Exploring the Winding-Up Petition: What It Means for Your Business

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There is no denying that if your company receives
a winding-up petition, this isnt something that
can just be ignored. A winding-up petition is a
serious statement of intent which has been sent
by a creditor and threatens to shut down your
company because you have debts which are yet to
be paid. If a winding-up petition goes through
then the company will be closed via the
liquidation route. This is serious as it is the
strongest action that a creditor can take against
your business. As such, company directors must be
up to speed with what the petition is and what
they should do if they are faced with one. All of
this will be discussed in further detail
throughout the below article.
The Winding Up Petition A Complete Guide If you
and your company are served with a winding-up
petition then you should be aware that this is
one of the most serious pieces of legal action
that a creditor can take against you. If you
dont do anything about it then the petition
states that there are a series of events that
will stop your company from being able to trade
and will eventually result in the winding up of
your company. As such, it is important that you,
as the business owner, act fast when you receive
one of these petitions. You only have seven days
from the date of service until the companys
financial situation becomes public knowledge
which can damage your reputation and stop you
from getting back customers should you be
successful in rescuing your company. Once you
have responded the court will set a hearing date
and you will be able to argue whether or not you
believe your company should be wound up, which
can ultimately be decided by the court. Its a
good idea if you have been served with one of
these petitions that you seek various pieces of
advice and guidance from insolvency practitioners
such as Simple Liquidation as this will ensure
that you understand all of the different options
you have. Why Has Your Business Received a
Winding Up Petition? As stated above, receiving a
winding-up petition is extremely serious.
Granted, it doesnt necessarily mean that your
business is doomed but it does still require
action to be taken in order to rescue it. If no
action is taken then the overall situation, and
the situation of your business is simply just
going to get worse. If a company becomes
insolvent, meaning that it is unable to pay off
its various debts and liabilities once they fall
due, when a winding up petition is issued by a
creditor, this is basically a last resort to try
and recover the money that they are owed. There
are usually actions taken before a winding-up
petition is filed, namely actions like trying to
get the money repaid in an amicable way that
doesnt stop the company from trading,
like standard methods of debt collection. There
are a lot of creditors who will initially issue a
statutory demand against a company before opting
to serve a winding-up petition. That being said,
it isnt a mandatory recommendation that
creditors do this. A debt of 750 or more must be
owed to the creditors who are filing the petition
in order for the petition to be successful.
The Immediate Consequences After Receiving a
Winding Up Petition
If a creditor issues a winding-up petition then
it needs to be advertised in the London Gazette.
This isnt good as it means that any other
creditors as well as your bank are going to
become aware of the fact that your business is in
difficult financial times. Banks tend to freeze
company accounts once a petition is made as this
is the most effective way that they can protect
their own interests. In What Circumstances Would
a Creditor Issue a Winding Up Petition? If a
creditor is owed 750 or more and the debt itself
isnt in dispute, they can issue a winding-up
petition. They will also have likely tried to
recover the debt by other means first, like
through other debt recovery channels. They need
to be able to prove that the debt itself exists
and this is generally achieved through a 21- day
statutory demand for payment, which is issued to
the company prior to the filing of the
winding-up petition. If the statutory demand
isnt paid then the debt outlined in said demand
exists in law, so it can be used as evidence that
the company is insolvent and cannot meet
financial obligations. Who Usually Issues a
Winding Up Petition? Its usually HMRC, banks and
trade suppliers who issue a winding-up petition.
HMRC in particular is known to use this method of
debt recovery. It is not something to be taken
lightly though because the cost of issuing such a
petition is significant and as such is only ever
used as an absolute last resort. Costs come from
the likes of court fees and needing to hire a
legal team to represent the petitioner, all of
which comes at a high
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price. Not to mention, there is no chance the
petitioner will be able to claim these expenses
back as they are already struggling to recoup
existing debts. What Should You Do If You
Receive a Winding Up Petition? If you receive a
winding-up petition then you should be sure to
act fast. As previously stated, you only have 7
days until this becomes public knowledge, which
can lead to unrest throughout the business as
well as accounts being frozen. You should
consider reaching out to specialists such as
Simple Liquidation who will be able to speak to
you and your business to find out the current
position and work out the best way forward. If
you have any questions or require any further
information then do not hesitate to get in touch.
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