When a company is threatened with or receives a winding up petition, it signals that a creditor has exhausted other collection efforts and is taking formal legal action to recover the debt owed. A winding up petition can have significant implications, including jeopardising the company’s future and operations, unless prompt action is taken.
However, there are ways to address and potentially reverse the process. Proactive steps such as negotiating with creditors, seeking legal advice, or filing for Administration can prevent a winding up notice from escalating into a winding up order. Timely intervention is crucial to stop creditors from advancing the petition further.
If you’re facing a winding up petition, contact our licensed insolvency practitioners for free and confidential advice.
What is a winding up petition?
A winding up petition is a legal notice issued by a creditor to a company, demanding payment of an outstanding debt. It is the first step in the compulsory liquidation process, and could potentially lead to the company’s dissolution – if action isn’t taken immediately.
If the debt remains unpaid by the time the winding up petition is heard in court, the judge may issue a winding up order. This order halts the company’s trading and appoints an official receiver to liquidate assets and repay creditors.
Bounce Back Loans and winding up petitions
Unpaid Bounce Back Loans (BBLs) remain a concern for many business owners. Non-payment can result in a winding up petition being issued. Even though these loans are government-backed (which means the lender will be repaid if the company defaults), the company is responsible for repayment. Lenders are entitled to take action, including issuing a winding up notice or pursuing a winding up order, if debts go unpaid.
To prevent this, engage your lender early to explore repayment options such as extending terms or temporary interest-only payments. Alternatively, entering an insolvency process might provide a solution for managing this debt. For immediate help, call our insolvency practitioners for free, confidential advice.
Other common reasons for receiving a winding up petition
Creditors may issue a winding up petition for various reasons, including:
Unpaid debts: Failure to settle invoices, loans, or fees often leads creditors to take legal action as a last resort.
HMRC: As the most frequent petitioner, HMRC commonly issues winding up petitions over VAT, PAYE/NIC, or Corporation Tax arrears.
Breach of contract: Failure to meet contract terms might prompt creditors to seek compensation through liquidation.
Personal guarantees: When directors have provided personal guarantees, creditors can pursue both the company and the guarantors personally.
Act quickly to explore solutions that could reverse or halt a winding up petition.
What are your options with a winding up petition?
1. Negotiating with creditors: Engaging with creditors early can lead to repayment agreements that avoid further legal action. Transparency with financial forecasts can build trust and prevent escalation.
2. Company Voluntary Arrangement (CVA): A CVA restructures company debts and spreads repayments over an extended period (up to 5 years), offering a chance to avoid a winding up order and stabilise the business.
3. Company administration: This process allows an administrator to take control, explore restructuring options, and achieve the best possible outcome for creditors while protecting business operations.
4. Voluntary liquidation: If the business is no longer viable, a Creditors’ Voluntary Liquidation (CVL) can ensure an orderly process, maximising returns for creditors by using the fund from the sale of the business and its assets to repay them as much as possible.
What impact does a winding up petition have on a business?
A winding up petition can have far-reaching consequences. Bank accounts may be frozen, disrupting operations and tarnishing your reputation. Without action, customers and suppliers may lose confidence, exacerbating financial pressures.
It could be possible to stop a winding up petition before it severely impacts your business, but only if you act quickly. If you’ve been served, our licensed insolvency practitioners are ready to help.
The compulsory winding up process
The process begins with a statutory demand and proceeds through the filing and serving of the winding up petition, followed by advertisement of the petition to alert other creditors. If action is not taken, there’s a court hearing and potentially a winding up order. Upon issuance of the order, the company’s assets are liquidated and it is dissolved – resulting in the closure of the company.
To prevent this, act immediately upon receiving a winding up notice or petition.
Consulting a licensed insolvency practitioner
Engaging a licensed insolvency practitioner provides essential support in handling complex processes such as winding up petitions and winding up orders. They can guide you toward viable solutions, reducing stress and improving outcomes.
For practical, unbiased advice on managing a winding up petition or avoiding a winding up order, contact our experts for a free consultation.
