The difference between a statutory demand and a winding-up petition
If you’ve received a statutory demand or faced a winding-up petition threat, you might be concerned about your company’s future. Though both terms are different, both processes are profoundly serious actions by creditors and present a real threat to your business’s future.
What are the statutory demands?
A statutory demand typically precedes a winding-up petition. It’s a formal demand for payment from a creditor.
While any creditor can issue a statutory demand, HMRC often uses it to recover unpaid tax debts. Statutory demands are usually served only after a creditor has tried other ways to recover the money you owe. If your limited company gets a statutory demand, you must reply within 21 days.
You can either pay the full amount you owe or agree on a plan to clear the debt mutually. Not doing so could be taken as evidence of your company’s insolvency.
A statutory demand often initiates legal action, which may result in your company being liquidated if you don’t respond properly. Ignoring the demand isn’t an option.
If you owe your creditor over £750, they can petition the courts to wind up your limited company. If the demand is issued personally to you, you can face bankruptcy if you owe at least £5,000.
Creditors often see a statutory demand as a precursor to serving a winding-up petition. Be warned, if a creditor issues a statutory demand, they may proceed to wind up your company if payment isn’t made.
Winding up petition-what does it mean by?
A winding-up petition frequently follows an unanswered statutory demand. It’s the most serious action a creditor can take against a non-paying company. If you owe a creditor at least £750 and haven’t paid within 21 days, they can petition the courts to wind up your company.
With a winding-up petition (WUP), the creditor seeks to liquidate your company to settle its outstanding debts with the proceeds.
Issuing a WUP costs a creditor £280 in court fees along with a £1,600 petition deposit. This indicates the seriousness of their intent to push your company into liquidation.
Once a WUP has been issued against your company, your options are limited unless you can’t pay the amount demanded. You might consider proposing a Company Voluntary Arrangement (CVA) to restructure your liabilities, but time is crucial, so you must act swiftly.
Administration is another option that may assist if your business is viable moving forward. For either of these solutions, you’ll need to reach out to a licensed insolvency practitioner urgently to begin the process before your company faces winding up.
Not responding to the WUP will lead to a winding-up order being issued. At that stage, there’s nothing you can do to prevent your company from being forcibly liquidated.
Read More:
- 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
- Winding up Process and Procedure
- Defending a Winding Up Petition: Can a Winding Up Petition be withdrawn
What if your company is struggling with financial difficulties
Neither a statutory demand nor a winding-up petition usually arises suddenly. They are typically the final steps in a lengthy process of pursuing a non-paying customer or client.
If you owe a company money and can’t pay, it’s essential to be proactive early on to prevent the situation from spiralling out of control.
Talk to your creditor and try to reach an agreement to repay the money you owe in a manner that is manageable and sustainable going forward.
If you believe your company’s debt situation has become unmanageable, it’s crucial to prioritise speaking to an insolvency practitioner at the earliest opportunity.
Continuing to trade and accumulating more debt could breach your duties as a company director and result in severe repercussions.
Vanguard Insolvency’s team of licensed insolvency practitioners can assist you in understanding the options available to your company and advise you on the most suitable course of action.
Whether you’re considering closing your company or exploring all potential rescue options, we can assist you.
Contact our expert advisers today to schedule a free, no-obligation consultation at any of our 100+ offices.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.