Winding Up Petition

WINDING UP PETITION AND THE CONSEQUENCES

If you have been issued with a winding up petition for your company because the company owes money. You can pay the money owed before the court date and get the case droped or fight it if you believe it to be worth defending. On the other hand if you do nothing and the debt is not paid following the presentation of the petition, then the court will make a winding up order ("the order") against your company.

As a winding up petition is a court led procedure, various rules come into play once the petition has been presented.

The presentation of a winding up petition has serious consequences for the directors and the company, but before we go any further let me give a a case study of what can be achived with professional advice.

In Times Of Financial Crises, Taking Early, Independent Advice Is Crucial

Case Study

Company "A" had 38 retail stores selling household furniture with sales declining daily and unable to pay its bill as they fell. The company was presented with a winding up petition due to unpaid Inland Revenue and VAT debts.

The company had a combination of freehold and leasehold stores in prime retail sites across the country. The company employed a workforce of 260 people on its payroll. A final decision had been made to place the company into Administration before the winding up petition date for this we needed permission of the courts which we obtained on the grounds that there was a better chance of greater dividends going down the administration route than the winding up order and compulsory liquidation route for all the creditors and the employees of the company. The courts accepted the plan and gave us 6 weeks to come back and report further progress.

Within the 6 week period deep cuts were made to staffing numbers and closure of stores that were not profitable. 11 stores were kept and the rest were sold or leases terminated, the 11 stores were the ones that were making good profits and allowed the company to grow without the losses which it had been getting every trading day before the winding up petition and us getting an administration order in place to protect the company.

By the time we had restructured the company the creditors all agreed to accept £0.40p in every pound owed which allowed the company to continue trading more profitably.

The above case demonstrates what can be achieved if experts are brought into the picture earlier rather than later on in the winding up petition process. Now back to further information about winding up petitions and some of the consequences.

The presentation of a winding up petition has serious consequences for the viability of your company and these are detailed below:

Protection of assets between petition and order

Once the winding up petition has been presented, a date is set for a court hearing at which the petition will be heard and a winding up order made against your company. A considerable time may elapse between the presentation of the winding up petition and the hearing for the making of the order.

You should make use of this time to seek professional advice on the options open to you and your company, you can call the business helpline on 0800 24 0800 for free and confidential advice before it's to late.

In general, your company should be allowed to continue to trade in that period but the creditors need to be protected against possible disposal of its assets. Your actions as a director are therefore under great scrutiny in this period of time and the ability to trade effectively can be impaired due to the impending hearing being at the forefront of your mind.

Invalidation of disposal of assets

Unless the court orders otherwise, any disposal of your company's property, alteration in the status of its members or transfer of shares after the commencement of the winding up petition is void. The purpose of this provision is to preserve the value of the assets of a company for the benefit of persons interested in those assets.

Provisional liquidators

At any time after the presentation of the winding up petition the court may appoint the Official Receiver or an insolvency practitioner to be the provisional liquidator of the company. The primary reason for such appointment is usually to safeguard the assets pending the winding up hearing. Since an appointment anticipates the making of a winding-up order this appointment is usually made only with the consent of the company itself or in a clear case of insolvency.

Compulsory liquidation takes away control from you as a director of the company and it is important for you to take control of the situation and be in control of your own destiny.