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Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Surviving a Winding-Up Petition

WindingupPetition helpA Winding-Up Petition need not be the end of a business, but it does require prompt and decisive actions if the business is to survive.
Given that a Petition is usually served when a creditor, be it a supplier or HMRC, has run out of patience, a review of both the financial position and the future prospects is necessary before considering the options for dealing with the Petition. There are several.
When a company’s financial position and cash flow forecasts are dire it is not likely to have the funds to pay off the debt such that financial restructuring is often needed if the business is to be saved.
In addition, the cause of the financial situation is often the business model where an operational reorganisation is also often needed if the business is to survive.
Both the review and implementing change are not something to be undertaken without experience where the help of a turnaround expert is necessary.
Turnaround experts, also called Company Doctors or Restructuring Advisers, will be able to put together a strategy to deal with the immediate need to answer to the court on the required date, will be able to advise on what you are legally obliged to do and will help you to plan a strategy for the future of the business.
There are three main options for dealing with the first hearing of a Winding-Up Petition.
If the business believes that it does not owe the amount stated in the Petition, it can dispute the debt and ask for the petition to be withdrawn and apply to court to stop it being published in the London Gazette.  However, any dispute needs to be credible, and supported by evidence that will be examined as part of the directions (dispute) procedure.
If the review identifies a viable business but the Petition debt cannot be paid before it is heard then a long-term payment plan may be best using a CVA (Company Voluntary Arrangement).  CVAs require consent of a requisite majority of creditors and can also be used to write off a portion of the debt but all too many fail because they are not based on a turnaround plan that is prepared by a suitably experienced adviser.
While there are other options these are covered in the CVA Guide and free articles that are available online in the ‘K2 Knowledge Bank’ or via App Stores in the ‘Turnaround’ App.

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Banks, Lenders & Investors County Court, Legal & Litigation Finance Rescue, Restructuring & Recovery Turnaround Winding Up Petitions

Winding-Up Petitions – the costs of doing nothing

WindingupPetition2 what do I need to doThe following story is a tale of how failing to pay moneys owed can end up not only with costs escalating but can also lead to the risk of a business being closed down as a result of a Winding-Up Petition.
A client was disputing a debt of up to £70,000 in relation to legal costs accrued by their lawyer, because unfortunately the lawyer had not achieved the result the client expected.
After protracted negotiations the lawyers agreed to accept a settlement of £5,000.
However, the client failed to pay because another director of the company refused to pay even this amount.
The lawyer then took the company to court and obtained default judgement for £15,000.
Another 12 months passed, and still the debt was not paid so finally the lawyer issued a Winding-Up Petition in respect of the £15,000 judgement plus interest and costs.
The client had no option but to pay up to avoid their company being closed down. It cost £20,000 excluding our modest fees.
Plainly this whole sorry situation could have been avoided and been considerably less costly had the client paid the £5,000 that had been agreed albeit with only one director.  Instead, doing nothing resulted in having to pay more than four times that amount and to face a cliff-hanger situation regarding its future.
This is a perfect example of how doing nothing can so exasperate creditors to the point where they lose patience altogether.  Do you have any similar examples or anecdotes to share?
For a collection of free articles on Winding-Up petitions and associated issues why not download the “Turnaround” App from your Appstore or visit the Knowledge Bank at K2 Partners.

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Banks, Lenders & Investors Cash Flow & Forecasting County Court, Legal & Litigation Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround

