of the company’s bank account notwithstanding the above provisions.

If the company is wound-up by the court the OR will be appointed liquidator. The directors of the company will be called in for interview by the OR to determine the causes for the company’s failure. The OR will also seek to investigate the conduct of the directors, which could ultimately result in one or more of the directors being disqualified from acting as a director or in the promotion, formation or management of a company for a period of up to 15 years.

Alternatives

If the company is viable then options could include proposing a company voluntary arrangement to bind its unsecured creditors and continue to trade. If the company is not viable then the directors and shareholders can pro-actively place the company into liquidation voluntarily through a creditors’ voluntary liquidation (“CVL”), which usually gives them a greater level of control and avoids the involvement of the court and the OR.

Advice

Having a winding-up petition issued against your company is among the most serious matters that you can be faced with and it requires immediate attention. If the debt is disputed, you want to try and save your business, or you want to avoid the involvement of the court, then you should seek specialist advice from a licensed insolvency practitioner.

If you require any help or advice on the above matter, please contact Doug Pinteau.