Winding-Up Petition: Options for a Company
A winding-up petition is a legal action initiated by a creditor as a last resort to recover an unpaid debt. It usually follows multiple failed attempts to secure payment and can lead to compulsory liquidation if not addressed promptly. If your client is a company director and has received a winding-up petition, they must act immediately to avoid serious consequences.
Available Options
1. Pay the Debt or Reach an Agreement
The most straightforward way to prevent the petition from progressing is to pay the debt in full, including any legal and petitioning costs. Alternatively, the company can negotiate a settlement or agree a repayment plan with the creditor(s) and request that the petition be withdrawn. It is important to note than even if a payment plan is agreed, the creditor is not obliged to withdraw the petition.
2. Dispute the Winding-Up Petition
If the company believes the petition is incorrect or unfair, it may apply to challenge it in court. To do this, the company must:
- File an application with the court within five working days of receiving the petition.
- Provide evidence that the debt is genuinely disputed and the debt has already been paid, or an agreement is in place.
3. Allow the Petition to Proceed – Compulsory Liquidation
If no action is taken, and the debt is proven to be due and unpaid (typically £750 or more), the court may grant a winding-up order, placing the company into compulsory liquidation.
Winding-Up Process
The process generally follows these steps:
- Statutory Demand Issued: A creditor may serve a statutory demand, giving the company 21 days to pay.
- Winding-Up Petition Filed: If the statutory demand remains unpaid and no alternative methods of payment, compromise or securing the debt is agreed, the creditor can file the petition.
- Advertisement: The creditor must advertise the petition in the London Gazette, no earlier than 7 days of serving the petition on the company and no later than 7 days before the petition hearing.
Business Impact
Once advertised, the company’s financial difficulties become public. This often leads to bank accounts being frozen, suppliers withdrawing or ceasing supply and Director’s responsibilities being restricted.
Director Considerations
Once a winding-up petition has been received, it may be too late to initiate a Company Voluntary Liquidation (CVL). Directors must seek advice to understand their options and duties. Failure to act may result in personal liability, disqualification, or further investigation by the Insolvency Service.
