If your Limited Company has been struggling to pay its debts, you owe more than £750 and you have been unable to negotiate with creditors, you may not be surprised to be in receipt of a Winding Up Petition from the court.
What is a Winding Up Petition?
A Winding Up Petition is an official letter from a creditor that is sent to the High Court. A creditor can make a Winding Up Petition if they have Judgement or have served a Statutory Demand and 12 days have passed without response to the Court. When a Winding Up Petition is received, the court will review the current situation of the company and any correspondence between the company and the creditor in a court hearing. At this stage, you can argue the petition. It is extremely important that you seek professional advice at this point, and would be very prudent to enlist the help of a company that can attend court with and represent your case to the Judge.
If your appeal is unsuccessful, the court will issue a Winding Up Order. This is an order from the court that forces a company to stop trading because it will need to be liquidated to raise cash to repay debts. Once a Winding Up order has been issued, it cannot be retracted. If you receive a Court Judgement, you should seek professional advice as soon as possible, as you may be able to stop the creditor reaching the point of feeling that they must issue a Winding Up Petition with appropriate negotiation.
How could I stop a Winding Up Petition progressing to a Winding Up Order before it gets to court?
Clearing the debt within 7 days
The most preferable solution for a creditor that has raised a Winding Up Petition against you, would be that you repay your debt to them in full. The court allows you only 7 days to repay your debt or seek an injunction before it considers it fair to progress to a Winding Up Order. If your company is insolvent, then it is unlikely you will have access to funds to clear this debt in full nor will you be able to borrow any money. You could consider repaying with personal funds if you want to preserve your Limited Company and remain trading. However, this is a decision that should be thought through considerably before being executed particularly if you are a home owner or have no other sources of income outside of your business, because if you cannot repay your personal debts, you will be vulnerable to further personal actions, possibly Bankruptcy.
Propose a Company Voluntary Agreement to clear the debt over a longer period of time
A more practical solution to resolving a Winding Up Petition is a CVA. The CVA will be a legal agreement to repay all or part of its debts, over a period of time, possibly up to 5 years, allowing you to spread the cost of the debt to have minimal interruption to your cash-flow and without needing to find large sums of money within a short time frame. It’s worth noting that companies with a CVA on file will find it harder to obtain credit within the short and medium term, so consider whether this really is a viable long-term solution to the company’s insolvency.
If the debt is in dispute the Winding Up Petition may be invalid
Not all debts are agreed to – some companies could take an aggressive approach to debt management that isn’t actually legal, for example adding on late payment charges above and beyond acceptable levels. If you are in dispute with a company over a business debt, that you don’t agree is owed, or only partially agree to, then you may be able to put your case forward to the court to have the Winding Up Petition invalidated. There must be very strong reasons to dispute a debt and you must check all of the terms and conditions of any credit agreements and the terms of service with a company before you dispute a debt, to make sure you have fulfilled your own responsibilities.
When you reach the point of the Winding Up Order
If you cannot resolve the Winding Up Petition and it is progressed to a Winding Up Order, the court will appoint a liquidator (the Official Receiver) to sell company assets, pay company creditors, deal with the affairs of your company and then close your company. They will also investigate the conduct of the Directors, which will include identifying whether any wrongful trading took place. This is why it is important to get help from a professional as soon as you receive a court order, to help you ensure you aren’t wrongfully trading and to minimise the impact of a Winding Up Order if it reaches that stage. If, once assets are sold, there are any company debts still owing, these are written off when the company closes. Any debts that you owe personally, for example if you have given a personal guarantee, will still need to be paid by you along with any overdrawn Director’s loan accounts.
If you owe £750 or more in business debts and are struggling to pay, seek help before it gets to the serious point of reaching court. We offer a free initial call and can tell you about our creditor negotiation service, that could help you resolve matters informally and without the worry of court.