Don’t risk losing your business to a Winding-Up Petition

K2 Blog January 2016 WindingupPetitionWhen a company is on the receiving end of a Winding-Up Petition, it is a sign that a creditor has run out of patience in trying to recover money they believe is owed to them.
The creditor will have weighed up the cost of applying to the courts for a Winding Up Petition which generally involves an investment of ~£3,000 covering £280 in court fees plus £1,350 as a petition deposit (to manage the ‘winding-up’) and the balance in legal fees, so it is a serious step for a creditor to take.
A Petition usually means that the two parties have failed deal with each other satisfactorily whether to take steps to resolve the debt or to be pro-active about dealing with the fact that it can’t be paid.
Winding-Up a company is a formal legal procedure whereby the creditor must be able to prove that the debtor company owes more than £750 as an undisputed debt, it must allow seven days from lodging the application before publishing a formal notice in the London Gazette, also a legal requirement.
However, once the notice is published all the business’ creditors will be aware that there is a problem and since banks are among those that monitor the London Gazette the situation will escalate rapidly since the usual first step for the banks is to freeze the business account.
This makes it harder for a business to carry on trading and in particular to make payments which in turn escalates the problem.
While there are steps a business can take to challenge a Winding-Up Petition, such as disputing the debt, and to restore access to its bank account, such as by applying for a Validation Order, there needs to be documented evidence to show the court.
Ideally, a business should be proactive and deal with the situation early by starting the process of saving the business long before a Petition is served.
Even when a company cannot pay, and when there is a Petition, providing the company is viable it can often be saved.
Saving a business and in particular when there is a Winding-Up Petition needs the impartial advice and the guidance of an expert, whether they are a turnaround advisor or an insolvency practitioner.
However, if things have reached the point where the Petition has been listed for hearing in court, a company can only be represented by a solicitor, barrister or a company director and one of these must attend the hearing to present evidence of steps taken to deal with the situation for there to be any hope of avoiding the court making an Order that the company be compulsorily closed (wound up).
There are more useful free articles on this and related issues to help businesses in difficulties here

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County Court, Legal & Litigation Debt Collection & Credit Management Finance General Insolvency Rescue, Restructuring & Recovery Turnaround Winding Up Petitions

Bankruptcy petition threshold increases

From 1st October 2015 the £750 minimum liability threshold of debt for which creditors can petition for the bankruptcy of an individual has increased to £5,000.
Given the effort involved to make this change, it is interesting that the legislators have left the minimum liability threshold for creditors to petition for the winding up of a company at £750, a figure that was set in 1986.
Whatever the threshold, a petition should really only be issued with the intention of following it through to achieve bankruptcy or winding up as petitions are not intended for use as a debt recovery tool.
The issue however, is how do creditors get paid when dealing with a recalcitrant debtor who is ignoring them.
Historically the debt collection route was to pursue a money claim through the courts, however this is now expensive following the recent increase in fees to a whopping 5% of claim. This route also highlights the inadequacy of UK’s debt recovery procedures where debtors often get away with ignoring creditors, including ignoring a court judgement for payment where there are no assets. They can do this since the appointment of bailiffs of sheriffs only works where assets can be found and seized although such a visit sometimes frightens a director into making payment.
As a result creditors and their legal advisers have increasingly been using petitions as a means of obtaining payment.
The result is that a petition has become a realistic alternative for debt recovery despite it being an abuse of process.
For companies on the receiving end of a petition, it focuses the mind and generally forces the directors to deal with the liability or confront the prospect of the company being wound up. Such an outcome is often not what they want, even where they had hoped that by ignoring their company’s creditors, they would simply ‘go away’.
It would appear that the courts have some sympathy with creditors since they now tend to overlook obvious abuses of the procedure by not holding petitioning creditors or their barristers as court representatives to account. As an example I am seeing more and more solicitors pursuing payment on behalf of clients simply by serving a petition without first serving a statutory demand.
Those companies on the receiving end of a petition often don’t know what to do but might be reassured that there are several options for saving their company. This is however, an area which is not DIY so directors should seek professional advice since it is often a matter of understanding and following procedure.
In summary, the petition threshold is unlikely to influence the number of petitions. Instead, the factor impacting on the number of petitions is the recent increase in cost of obtaining judgement. Despite this a petition does not necessitate the demise of a company and there are several options to consider for those who wish to save their business.

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Accounting & Bookkeeping Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance Insolvency Rescue, Restructuring & Recovery Turnaround

Does your business have adequate procedures in place?

Procedures can help avoid nightmare situations like the example below.
We came across an extreme example recently of how seemingly small things can escalate to create a massive problem.
A drum of cable was ordered and delivered to a company from a supplier. The goods were delivered to one site, but the delivery note was sent by email and signed for by someone at head office, who did not check the actual delivery.
The supplier subsequently sent an invoice to the accounts department at head office, located at a different site to the delivery address. The invoice was for £55,000. Nothing was done to check validity of invoice until the company received notice of intention to issue a Winding Up Petition from the supplier’s factoring company.
It was only at this point that anyone looked at the details on the invoice. Clearly, delaying payment is one issue but the situation has been made worse by leaving it so late to deal with the realisation that something was fundamentally wrong as the usual price for a drum of cable was in the region of £2,800.
Unfortunately, although the price on the order was wrong, goods had been supplied and a delivery note was signed. This was reasonably taken as confirmation that the client was happy to pay an invoice for the amount on the order. Even the creditor’s approach to dealing with late payment was logical.
The problem was trying to resolve the situation.
This could all have been avoided if the company had had any one of a number of procedures in place.
Possible procedures include using approved suppliers, checking prices, checking orders, inspecting goods, not signing delivery notes without carrying out checks, approving invoices for payment and approving payment, which could have avoided this situation.
The key message is that procedures prevent small problems from escalating into nightmare situations.
Do you have adequate procedures in place?

