How to Stop a Winding-Up Petition
When you receive a winding-up petition, it’s essential that you act fast. If left unchecked, the petition will quickly progress into the compulsory liquidation of your business. So how can you stop a winding-up petition?
Thankfully, there are a variety of solutions available to directors. Which option is best suited to you depends on your individual situation.
In this guide, we’ll explain the risks of compulsory liquidation, how you can adjourn the process, and how you can put a stop to it.
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What Happens if I Don’t Stop a Winding-Up Petition?
A winding-up petition signals the imminent end of a business, leaving directors and employees out of pocket. Creditors can submit a winding-up petition when they’re owed £750 or more, and they can’t get their money back.
It’s vital you act quickly.
Just 7 days after the winding-up petition is created, it will be advertised in The Gazette, the UK’s official public record. Banks will see this notice and freeze all of your company’s bank accounts. This will leave you effectively unable to trade and cause major reputational damage.
Next, you’ll have your court hearing. If the court accepts the petition, a winding-up order will be made, resulting in the immediate liquidation of your business. But that’s not all. An investigation will also be carried out into your conduct, checking that you’ve upheld your legal duty to your company creditors.
This can lead to misfeasance and wrongful trading charges, which carry a range of nasty penalties:
- Made personally liable for company debts
- Get disqualified from acting as a director for 15 years
- Receive hefty court fines
If you’re unable to pay for the damages, you may be forced into declaring bankruptcy. This means, in extreme cases, a winding-up petition can result in the loss of your home.
How Do I Adjourn a Winding-Up Petition?
You have just 7 days to act when a winding-up petition is issued; after this point, it will be advertised in The Gazette, and your company bank accounts will be frozen.
This is very alarming, as it doesn’t give you much time. You can still act after the 7-day window, but the impact on your company will be profound.
Thankfully, you can apply to the court for an adjournment. This will put a hold on proceedings while you make your arrangements.
Inform the court that you’re working with an insolvency practitioner and intend to enter an insolvency procedure. The court will then allow you the time you need to get that procedure into place. Once this has been done, the petition is cancelled.
Alternatively, let them know you intend to dispute the debt and that you need more time to gather evidence.
How Can I Stop a Winding-Up Petition?
There are many options available to deal with the threat of a winding-up petition. These range from informal solutions, like getting in touch with your creditor, to formal rescue procedures, like a Company Voluntary Arrangement.
Pay Off Your Debt
While this may seem obvious, simply paying off the debt is still worth a mention.
Creditors can issue a winding-up petition against your company for a debt of just £750. If you’re able to pay off the amount or realise some assets and raise the cash, it’s definitely the right move.
You may disagree with the debt, but allowing it to go to court – where there isn’t concrete evidence it is false – can result in your accounts being frozen and your company being liquidated.
Remember, you don’t actually have to pay off the entirety of the outstanding debt. You simply need to get the debt below the £750 minimum threshold. For example, if you owed £1000, paying your creditor £300 would prevent a winding-up petition from going ahead.
Settle on Terms with Your Creditor
Although it’s a long shot, it’s always worth getting in touch with your creditor and trying to come to an informal, out-of-court arrangement.
You can propose a repayment plan to your creditor, promising to repay the debt at a reduced rate over an extended period of time.
That being said, creditors only pursue compulsory liquidation as a last resort, typically out of frustration with you, the debtor. This means they’re unlikely to be too trusting of any informal deal you suggest – especially when they’ve already paid for expensive court fees.
In most cases, you’ll have to agree to pay quickly, and you’ll need to cover their court costs alongside your existing debt.
Dispute the Debt
You can dispute the debt if you don’t believe it’s legitimate.
A debt may be illegitimate because:
- The amount is incorrect
- There is no valid claim
Any claims disputes must be filed at least 5 days before the final hearing date.
Remember, you can’t just dispute a debt because you don’t like it or because you don’t agree with it. There must be a genuine reason. You’ll need to get the advice of an insolvency practitioner to assess whether the debt is illegitimate or not.
Time to Pay (TTP) Arrangement
One of the biggest winding-up petitioners is HMRC. Unlike most creditors, they have the resources to pursue compulsory liquidation, and they like to make an example out of companies that don’t keep up with their tax obligations.
However, despite their fearsome reputation, HMRC are actually quite reasonable. They’re aware that closing UK businesses is not beneficial to the economy, so they only do so as a last resort.
To help companies struggling with tax arrears, they introduced the Time to Pay arrangement scheme. This allows you to stretch out your repayments, typically over 12 months. So long as you keep up with your payments, HMRC is prevented from taking legal action against you.
Time to Pay arrangements can also be useful when HMRC isn’t the petitioning creditor. You can free up cash by entering a TTP arrangement and use it to pay off your debt.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal insolvency solution which allows you to deal with your debts while avoiding liquidation.
It functions as a repayment plan, carrying a range of benefits:
- Stretches out repayments over 3-5 years
- Freezes interest on debts
- Significantly reduces monthly overheads
- Protects the company from liquidation
You’ll need the backing of 75% of your creditors to enter into a CVA. Our insolvency practitioners will help you draw up a plan that is affordable for you and attractive for your creditors. You can adjourn the winding-up petition while the CVA is set up.
Entering into a CVA will stop a winding up petition and cancel further court proceedings. So long as your company keeps up with its regular repayments, it will be protected from compulsory liquidation.
Administration
Administration takes control of the company and gives it to an administrator. They’ll review the company’s structure and cash flow in an effort to save the company.
The process allows the company time to regroup:
- Protects company from creditors and legal action for 8 weeks
- A fresh pair of eyes can fix problems
- Can reverse insolvency
Administration doesn’t give the same guarantees as other insolvency procedures, but it doesn’t require the support of creditors either. Many use administration to get their company stable enough to enter a CVA.
Creditors’ Voluntary Liquidation (CVL)
Although it might seem redundant, voluntary liquidation is actually a much better choice for directors than compulsory liquidation.
As the most popular form of company closure in the UK, a CVL offers many advantages to directors:
- Relieves pressure in as little as 14 days
- Safeguards you from misfeasance and wrongful trading charges
- Enables directors and employees to claim redundancy sooner
- Cost is usually covered by the liquidation itself
The primary advantage of a CVL is that it demonstrates you’re considering the position of your creditors, upholding your legal duty as a director. This can protect you from becoming personally liable for company debts or disqualification from acting as a director.
Can I Still Stop a Winding-Up Petition After It Has Been Advertised?
Yes – a winding-up petition can still be stopped after it has been advertised in The Gazette. All of the methods we have listed in this article will still be viable.
However, your financial situation will become public knowledge, and all of your bank accounts will be frozen. This can make it very difficult for any company to achieve a successful turnaround. You may have suffered reputational damage, and losing access to your company accounts will have effectively eliminated your ability to trade.
In order to stop a winding-up petition after it has been advertised in The Gazette, swift action is needed. The sooner you can intervene, the better. The longer the notice is posted, the less chance your company has of getting back on its feet.
Speak to an Expert
If a winding-up petition has been issued against your company, it’s crucial that you act right away.
Delaying can cause the problem to quickly spiral out of control, allowing your business to decline beyond the point of rescue.
Our expert insolvency practitioners can assess your situation and guide you to the solution that’s best suited to you. We’ll help to adjourn the petition against your business until an alternative means of dealing with the debt has been figured out.
Get in touch today to book a free consultation.
