“I have just received a Winding up Petition, what do I do?”
Winding Up Petitions Explained
A Winding up Petition is essentially an application filed in an Insolvency Court for a Company to be Wound Up, which means placed in Compulsory Liquidation. While many Petitions are applied for by creditors out of frustration due to being ignored or a failure to agree payment terms, a Winding Up Petition involves a formal Court driven process and should not be ignored.
Early action by directors is essential if they want to save their company and avoid personal liability.
It should be pointed out that directors continuing to trade a company when it has no prospects of survival can be held personally liable for liabilities created after the point when they ought to have realised there was no prospect of survival.
While most guides to Winding Up Petitions are aimed at creditors who are owed money and deal with the criteria for submitting a Petition, the pages in this section and associated resources appended to the website are aimed at helping directors save their business with this section aimed at helping survive a Petition.
Petitions must be advertised in the London Gazette at least seven clear working days before the Hearing. This publication is monitored by the banks which normally freeze the bank account and may also alert other creditors who may wish to support or take over the Petition.
Dealing with a Petition is highly complicated with most professionals only specialising in one aspect of the Winding Up process or only one aspect of company restructuring. K2 specialises in both the process and company restructuring necessary to save companies who are dealing with a Petition.
Come along and learn about your options for free
At least one of us from K2 attends the Companies Winding Up Court held every Monday in London where we provide a free service to any director dealing with a Winding Up Petition who wants to attend the Court prior to their Company’s Petition being heard. We explain to directors the Court process and show them how to use it to save their company. We are happy by arrangement to attend other Courts.
Call us if you want to save your company from a Winding Up Petition or if you would like to attend a Companies Winding Up Cour
“I want to pay a Winding Up Petition”
Paying a Winding Up Petition
It is imperative that directors are aware that paying a Petitioning Creditor does not automatically dismiss the Petition. While it can be withdrawn, it is normal for the Petition to be heard on the date set for the Hearing, as set by the Court and notified on the Petition.
It is normal that payment should be made in full, including any the Petitioning Creditor’s costs before a Petition is dismissed. While the Court may adjourn the Hearing to allow for time to make payment, too many directors run out of time if they don’t have the funds immediately available. It normally takes longer that any adjournment period to collect in outstanding debts, sell assets or raise funds. Therefore unless payment can be made within a realistic period and normally no more than six weeks, then the Deferred Payment options in this section should be considered.
Whether or not a Petition Creditor has been paid, any other creditor with the right to issue a Petition can support the original Petition or take it over if the Petitioning Creditor withdraws or has been paid. Furthermore if the bank becomes aware of the Petition it will freeze the account whether or not the Petition has been paid.
Great care therefore needs to be taken when paying the Petitioning Creditor, because payment does not cancel the Petition.
Paying the Petitioning Creditor when the bank account is frozen will require a Validation Order to authorise the bank to release funds. Please refer to the section that deals with Frozen Bank Accounts.
Call us if you want to pay a Petitioning Creditor
“I want to pay but my company doesn’t have sufficient funds”
While the Court will normally adjourn a Petition Hearing to allow for time to make the payment, too many directors run out of time if they need to collect in outstanding debts, sell assets or raise funds.
There are fundamentally only two options for deferring payments when a company doesn’t have sufficient funds:
- Petitioning Creditor Payment Plan; or
- Company Voluntary Arrangement
Petitioning Creditor Payment Plan
This involves reaching agreement over payment terms that provide sufficient reassurance for the Petitioning Creditor to support a dismissal of the Winding Up Petition. Such an agreement will not bind other creditors who might want to take over the Petition but if it is agreed before advertising the Petition it can be achieved.
However, HMRC does not agree such plans so this option is not available if they submit or take over a Petition.
Company Voluntary Arrangement (CVA)
This is covered in another section of this website but essentially involves reaching agreement with all the creditors for a CVA which may allow for compromising (writing down) debt. The process of preparing proposals for a CVA and having them approved by creditors can be achieved in 5 – 8 weeks providing everyone involved is committed.
