Receiving a winding-up petition isn’t something that any company director or business owner can ignore. Creditors issue winding-up petitions when they are owed money by a company, but have already exhausted other avenues and made multiple failed attempts to reclaim that money.
Winding-up petitions are a last resort on behalf of the creditor. A successful winding-up petition leads to a winding-up order issued by the court, which forces the company that owes money into permanent liquidation in an effort to recoup the money owed.
If you receive a winding-up petition, it’s essential that you contact a professional insolvency practitioner immediately. There’s still time to save your business and to appease both the creditors and the courts, but you need to act fast to avoid an involuntary winding-down of your company.
In this article, our expert team at Irwin Insolvency examines the essential steps you need to take as soon as you receive a winding-up petition.
What Is a Winding-Up Petition?
A winding-up petition is an application to ‘wind-up’ a company. It is presented to a court by creditors who are owed money by the company they are attempting to see wound-up. The ultimate goal of a winding-up petition is to liquidate the company in question in order for the creditors to reclaim the money they are owed by selling off assets.
A winding-up petition is a formal legal petition, and it can be compiled by any creditor or creditors that are owed money by a business. The petition is then presented to the business that owes money and to the courts, before being made public. There are three major conditions that must be met before creditors can present their winding-up petition to the courts for approval.
- Creditors must be owed £750 or more by the company they wish to see wound-up.
- Creditors must have been owed money for longer than 21 days.
- Creditors must be able to prove to the courts that the company in question is unable to pay the money they owe.
It’s important to note that winding-up petitions aren’t approved lightly by the courts. As well as proving that the company is unable to pay its debts, creditors are supposed to have also exhausted other ways to secure the money they are owed.
Winding-up petitions are often only issued after a creditor has attempted to secure their money using friendlier, more amicable methods. This includes chasing payments with directors, attempting to organise a company voluntary arrangement, or assisting with business turnarounds to regain their losses.
Courts will only issue winding-up petitions that have been preceded by a ‘Statutory Demand’. This is a demand for repayment made by creditors, and it gives a business 21 days to pay the money they owe. After this date has passed, the courts can approve the winding-up petition.
Companies facing insolvency that are unable to pay their debts need to be aware that while only one creditor is needed to issue a winding-up petition, other creditors can join the process once it’s begun. This is particularly important if a company owes money to several different entities or suppliers.
Do I Have to Respond to a Winding-Up Petition?
Winding-up petitions are viewed as a last resort, which is why any director that’s issued such a document needs to take it seriously, contact an Insolvency Practitioner, and act quickly.
If a winding-up petition is successful, then the court will issue a further winding-up order that results in a compulsory liquidation of the company and its assets.
Before that happens, the company has a limited timeframe in which to respond and to act against the winding-up petition. Ignoring a winding-up petition isn’t an option, at least if the company wants to survive or at the very least limit the losses of those involved in its running.
Not responding to the petition within the given timeframe will result in the company being automatically wound-up by court order. No response equals automatic liquidation. Staff members lose their jobs, directors may be investigated by the insolvency service, and the company’s assets will be sold off and the money will be used to pay the creditors who instigated the process.
How Long Do I Have to Respond to a Winding-Up Petition?
That timeframe is limited indeed. If you’re issued a winding-up petition then you have only seven days to act before the courts assume that your company is insolvent and needs to be liquidated.
There are several options that are still available to company directors even at this final stage, but directors need to act fast and resolutely to avoid liquidation. Again, attempting to escape liquidation at this point without the help of an insolvency practitioner is inadvisable.
The options that are open to businesses at this point include the following:
- Repay the money they owe to their creditors in full.
- Organise a repayment schedule through a company voluntary arrangement (CVA).
- Arrange for an administration order to be put in place.
- Dispute the debt that the company owes to its creditors.
It should be noted that if a winding-up petition has been approved, then it’s unlikely that the company being pursued will have the funds to pay its debts. That leaves the other options open, however in many cases CVAs and administration orders may already have been attempted. At that point, the company needs to be able to dispute the debt and take their argument to the courts to save themselves from liquidation.
What Is the Process?
From start to finish, the process of issuing a winding-up petition to a company and liquidation can be rapid. After receiving the petition, a company has seven days to act, to find a solution and to prepare for a court hearing. After seven days, the case will be heard in court (although, realistically they may wait longer than this for an appearance).
After seven days, the winding-up petition can be made public by the creditors and courts. Usually, this means that the petition is advertised in what’s called ‘The Gazette’, an official public record. At this point, the banks freeze the accounts of the company being petitioned and the directors no longer have any chance to respond to the petition outside of court.
Now the court takes a hearing to decide if the winding-up petition is legitimate. If they decide it is, the company is liquidated as a winding-up order is issued.
A winding-up petition is a serious, legal matter to consider, so let’s breakdown the process in a little more detail.
- Company is unable to pay its debts.
- Creditors issue a statutory demand for repayment after exhausting all other repayment options.
- Company is still unable to repay debts 21 days from statutory demand being issued.
- Creditors issue a winding-up petition and the company has seven days to respond.
- After seven days, the winding-up petition is made public and advertised in The Gazette.
- The court hears the appeal after seven days and decides if the petition is credible.
- If the court decides that the petition is credible and the company is insolvent, they issue a winding-up order.
- The company is liquidated and creditors attempt to regain their money.
Can I Appeal a Winding-Up Order?
If you fail to come to an agreement with creditors within seven days of receiving a winding-up petition, then you have a chance to dispute the debt at your hearing in court.
If you can present evidence that the debt is not legitimate, then the winding-up petition can be cancelled and a winding-up order won’t be issued. If you are unable to prove this, and a winding-up order is issued, then you now have to appeal this decision.
Your company has five days in which to appeal the winding-up order, once it’s been issued. After this, the company has to enter into liquidation. You can appeal the decision if you were unable to make the court date and the order was issued without you being present. You can also appeal the decision if you are able to repay the debts after the order has been issued by the court, although this is incredibly rare at this stage in the proceedings.
If you appeal, then you’ll be given a further court hearing date that you must attend. At this hearing, you can present your evidence to the judge and attempt to have the winding-up order overturned. Failure at this stage results in liquidation.
Contact Irwin Insolvency Today for Your Free Consultation
Irwin Insolvency is ready to provide you with expert insolvency advice that could save your business from liquidation. Our professional team can provide you with the expertise and knowledge that your business needs when confronted with a winding-up petition.
We provide impartial advice that’s tailor-made to your business needs. We always suggest contacting an insolvency practitioner at the earliest possible stage in the proceedings. If you are issued a statutory demand, it’s likely that the proceedings will evolve into a winding-up petition, so contact our team early on and be prepared for the next stage.
Our staff has years of experience working across a range of industries, and we’re ready to help you through these tough and trying times. Contact Irwin Insolvency today for your free consultation.