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General Insolvency Rescue, Restructuring & Recovery Winding Up Petitions

Beware! Disputing a debt may not stop a Winding Up Petition

It is not enough to dispute a debt when dealing with a creditor’s Winding Up Petition, it is the disputed amount of the debt that matters.
A recent case involved a complex debt that was disputed where the Court made a Winding Up Order on the grounds that it was satisfied that more than £750 was undisputed.
While the High Court does not like creditors to use petitions for debt collection by putting improper pressure on a company, the Court does not have to resolve the dispute or agree how much is actually owed if it is satisfied that more than £750 is due.
£750 is the threshold amount needed for a Court to make a Winding Up Order.
All too often companies fail to deal with a creditor long before the hearing for a Winding Up Petition, where they have plenty of opportunity throughout the process to halt proceedings if the debt is disputed or to pursue a restructuring option if the company simply cannot pay the debt.
In most situations where creditors are pursuing overdue debts, and in all cases where a Winding Up Petition is served on a company, help from an experienced turnaround and recue adviser is needed if the company wishes to survive.
Companies should not believe that simply disputing a debt is in itself enough to ensure that such a Winding Up Petition will be dismissed.

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County Court, Legal & Litigation General Insolvency Voluntary Arrangements - CVAs Winding Up Petitions

A Significant Increase in Winding Up Petitions

The last couple of months have seen a significant increase in the numbers of Winding Up Petitions (WUPs) being filed in the High Court.
K2 Business Rescue has been monitoring the number of petitions and notes that since April 2011 they have significantly increased.
Weekly averages of 100 WUPs were filed during February and March and have increased to 150 per week in April and May. This compares to a weekly average of 92 during the last quarter of 2010
Many companies in difficulty have been hanging on by their fingernails while hoping their sales will pick up.
While the picture and possible explanations are unlikely to be clear until the quarterly insolvency statistics are released, the increase in the number of petitions is likely to have been influenced by the enduring lack of cash with businesses trying to collect in their overdue debts.
A WUP is normally only filed after efforts to collect payment have been exhausted or more often ignored where the petition is a last resort, the result of frustration. This is certainly the case with HMRC who file most of the petitions.
In view of the rising numbers of compulsory WUPs it is possible that they may overtake the previously historically higher numbers of voluntary liquidations as creditors run out of patience.

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Debt Collection & Credit Management General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround

HMRC Taking a Tougher Line on Debt Recovery

Evidence is emerging that HM Revenue and Customs is adopting a tougher approach to PAYE, VAT and tax arrears and increasingly using its powers of distraint to take over control of the goods, stock and assets of businesses.
In one example this week, just two hours after K2 was appointed by a company in difficulties, HM Revenue and Customs (HMRC) officers appeared at the premises and levied distraint on all the company’s assets and stock. There are similar stories from other turnaround and restructuring professionals.
The issue of a distraint notice (a C204 notice, also called a distress or walking possession notice), under HMRC powers allows it to take control of everything seized and while it does not necessarily remove property at that point, it means that the company cannot continue trading and is effectively put out of business because it is prevented from using its stock and cannot either sell or give away anything that has been distrained.  It normally has just five days to comply.
This walking possession is used rather like Winding Up Petitions (WUPs) when HMRC has exhausted attempts to communicate with the company.  Most companies are shocked when HMRC follows through with the actual action because it appears to come as a surprise, but when they review their correspondence they should not have been.
If the company does not pay or come up with alternative proposals, HMRC or an appointed agent can then take everything away for sale.
This hardline change of tactics comes after figures, published end of January, showed that the HMRC rejection rate for Time to Pay (TTP) arrangements had climbed from 2.7% in 2009 to 5.8% in 2010.
TTP is a very real solution for companies that cannot pay. While for the last two years HMRC has supported government policy of providing a light touch approach to businesses in difficulty, it is responsible for collecting arrears and not for saving businesses.
If a company receives a notice of intention to either wind up or distrain it should not delay in seeking the services of insolvency or turnaround advisers.

