Understanding a Creditor’s Petition and the process that follows

What happens when a creditor issues a Winding Up Petition against your company?

A creditor’s petition, often called a Winding Up Petition (WUP), is usually the last action a creditor can take to collect a debt that has been unpaid multiple times.

Issuing a WUP is costly and brings severe consequences for the targeted company. Hence, in most instances, a creditor’s petition is only filed as a final option after a prolonged collection process involving numerous unsuccessful attempts to secure payment from the debtor.

If a creditor files a WUP against your company, it demonstrates their resolve to retrieve the money owed to them. Failure to pay could result in your company being forcibly wound up by the courts.

It’s essential to seek professional advice promptly. This will assist you in determining your next course of action and in safeguarding not just the company but also your level of liability.

 

What is a statutory demand and how does it precede a creditor’s petition? 

Typically, the creditor must first issue a 21-day statutory demand for payment before applying for winding up. If the demand is ignored and the debt remains unpaid, it serves as evidence of the debt’s existence and indicates the debtor’s company’s insolvency. This enables the court to take additional measures.

Yet, if a County Court Judgment (CCJ) has already been filed against your company, the creditor isn’t required to issue a 21-day statutory demand. Instead, they can promptly file a winding-up petition for your company’s liquidation.

After seven days, a notice of the WUP will be publicly advertised in your local Gazette, and proceedings will progress swiftly from this stage.

The seven-day interval between the issuance of the WUP and its subsequent advertisement is crucial for saving your business. It’s recommended to seek the assistance of an insolvency practitioner as soon as you receive a statutory demand or CCJ.

But if you’ve reached the point where a creditor has served you with a winding-up petition, the brief window before the WUP is advertised can be utilised to take preventive measures and potentially rescue your business from compulsory liquidation.

 

What will happen if my company has already been issued with a WUP?

One week after serving your company with a WUP, your creditor can request its advertisement in the Gazette. You’ll notice that your ability to trade will be impacted almost immediately once the WUP is advertised.

Once other creditors learn about your company’s situation, they are likely to decline future business with you while your immediate future hangs in the balance. 

Moreover, once your bank is informed of the winding-up petition, your accounts will be promptly frozen, rendering day-to-day operations impossible unless you obtain a validation order from the court to regain access to your funds.

The WUP will then be brought to court, and if the creditor prevails, a winding-up order will be issued. This initiates the compulsory liquidation of the company, and at this point, there is nothing that can be done to halt the process.

 

How can I stop a winding-up order from being issued? 

• Upon receiving a WUP, you have approximately a week to take action, during which you could attempt informal negotiations with your creditor to explore the possibility of reaching a mutually agreeable plan. Involving an insolvency practitioner enhances your chances of success in these negotiations. If you manage to repay the debt or negotiate a repayment plan successfully, you’ll notice that the owed amount has increased to cover your creditor’s costs in issuing the petition.
• If you have the funds available to settle the debt with your creditor, it’s advisable to prioritise doing so. Alternatively, you may want to explore the possibility of sourcing additional finance to settle the debt. Before considering further borrowing, it’s essential to seek expert guidance and advice from an insolvency practitioner. Doing so is crucial because accruing additional debt may constitute a breach of your director duties if your company is insolvent.
• Alternatively, a formal payment plan might be appropriate. A Company Voluntary Arrangement (CVA) would suspend all legal actions against your company, freeze interest and charges on the debt, and enable you to repay the money over an extended period.
• If you have grounds to dispute the debt, you’ll need to present your case in court or hire a representative to do so on your behalf.
• If that is suitable, you could pursue an administration order. This legal measure creates a protective barrier around the company, shielding it from creditors seeking legal action and granting you additional time to determine the most suitable exit strategy from the administration. This may involve liquidation, a CVA, or the sale of the business.

Read More: 

• Statutory Demands  Advice for Company Directors
• What is the difference between a Statutory Demand and a Winding Up Petition
• How to Wind up a Limited Company
• What is a Validation Order for a frozen business bank account
• The Legal Ramifications of Winding Up a Company With Debts

 

What to do if a winding-up order is already granted?

Should the court issue a winding-up order, the business assets will be sold, and your company will undergo liquidation. A liquidator assumes control of the business and submits a report to the Secretary of State concerning the conduct of all directors in the period leading up to insolvency.

If you require advice in this situation or seek general guidance on handling creditors, Vanguard Insolvency provides a free same-day consultation where your needs can be discussed confidentially. Contact us today for assistance.