Insolvent Companies can Survive a Winding-Up Petition

overcome a Winding-Up PetitionIt is possible to get a Winding-Up Petition dismissed even when a business is insolvent and does not have the funds to pay off the creditor(s) who have brought the matter to court.

If a company is insolvent and therefore unable to pay its debts on time, it may still be a viable business with a perfectly good product or service to sell.

A review of the accounts, the cash flow, the processes and scope for restructuring and other initiatives to improve profits will need to be carried out by a turnaround specialist who will also prepare an appropriate turnaround plan.

The turnaround plan forms the basis of demonstrating viability such that it is possible to persuade creditors to accept deferred payments.

The turnaround plan is incorporated into a formal proposal to creditors for a Company Voluntary Arrangement (CVA). In addition to the turnaround plan, a CVA Proposal will include proposals for debt repayment and in some cases for debt write-off.

A CVA is a formal proposal where the process has to be carried out in defined steps to comply with the Insolvency Act and should only be done with the help of a Turnaround or Insolvency Practitioner.  While approval is required from 75% of the creditors who vote, it is arguably in the creditors’ interests to agree such an arrangement as they are more likely to get their money than they would be if the company were Wound-Up.

If pursuing a CVA while a Winding-Up Petition is outstanding, this can be adjourned to allow time for the CVA Proposal to be prepared and the formal process to be followed but any adjournment will leave little time for delay so again specialist help is needed.

Once a CVA is approved the Winding-Up Petition is normally dismissed.

In summary a CVA offers the opportunity for an insolvent company to survive a Winding-Up Petition.

You can find out more about Winding-Up Petitions and CVAs in the free articles that are available online in the ‘K2 Knowledge Bank’ or via App Stores in the ‘Turnaround’ App.

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