Winding Up Petition
What is a Company Winding Up Petition?
A creditor (someone the company owes money to) who has not been paid a debt of £5,000 or more can ask the court to wind up the company. This is called a winding up petition.
When can it be used?
A winding up petition can be used when a company is owed money (more than £5,000) which remains unpaid. The amount must be quantified with no dispute. The quantum is usually verified by the creditor obtaining a County Court Judgement (“CCJ” or “judgement”). The company has to appear in Court to defend the petition or the company will be compulsorily wound up. Alternatively a petition can be overcome by paying the debt due or reaching an agreement as to how the debt will be paid or putting the company in an alternative insolvency procedure.
What is the effect of a winding up petition?
A winding up petition has an immediate and huge impact.
- The company can only continue trading if it can be demonstrated that the continued trading was for the benefit of all creditors.
- Directors are at risk of wrongful trading which may be considered fraudulent trading.
- Directors are at risk of preference. Directors must not pay any creditor if they are unable to pay all creditors as they fall due unless they can demonstrate the payment was for the benefit of all creditors. Continued payment to creditors by directors deciding who to pay is fraudulent preference.
- No receipts should be placed into an overdrawn bank account as this would prefer the bank.
- The bank will freeze the company’s bank accounts. Banks monitor the London Gazette where all insolvency petitions are listed and if the Bank sees a winding up petition then an automatic stop is placed on the account. In real terms the company cannot continue to trade if a winding up petition is advertised.
- Directors cannot sell assets of the company or enter into any contracts between the issuing of the winding up petition and the date of the Court hearing. Any sale of assets or contracts entered into in this period are deemed post petition dispositions. Any transaction deemed a post petition disposition is automatically void if the company enters liquidation UNLESS the Court sanctions the sale.
- Directors are at risk of Misfeasance if the pay themselves other than through PAYE/NI payroll.
Are there any dangers if I pay off the creditor who issued the winding up petition?
No not if the winding up petition has not been advertised in the London Gazette BUT if it has been advertised then ANY ONE owed by the company can continue with the petition and wind up the company. In essence if the petition has been advertised it is not worth paying creditors but do take advice to protect yourself as a director.
So as a director if you are in receipt of a winding up petition what do you do?
Take immediate advice from Gibson Hewitt. There may be a number of options available to the company if you take action early. These options may include Company Voluntary Arrangement (CVA), Administration, Company Voluntary Liquidation (CVL). Contact Lynn Gibson or her award winning team 01932 336149 firstname.lastname@example.org