How to face a winding up petition
In cases of unpaid debt, a creditor may opt to use a winding up petition in a bid to recover the money they are owed.
This is the most serious action they can take and means they will approach the High Court or a local court having bankruptcy jurisdiction in a bid to get the company liquidated in order to receive payment.
The key for the business concerned is to act quickly, as any delays can limit the number of potential recovery options that may be available.
Seeking advice from insolvency practitioners is recommended, as they will have a vast knowledge of how to tackle a winding up petition.
The outcome of any petition will be determined at a hearing, and if granted, an Official Receiver will then look to liquidate assets and investigate the company.
In serious cases of poor management behaviour, a director could be disqualified or found personally liable for any debts accrued.
The need to act quickly is highlighted by the fact that a creditor can advertise the petition seven days after it is presented and then served on the company, meaning the bank and other creditors will all be aware of the situation and may then take actions themselves.
Compulsory liquidation at this point is likely, while a bank will freeze business accounts in order to protect existing assets, thereby preventing a firm’s ability to make payments.
Should this occur, directors will then have no control or influence over how the company is wound up, meaning they are unlikely to get the best outcomes.
Businesses should assess their options and should pay the outstanding debt if it is possible to do so – a range of alternative finance options could help in this situation.
Alternatively, a director may turn to an insolvency practitioner to discuss the possibilities of a Company Voluntary Arrangement or some sort of informal payment plan.
This is not the end of the story though, as other creditors can still act to recover their own debts – if possible a business should seek to get the petition withdrawn via the courts.
A business may also seek an adjournment in order to grant additional time for an insolvency practitioner to determine if restructuring or administration options are possible.
By Phil Smith