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General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Guide to Company Voluntary Arrangements (CVA) and When to Use Them

A Company Voluntary Arrangement (CVA) is a binding agreement between a company and those to whom it owes money (creditors).
It is based on a proposal that will include affordable, realistic and manageable repayment terms. It normally allows for repayment to be spread over a period of three to five years and can also be used to offer to repay less than the amount due if this is all the company can afford.
The proposal is sent to the Company’s Creditors along with an independent report on the proposal by an insolvency practitioner acting as Nominee.
Creditors are invited to respond to the CVA proposal by voting to either accept it, or reject it, or accept it subject to modifications that the Creditor proposes as a condition of their vote for acceptance. The votes are counted by value of claim where the requisite majority for approval is 75% of the votes cast. This is subject to a second vote to check that 50% of the non-connected creditors approve the proposals.
A CVA can only be used when a company is insolvent but it can be used to save a company rather than close it when creditors are pressing including when a debt related judgement can’t be satisfied or a creditor has filed a Winding Up Petition (WUP).
In addition to proposing terms for repaying debt, it helps to include details of any restructuring and reorganisation along with a business plan so that creditors can assess the viability of the surviving business. The proposals must be fair and not prejudice any individual or class of creditor including those with specific rights such as personal guarantees. These include trade suppliers, credit insurers, finance providers, employees, landlords and HM Revenue and Customs, the latter often being key in view of the arrears of VAT and PAYE that many companies have built up.
A CVA should only be used when the company’s directors are willing to be honest with themselves and face up to the position the company is in, preferably with the advice and guidance of an insolvency practitioner or experienced business rescue advisor but used properly it can improve a company’s cash flow very quickly by removing onerous financial obligations and easing the pressure from creditors.

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General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Guide to Insolvent Liquidation and When and How it is Used

Insolvent Liquidation involves a formal process to close a company. It happens when a company is insolvent, which means it does not have enough cash or liquid assets to pay its debts and the directors have concluded that continuing to trade will be detrimental to creditors.
There are four tests (set out in the Insolvency Act 1986) any of which can be used to establish whether a company is insolvent.  The tests don’t necessarily mean that the company will have to close down, although often directors assume that it must.  However, there are remedies that could save the company if at this stage it calls on a licensed insolvency practitioner or business turnaround adviser, who would carry out a review of the accounts, the assets including property, stock and debts and the liabilities. With help from the adviser, the company can develop realistic plans for it to survive and trade out of insolvency.
Once it is decided that the company is insolvent, and cannot be rescued, it should be closed down in an orderly fashion which means via a liquidation process. This involves the company’s assets being turned into cash and used to pay off its debts to creditors.
There are two types of liquidation, one compulsory and one voluntary and both are legal processes.
Voluntary liquidation through a Creditors’ Voluntary Liquidation (CVL) is when the directors of the company themselves conclude that the company can no longer go on trading and should be wound up.
Normally they would engage an insolvency practitioner to help guide the directors through the formal procedure, which involves a board meeting to convene shareholder and creditor meetings.
The nominated liquidator normally sends out notices to shareholders and creditors having obtained their details from the directors and helps directors prepare the necessary formal documentation that is legally required.
The nominated liquidator must be a licensed insolvency practitioner who provides his consent to act which must be available for inspection at the meeting.
If the directors have left consulting too late they can then find themselves facing the court winding up procedure rather than having the option of a CVL.
Compulsory liquidation is triggered by a creditor formally asking the courts to have a company closed down by submitting a Winding Up Petition (WUP. In this case the court decides whether or not to support the petition by ordering that the company be wound up (compulsorily liquidated).
Upon a winding up order being made, an officer called the official receiver is automatically appointed to take control of the company to oversee the process of closing it down.  The official receiver may, if he/she wishes, appoint a liquidator to assist in dealing with recovering and selling any assets.

