What can Directors do if they receive a Winding Up Petition?

A Winding Up Petition filed against a business by a creditor is about as serious as it can get and can lead to the compulsory liquidation of a company, by order of the Court, if the debt is not paid. In a recent article we reported on how HMRC has issued the highest number of Winding Up Petitions since before the Covid-19 pandemic, but they can also be issued by any creditor, including trade creditors and lenders and the decision to issue one can be made very quickly, leaving the recipient very little time to act.

In this article, we look at the processes involved in a Winding Up Petition being served and what happens when one is. The key thing for directors receiving one is to take professional advice and take swift action.

Do Winding Up Petitions come out of the blue?

Although the decision to serve one can be made very quickly, it rarely comes out of the blue and normally comes at the end of a process where a disgruntled creditor has followed a lengthy, escalating process, in an attempt to be paid by the debtor. The process usually starts with an initial request for payment of an overdue invoice, escalating through County Court Summons, County Court Judgements, or a Statutory Demand for payment. When such a demand has been served, there has to be a minimum of 21 days between service and filing of the Winding Up Petition. In other words, if the determination of a creditor to be paid reaches the Statutory  Demand stage it is a clear warning they are serious, that a Winding Up Petition could quickly follow, and that action needs to be taken.

Once a Winding Up Petition has been served, things move quickly.

Once a Winding Up Petition has been filed, the petition is capable of being advertised in the London Gazette, and from advertisement the company has a minimum of seven days to act before the petition is heard at Court. At the point of the petition being advertised it becomes public knowledge (especially to other creditors), with all the reputational damage that comes with it, and the resulting freezing of the business’s banking accounts, making trading nigh-on impossible.

It is vital, therefore, to speak to a Licensed Insolvency Practitioner before this stage is reached as any delay will severely reduce the number of options available. If the Petition is not contested (either by making the payments on account/in full, or by mounting a defence to contest the debt) it is highly likely that the Court will approve the petition and grant a Winding Up Order. This is when a compulsory liquidation process begins, and matters are taken out of the director’s hands.

What options might be available?

If the debt cannot be met in full, then this is the time to seek help from a Licensed Insolvency Practitioner – we have 5 here at Antony Batty. There are still some options available, although the Insolvency Practitioner will need to examine all required data to make the most informed recommendations, and time is short.

If nothing happens between the petition being issued and the hearing the Court (unless it has any reason not to do so) will issue a Winding Up Order, which means that the company will be compulsorily liquidated, where the directors have no further influence on the process and the company’s assets will be valued and sold.

Compulsory Liquidation versus Creditors’ Voluntary Liquidation

A creditors’ voluntary liquidation (CVL) has many advantages over a compulsory liquidation – take a look at this article to find out more. A key advantage is that once the decision is made to enter a CVL, the directors are free to choose their own Liquidator initially (although if the creditors disagree with the choice, they can appoint a different Liquidator at the creditors’ meeting). The CVL process is then set in motion, and it cannot be objected to by creditors.

In a CVL, the company also avoids being wound-up by creditors through the courts and being forced into a compulsory liquidation. A CVL is not available once a Winding Up Order has been made.

With a compulsory liquidation, the court will appoint an Official Receiver (OR) who will investigate the company’s affairs and the reasons for its failure.

It is part of the statutory duties of a liquidator to investigate how the directors of the company acted in the period leading up to the liquidation. They will be looking for evidence of misconduct, including continuing to trade even if they were aware the company was unavoidably heading towards insolvency. Under such circumstances, the directors could become personally liable for the company’s debts from the date they were aware of the insolvency. Director disqualification is also a possibility, and in exceptionally serious cases, a custodial sentence could be the outcome.

How Antony Batty and Company can help.

We always say that the earlier we are contacted, the more we can do to help. A Winding Up Petition followed by a Winding Up Order and the resultant Compulsory Liquidation could be the worst outcome of all and one that no one has any influence over – the rules are simply carried out. If, however, there is still a chance that the company can be saved using a recovery process, such as a CVA or an Administration, then that is what we will recommend. Likewise, if a liquidation is inevitable, a CVL is preferable to a compulsory liquidation.

We have the experience and expertise to make the chosen insolvency process as painless as possible and will ensure that the correct process used is right for the circumstances in play which can sometimes be complex. Take a look at some of our testimonials/case studies here. As ever, the earlier we are contacted, the more we can do to help. So, if your company is experiencing some or all of these warning signs, get in touch:

If you are concerned about the financial position of your company and are facing insolvency, please contact us or contact one of our offices:

Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:

Our Licensed Insolvency Practitioners will take you through your options step by step and will advise you of the best one to take under the prevailing circumstances.

This article we written by Stephen Evans a consultant here Antony Batty & Company, and a former Licensed Insolvency Practitioner with over 40 years of experience in Insolvency.