Stopping Winding Up & What The Winding Up Consequences Can Be?
Do you know what a winding up petition is and how bad it could be for your company and the consequences for you as a company director as well as your company? If you don’t then you had better sit down and find out what you need to do if you been served with a winding up petition for your company. Some common questions are answered first before you proceed any further with the process. Watch theshort video and see what your options are.
What is a winding up petition?
Success in any business is not easy and without head aches. But sometimes even the most successful businesses face cash flow problems which could eventually lead to their undoing. This could be anything from bad debt due to the recession right through to competing businesses. If a business owes money to its creditors and does not take the steps necessary to resolve any outstanding issues, it may be faced with a winding up petition.
Winding up petition and the consequences
If you have been issued with a winding up petition for your company because the company owes money. You can pay the money owed before the court date and get the case dropped or fight it if you believe it to be worth defending. On the other hand if you do nothing and the debt is not paid following the presentation of the petition, then the court will make a winding up order (“the order”) against your company. As it’s a court led procedure, various rules come into play once the petition has been presented. The presentation of a petition has serious consequences for the directors and the company, but before we go any further let me give you a case study of what can be achived with professional advice.
Case Study for better understanding
Company “A” had 38 retail stores selling household furniture with sales declining daily and unable to pay its bill as they fell. The company was presented with a winding up petition due to unpaid Inland Revenue and VAT debts. The company had a combination of freehold and leasehold stores in prime retail sites across the country. The company employed a workforce of 260 people on its payroll. A final decision had been made to place the company into Administration before the petition date for this we needed permission of the courts which we obtained on the grounds that there was a better chance of greater dividends going down the administration route than the winding up and compulsory liquidation route for all the creditors and the employees of the company. The courts accepted the plan and gave us 6 weeks to come back and report further progress. Within the 6 week period deep cuts were made to staffing numbers and closure of stores that were not profitable. 11 stores were kept and the rest were sold or leases terminated, the 11 stores were the ones that were making good profits and allowed the company to grow without the losses which it had been getting every trading day before the administration order. By the time we had restructured the company the creditors all agreed to accept £0.40p in every pound owed which allowed the company to continue trading more profitably. The above case demonstrates what can be achieved if experts are brought into the picture earlier rather than later on in the winding up process. Now back to further information about winding up petitions and some of the consequences.
The presentation of a petition has serious consequences for the viability of your company and these are detailed below:
Protection of assets between winding up petition and order
Once the petition has been presented, a date is set for a court hearing at which the petition will be heard and a winding up order made against your company. A considerable time may elapse between the presentation of the petition and the hearing for the making of the order. In general, your company should be allowed to continue to trade in that period but the creditors need to be protected against possible disposal of its assets. Your actions as a director are therefore under great scrutiny in this period of time and the ability to trade effectively can be impaired due to the impending hearing being at the forefront of your mind.
Invalidation of disposal of assets
Unless the court orders otherwise, any disposal of your company’s property, alteration in the status of its members or transfer of shares after the commencement of the winding up is void. The purpose of this provision is to preserve the value of the assets of a company for the benefit of persons interested in those assets.
At any time after the presentation of the winding up petition the court may appoint the Official Receiver or an insolvency practitioner to be the provisional liquidator of the company. The primary reason for such appointment is usually to safeguard the assets pending the winding up hearing. Since an appointment anticipates the making of a winding-up order this appointment is usually made only with the consent of the company itself or in a clear case of insolvency. Compulsory liquidation takes away control from you as a director of the company and it is important for you to take control of the situation and be in control of your own destiny.
What will be the Next Step?
We understand that as a business owner you have worked day and night to ensure your business is successful. But sometimes even the most successful businesses face situations which are outside of their controls like the recession, the banks not being helpful right through to a client who might have left you with a bad debts.
Good news is even at this late stage in time you have options:
- Stop the winding up petition
- Stop Creditors hassling you
- Start a New Company
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