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Dealing with the Bank When Considering a Company Voluntary Arrangement

The large number of companies in financial difficulties is swamping the banks and as a result there is a lack of experience in banks when dealing with companies in the process of restructuring.
If a company is subject to a Winding-up Petition (WUP) the bank can be held liable for any funds that are paid out of its bank account once the Petition has been advertised in the London Gazette. As a result banks tend to freeze the accounts of any company with an outstanding WUP as soon as they become aware of it. The only way for a company to free up money in a frozen account is via an application to Court for a Validation Order.
When attempting to save a company where there is no WUP, however, the lack of experience among banks means that in some instances they are behaving as if there were a WUP and this is getting in the way of attempts to restructure because banks do not understand the distinction between the various restructuring tools.
An example of where this is happening is when a Company Voluntary Arrangement (CVA) is being proposed.  The process of agreeing a CVA involves notifying creditors of the intention and allowing time for a meeting to be set up for creditors to approve the CVA proposals. Usually there is a hiatus period of at least three weeks between notification and the meeting, which allows creditors to consider the proposals and make any comments or request adjustments before the meeting.
However, banks’ inexperience of CVAs is leading some of them to freeze company accounts during the hiatus period and this has an adverse effect in that the company is no longer able to trade. While banks generally do not have the right to freeze their clients’ bank accounts unless there is either a WUP, an order by the Court or a breach of contract, they may take precautionary action out of fear when they don’t know what is going on. Concern about fraud can always be used to justify such an action.
It therefore makes sense for a company to talk to its bank beforehand to let them know what’s going on. Where the company is overdrawn clearly the bank is a creditor and should be notified of any restructuring proposals, in particular where there is a CVA.

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Banks, Lenders & Investors Factoring, Invoice Discounting & Asset Finance General Rescue, Restructuring & Recovery Turnaround Winding Up Petitions

A Frozen Bank Account Need Not be the End of a Business

If a bank takes action to freeze a company’s bank account it is an indication that the bank is nervous and under its bank facility terms and conditions has exercised its right to not release funds.
A bank’s behaviour is monitored by its facility people and triggering action to freeze does not imply any expression of judgement or opinion on the business itself.
There are two other circumstances that can trigger a bank account freeze.
The first is when a winding up petition is advertised in the London Gazette, which is a legal requirement before a petition can be heard in the High Court.  In this situation the bank is required to freeze the business account because the bank can be held to be liable for any funds paid out of the account.
A second situation that can trigger a bank account freeze is when there are not sufficient funds in the account, which makes it effectively frozen, even if it hasn’t been done formally by the bank.
It is most likely to happen because the company is not paying money into the account, possibly because its factoring company is not remitting funds to the bank.
A company’s relationship with its bank is aggravated if the company fails to take steps to deal with this situation, putting the bank in the embarrassing position of having to return cheques or direct debits.
Payment returns can also cost a company a great deal of money, adding to the pressure on its cash flow by charging fees but it also causes the bank to more actively monitor the account because the company’s directors are failing to manage it within the facility that has been agreed.
In a situation like this when there are insufficient funds but the bank account is not formally frozen, the directors need to take prompt action, including stopping the release of cheques, cancelling all standing orders and direct debits and taking control of the cash to manage all future payments. This creates a hiatus period during which cash is only released if there are sufficient funds.
During this hiatus period when survival is in jeopardy, directors must manage the company in the best interests of creditors. Payments are only made to meet ongoing costs and those crucial liabilities that need to be paid for to keep the business going.
If, however, the bank account has been formally frozen the directors can only make payments either with the bank’s approval or with an order from the courts.

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General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Employing Restructuring Advisers to Help Save Your Company

There are a number of options for companies who find themselves in financial difficulties, but a real challenge is finding someone to help.
It’s made more difficult if the directors/owners take the view that they know their business better than anyone else and infer from this that if they don’t know the solution, then no one else will.
A second issue is trying to solve the situation alone, via a self-help route.  It may be that research has revealed a number of options and in a situation of financial difficulty there is a temptation to latch onto the cheapest or first solution. Indeed, you are likely to think you can’t afford help and as a result persuade yourself that the cheap solution is the right one. It is no surprise that a lot of companies fail having not sought any advice.
In either situation eventually a squeeze on cash flow or pressure from creditors tends to be the catalyst that galvanises action and you are likely to start looking for a solution.
Who do you turn to for help when feeling as boxed in as this?  What’s needed is a business rescue adviser, but how do you go about the process of finding one from among the insolvency, turnaround, accounting and consultancy advisers?  
Carry out a thorough vetting process to confirm they have suitable experience and offer a rescue process rather than selling only one rescue solution. The rescue process should involve a thorough business review to identify a viable business that can emerge from the process, then developing and implementing an operational reorganisation and financial restructuring plan. One aspect of the financial restructuring plan will be how to deal with all the company’s liabilities.
In addition to bank and trade creditors a key creditor is likely to be the HMRC (Her Majesty’s Customs and Excise). Too often companies are advised to enter a Time to Pay arrangement with the HMRC to deal with tax, VAT or PAYE arrears or to enter a Company Voluntary Agreement (CVA) to deal with debts without a realistic assessment of the other demands on the company’s cash.
The first thing to find out, therefore, is whether the adviser is selling something or has a vested interest in the company pursuing a particular solution. Having established they are truly independent, the adviser will conduct a review to establish the core issues.
Support from business rescue advisers with broad commercial experience, not just insolvency, will help manage the process while at the same time helping find a realistic solution.

