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What a winding up petition means for your business

What a winding up petition means for your business umbrella insolvency

What a winding up petition means for your business umbrella insolvency

Having a winding up petition served against your business doesn’t have to mean the end of the road for your company, but you do need to act quickly.

During the coronavirus pandemic, businesses have enjoyed some immunity from winding up petitions – but only if they can show that debts are due to the ongoing pandemic.

Some of these protections will be rolled back on 30 September 2021. However, from 1 October 2021 until 31 March 2022, creditors will not be able to submit winding up petitions if a debt owed is for commercial rent or other payments like service charges. Small businesses will also benefit from the introduction of the new £10,000 threshold (currently £750) that must be owed to the creditor who wishes to serve a statutory demand.

If you think your business is at risk of a winding up petition, speak to a Licensed Insolvency Practitioner before it is too late.

What is a winding up petition?

Filing a winding up petition is the most serious action that a creditor can take against a company that owes it money.

By submitting a winding up petition to the High Court, a creditor is effectively asking the court to liquidate your company because they you are insolvent. If the petition is successful, then money recovered through the liquidation will be used to pay creditors.

Filing a winding up petition is costly, so is only really used to collect large debts when other avenues of collection have been exhausted.

To submit a winding up petition, a creditor must typically:

– Have a debt of £10,000 or more (that is not a commercial rent debt)
– Have tried to recover the debt through standard means like payment reminders and final notices
– Have explored other alternatives like a repayment plan
– Have issued a statutory demand or County Court Judgement

A winding up petition can be issued by any creditor with a debt over £10,000. The majority of winding up petitions that are filed in the UK come from HMRC, but a significant proportion also come from banks and other major lenders.

Sometimes a creditor will use a winding up petition or the threat of a winding up petition to pressure you into paying a debt. This is not the correct use of a winding up petition and, if they haven’t tried other methods of collection first, they may be on shaky legal ground.

If you believe that a creditor is using a winding up petition improperly, you should speak to an insolvency expert. Call: 0800 611 8888.

How does a winding up petition work?

Successful winding up petitions need to follow a legal process. If it’s not carried out in the right way, then there’s a chance the winding up petition may be illegal.

A typical process is as follows.

– After making several unsuccessful attempts to recover a debt, a creditor can hire a solicitor write a winding up petition.
– The petition is sent to the High Court and served at your company’s registered address
– A court date is set. Typically this will be 8-10 weeks after the petition is submitted
– Seven days after the petition has been served, the hearing date will be advertised in the London Gazette. Effectively, this means that the petition will become public knowledge and it makes your situation significantly more perilous.
– On seeing the hearing date, your bank will freeze your company’s accounts preventing any further trade without a court’s permission.
– If you don’t take any action then the winding up order is likely to be granted. A liquidator will be appointed and director conduct will be investigated.

What should I do if I’m at risk of receiving a winding up petition?

If you think you are at risk of receiving a winding up petition, then you may be better taking action before it is submitted. This is because more restrictions are placed on you when you’ve received a winding up petition.

Once you’ve received a winding up petition:

– You can’t sell the company or assets
– You can’t issue of Notice of Intention to appoint an administrator
– You can’t issue new securities or charges
– You can’t put the company into a pre-pack administration

What should I do if I’ve been served a winding up petition?

If you’ve been served a winding up petition, the key thing to remember is that you need to act quickly. Once your winding up petition is announced in the London Gazette, your assets will be frozen.

There’s also a chance that other creditors could effectively join your winding up petition, putting you in even more of a bind.

Other than paying the debt and moving on, your options are fairly limited at this stage.

If you think the business is still viable, then an administration may help you avoid a negative outcome with the petition. If an administration order is granted by the court, this can stop a winding up petition.

To find out if this is suitable for your organisation, seek advice from a Licensed Insolvency Practitioner. For more information, call: 0800 611 8888.