Ideally most of the preparation work can be carried out prior to the first Petition Hearing but if necessary the Court is generally supportive and allows sufficient time for an adjournment. Support for an adjournment may also be required from the Petitioning Creditor, especially if they represent more than 25% of the amount due to unsecured creditors as this is the amount needed to reject a CVA proposal.
One key advantage of a CVA proposal is that it can bind a Petitioning Creditor even though they might reject the CVA proposals. This however can only be done if 75% of the unsecured creditors vote in favour of the CVA which then becomes binding on all unsecured creditors including the Petitioning Creditor.
Approval of a CVA is sufficient grounds for a Winding Up Petition to be dismissed.
For help with agreeing a Petitioning Creditor Payment Plan or a CVA, give us a call
“I dispute the amount being claimed in the Petition”
Disputing a Winding Up Petition
Disputing the amount claimed in a Winding Up Petition is very different from disputing a County Court Money Claim. The general assumption is that a company with an outstanding Winding Up Petition is insolvent so early action by directors is necessary to avoid the company’s bank account being frozen and other creditors joining the Petition. Failure to deal with a Petition WILL result in a Winding Up Order being made to close down the company.
Resolution before the Petition Hearing
Early contact with the Petitioning Creditor and their Solicitor to resolve the dispute can avoid the Petition being advertised in the London Gazette and thereby reduce the prospect of the bank and other creditors learning about it.
Grounds for disputing a Petition might be administrative or oversight. Certainly a lot of petitions submitted by HMRC are disputed due to non-filing or missing VAT and PAYE returns. If these can be brought up to date along with any due payments then HMRC will have no grounds for demanding the company be wound up.
If the amount is disputed and agreement cannot be reached then the company can apply for an injunction to prevent the Petitioning Creditor from advertising the Petition.
Resolution in Court
If the amount is still disputed when the Petition is heard, the Registrar will issue directions which effectively suspends the Petition until the arguments can be laid before the Court and judgement made to resolve the dispute. Directions by the Court normally involve requiring a written defence to be filed with the Court within 28 days, then a written response to the defence must filed by the Petitioning Creditor within 28 days, then the Court will allow a further 14 days for the arguments to be considered by the Registrar who will either issue judgement or set a trial date to be heard in chambers.
Only after judgement has been given can the Petition be relisted for either dismissal or to make a Winding Up Order.
Call K2 if you need help to run your company while a Petition is disputed
“I can’t pay because our bank account is frozen”
Dealing with a Frozen Bank Account
A bank can be held liable for releasing any company funds in its possession following the advertisement of a Winding Up Petition in the London Gazette. Therefore banks will normally freeze company bank accounts as soon as they become aware of a Petition.
Clearly trading a company with a frozen bank account is a problem when it is necessary to pay for ongoing supplies and wages. It may also be necessary to use the frozen funds to pay the Petitioning Creditor before the Petition can be dismissed.
The only way to make payments from a frozen account is with a Validation Order that in effect authorises the bank to release funds.
A Validation Order may be granted following an application to Court to authorise release of available funds. It is not an order to the bank to make a payment so their consent may be necessary if the bank has the right to withhold funds due to any outstanding loans or cross guarantees.
Essentially the application is in the form of an affidavit with supporting documents to provide sufficient information for the Court to be satisfied that payments from frozen funds will be in the best interests of all the company’s creditors, not just the Petitioning Creditor. The application should include a statement of affairs to demonstrate solvency and details of payments to be made. It may also be necessary to include a cash flow forecast with other relevant documents such as a report by an accountant, turnaround practitioner or insolvency practitioner as an independent third party.
Applications for a Validation Order are fairly rare so care should be taken when appointing a lawyer or professional adviser to assist prepare one.
Call us if you want to apply for a Validation Order and speak to one of our turnaround practitioners