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General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

A Winding Up Petition Due to HMRC Arrears Need Not be the End

In early 2010 HMRC (Her Majesty’s Revenue & Customs) served notice for a Winding up Petition against a small trading company. The company had ignored HMRC for three years and had not submitted accounts for three years, not since 2007.  A director attended the winding up hearing in court unrepresented.  He said he was trying to reach agreement with the Revenue and was granted 3 weeks stay of execution.
During the three weeks the company sought our help and experience of turnaround and insolvency, to advise on restructuring options, help develop and implement a rescue plan and also help manage the court process.
After a business review, we concluded that it was possible to buy some time to allow the company to be restructured. We first recommended that a barrister should represent the company at the adjourned hearing.  The barrister successfully sought a six-week adjournment to give time for a rescue plan to be put in place, including proposing a Company Voluntary Arrangement (CVA) for approval at a meeting with creditors. This strategy was achieved and at the third hearing the petition was dismissed.
Winding-up petitions are generally used for two purposes:
They may be used as a final attempt by a legitimate creditor to force the debtor company to respond following previous failed attempts to contact them to try to agree payment terms for the outstanding liability.
They are also used to bully a debtor company into settling an outstanding liability, whether disputed or just to get paid before other creditors.
This second reason is often an abuse of process, where the courts are easily deceived. Procedure in court is often key, especially when experienced creditors who know how to play the court ‘game’ use barristers to deal with innocent directors doing their best to represent the company without expert advice.
Winding up petitions in themselves don’t mean that a company is insolvent but they do indicate underlying issues that have not been addressed. The issues can include a lack of cash to pay bills on time, being unaware of legal process, or a dispute that has been ignored or spilled over into frustration.
The courts are aware of this and tend to be lenient towards directors who ask for time to resolve the petition by granting an adjournment. However, their attitude hardens if, at the adjourned hearing, it is shown that the director has failed to fulfil the undertaking given at the earlier hearing.

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County Court, Legal & Litigation General HM Revenue & Customs, VAT & PAYE Insolvency Personal Guarantees Rescue, Restructuring & Recovery Turnaround Winding Up Petitions

Guide to Winding Up Petitions (WUP) and How to Deal With Them

A Winding Up Petition is a legal application to the High Court or another appropriate court by a creditor asking that a company be closed down.
If granted by the court, the official receiver is appointed to oversee closing down the company and may then engage a licensed insolvency practitioner as approved liquidator.
The purpose of winding up a company is generally to remove control of a company from its directors so that its affairs can be dealt with properly. At the end of the process the company is dissolved and ceases to exist.
The petition must be properly served on the company, normally by personal delivery at its registered office and also it must be advertised in the London Gazette. The advertisement is intended to notify the public but in practice this is normally how banks and other institutional creditors learn of the petition.
Directors, on receipt of the petition, should be aware that the company’s bank account is likely to be frozen when the bank learns about it. They should also be aware that any further trading after the date of receipt may mean that they can be held personally liable for any company debts accrued after that date if, when their actions are investigated, they are found not to have acted in the best interests of the company’s creditors.
If the directors wish to continue trading in order to save the company then they should seek help from a business rescue adviser if the company is insolvent. If they believe that trading on as a managed workout would benefit creditors through recovering assets, then they should seek help from an insolvency practitioner who might well be introduced by the bank or another secured creditor.
Although the petition is very serious and should not be ignored it does not mean that the company is doomed to closure.  With proper representation based on a credible plan to deal with the company’s difficulties it is possible to have a winding up petition dismissed.
A WUP is often used as an action of last resort initiated out of frustration following attempts by a creditor to agree terms for repayment of money owed or after repeated attempts to contact the company have been ignored. HM Revenue and Customs (HMRC) regularly uses the petition when its repeated written reminders and requests for repayment of outstanding PAYE, VAT or tax have been ignored.