Creditors will ordinarily attempt to recover a debt by issuing a formal claim for payment. If the money isn’t fully repaid within three weeks – or 21 days – and the amount owed is more than £750 then the creditor can ask a solicitor to intervene in issuing a WUP. This amount has increased to £10,000, in line with the Government’s temporary measures which will apply for the period 1 October 2021 to 31 March 2022. Because of the cost that it takes to set up, the debt will most likely be higher than this amount for a creditor to go about taking up this option. The court decides if the petition is to be accepted and it will be forwarded on to the company in debt.

Following the petition being issued, you will have a number of options to consider but you must decide quickly. Once the court has given allowance for the WUO, it will be too late to act. You have one week – or 7 days – to follow one of three routes. You can: 

• Pay the full debt
• Find an agreement with your creditor, such as a payment plan
• Start dispute with the creditor if you feel that the debts are questionable 

You can only pursue a Creditors’ Voluntary Liquidation (CVL) with the permission of the creditor, once a WUP has been issued, and you cannot sell the company or any of the company’s assets. Any such sales could be reversed by the court. 

Although, there could be enough time remaining to suggest a Company Voluntary Arrangement (CVA) or if the debt is being disputed, you could find a lawyer to defend your company from the petition. 

If you can demonstrate sufficient evidence to show that your company is viable and has the possibility for a successful future, you might be able to defend against the petition through the process of administration. However, once the petition has been granted, you will need to go through a costly court procedure to get an Administration Order issued. This is because the courts will have to consider the interests of all applicable creditors before making a decision.

All legal actions against your company, such as the WUP, will remain while a licensed insolvency practitioner will act as an administrator for your business, taking over the running of the company. It should be remembered that the total cost of the debt will have increased as a result of the court costs, and these costs will have to be added to the amount owed.

Following the issuing of the WUP, the next step involves a periditpon adversitsent being placed in the Gazette. This makes the situation viewable to the public. Any creditor must wait at least 7 days after the petition is issued to the company before putting up a petition advertisement that can be publicly viewed, highlighting the date and the basic details of the petition hearing. 

If the petition has not been advertised, it could be possible to stop the advertisement by using an injunction or through negotiating with the creditor. The petition has to be advertised at least 7 days before the court of hearing. At this point, if the advertisement has already been placed, it could still be possible to seek an adjournment. However, you would need to justify this with legitimate reasoning.

After the petition has been advertised, the insolvent company’s bank will become aware of the situation. This will usually freeze the company’s accounts, preventing directors from illegally selling assets and potentially worsening the position of creditors. Some banks have actually begun regularly searching through court registers to find out which companies have recently had a WUO put against them. 

A frozen business bank account forces operations to come to a stop. You may be able to reinstate a bank account if you can get a validation order, although this is a challenging and expensive manoeuvre.

An official receiver (OR) will be taken on board to act as liquidator for the insolvent company, if the court allows the WUO. There is nothing that can be done to stop the company from being liquidated at this point and that essentially means that your business will come to an end. The OR will look into the former actions of the directors, seeing if they acted in wrongful trading while the insolvency is taking place. If a director is found guilty, they will be found guilty  and could be banned from being the director of a company for 15 years. They may also be held personally liable for some of the debts.

You can apply to the court if you want to wind up a company that cannot pay its debts. This is a compulsory liquidation. 

A company can be wound up if:

• It owes £750 or more
• If it is clear that the company cannot pay back its creditor(s)

If you want to push ahead with winding up a company, you will have to fill out a form and send them to the court. 

A successful application to the court is called a winding up petition (WUP). If you are successful:

• Company assets are sold
• Legal disputes are put to an end
• The company can collect its debts
• Funds are distributed out to you and other creditors

When you are winding a company up, the fees are as follows:

• £302 for court
• £1,600 to manage the winding up (petition deposit)

You could be able to get fees back if the company can afford to pay them back.

Winding up can lead to bankruptcy but it is not the same thing. Bankruptcy is a legal procedure that sees creditors attempting to gain access to company assets so that they can be liquidated off for debts. There are many times of bankruptcy, however, these proceedings can help a company to emerge in a new debt-free light. 

On the other hand, the winding-up process stops businesses continuing to trade. The only action that they can perform is the option of completing their liquidation. Following the conclusion of the process, the company will be dissolved and will not exist.

Companies can be legally forced to wind up by a court order. In these cases, the company is told to appoint a liquidator who can manage the sale of assets and the distribution of the proceeds to creditors. 

Court orders are often triggered by a legal suit that is brought in by the company’s director. They are usually the first to realise that a company is insolvent because their bills have remained unpaid. Other cases show that winding-up is the final solution for a bankruptcy proceeding, with creditors trying to regain money owed from the company. However, a company may not have enough assets to satisfy all of its debtors completely, so creditors could face a financial loss.

It usually takes between one and two weeks to go through the winding up process. The appointment of a liquidator will take control of the business and the business’ assets within this time frame, taking up the majority of that one-two week period. Nonetheless, if over 90% of shareholders agree to short notice then Liquidation can happen within the seven days. This would be the minimum statutory notice for creditors. 

Irrespective of the liquidation type, the length of time will depend on the individual circumstances of the business.

An official receiver (OR) will be appointed at the court hearing. The OR will manage and administrate the initial stages of the process. A liquidator could also be appointed if it is deemed appropriate by the OR or enough of the relevant creditors.

The first priority will be the liquidator. After that, any secured or preferential creditors will be sorted out before moving to unsecured creditors. In a ranking list, with top being the most important and bottom being the least, it would look like this:

• Liquidator
• Secured creditors (bank departure) and preferential creditors (employee pay such as the Redundancy Payments Service) 
• Unsecured creditors (supplier to the insolvent company)

A winding up order is when a court order puts your company into liquidation. A WUP is just a request to put a company into liquidation.

If directors knowingly traded when their company was insolvent, they could become personally liable for the debts that have been taken up by the company from the time that they knew they were insolvent. 

You must ensure that all board and management actions have been carefully followed and the assets of the business have not been eradicated. This must be done during the early stages of insolvency. 

It is also vital to keep management accounts, company books and bank statements up-to-date, available and protected. Be efficient. Don’t delay in getting help. Get in touch with us if you feel like you need to get some help on your financial situation and what to do next.