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Winding Up Petition

Winding up Petition

What is Winding Up?

A winding up petition is a legal process by which a creditor, usually a company or individual owed money, tries to force a company into liquidation.

A winding up petition is usually considered a last resort when all other methods of debt collection have failed.

This article will provide an in-depth explanation of what a winding up petition is, how it works, the consequences of a winding up petition, and how to avoid one.

How does a winding up petition work?

A winding up petition is a legal process that typically involves the following steps:

▪️Demand for payment: Before a winding up petition can be filed, the creditor must make a written demand for payment to the debtor company. The demand should specify the amount owed, the due date, and a deadline for payment.

▪️Petition filing: If the debtor company fails to pay the debt within the specified deadline, the creditor can file a winding up petition in court. The petition must be accompanied by a witness statement that sets out the grounds for the petition, such as the debt owed, the failure to pay, and the insolvency of the debtor company.

▪️Notice of petition: Once the winding up petition has been filed, the court will issue a notice of petition. The notice must be served on the debtor company, and any other interested parties, such as other creditors or shareholders.

▪️Court hearing: The court will set a date for a hearing to consider the winding up petition. The debtor company can oppose the petition and present evidence to show that it is not insolvent, or that it has a viable plan to pay its debts.

▪️Winding up order: If the court is satisfied that the debtor company is insolvent and unable to pay its debts, it may grant a winding up order. This means that the debtor company will be liquidated, and its assets will be sold to pay off its creditors.

How to avoid a Winding Up Petition

There are several steps that a debtor company can take to avoid a winding up petition. These include:

▪️Communicate with creditors: If a debtor company is struggling to pay its debts, it is important to communicate with its creditors and try to negotiate a repayment plan.

▪️Seek professional advice: A debtor company can seek professional advice from insolvency practitioners or accountants, who can help assess the company’s financial situation and provide guidance on the best course of action.

▪️Restructure the company: If a debtor company is facing financial difficulties, it may be an option to restructure the company, such as by reducing costs, renegotiating contracts, or selling assets.

▪️Seek funding: A debtor company can seek funding from external sources, such as banks or investors, to help pay off its debts and improve its cash flow.

▪️Consider a Company Voluntary Arrangement (CVA): A CVA is a legally binding agreement between a debtor company and its creditors, which allows the company to pay off its debts over a period of time while continuing to trade.

What are the consequences of a winding up petition?

A winding up petition can have serious consequences for a debtor company. Some of the main consequences include:

▪️Liquidation: If a winding up order is granted, the debtor company will be liquidated, and its assets will be sold to pay off its creditors. This means that the company will cease trading, and its employees will lose their jobs.

▪️Legal costs: The debtor company may be liable for the legal costs of the winding up petition, as well as the costs of the liquidation process.

▪️Personal liability: Directors of the debtor company may be personally liable for any debts that are not paid off by the liquidation process.

▪️Credit rating: A winding up petition can have a significant negative impact on the credit rating of the debtor company, making it difficult for it to obtain credit in the future.

▪️Reputation: A winding up petition can also damage the reputation of the debtor company, making it difficult to attract new customers or business partners.

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How to avoid a winding up petition

You cannot strike off a company with a Bounce Back Loan. However, you can close the business with a Bounce Back Loan if the business becomes insolvent and you need to enter a formal liquidation process.

You can go into the process of liquidation if:

▪️ A creditor forces you into liquidation but this is a long process, including a court case.

▪️ Directors push through the liquidation of the company themselves. This is known as a Creditors Voluntary Liquidation (CVL).

A licensed insolvency practitioner will take a business through the entire process.

They will identify company assets, sell off those assets for the benefit of creditors, and they will organise the whole procedure on your behalf.

The final result of the liquidation is that the company will no longer exist as a legal operator, and any debt remaining from this point forward will be written off (unless it has previously been secured with a personal guarantee). A Bounce Back Loan would be written off as part of this liquidation process.

What is a Winding Up Order?

A winding-up order is a declaration from the court to close a company down and liquidate its assets. It follows a winding-up petition (WUP) that has been made by a creditor, following unsuccessful attempts to regain their money.

If you have been sent a winding-up order, it means that your company will be liquidated and closed down for good. Directors will also be put under the spotlight through investigation from the Insolvency Service.

How do I stop a Winding Up Petition becoming a Winding Up Order?

You have three main options.

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

The best way of finding a resolution to this problem is to act quickly and negotiate with your creditors, as we have noted in our step-by-step guide.

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How do I wind up a company that owes me money?

You can apply to the court if you want to wind up a company that can’t pay its debts. This is known as 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.

How much does it cost to Wind Up a Company?

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

  • £302 for court.
  • £2,600 to manage the winding up (petition deposit).

It is possible to get the fees back if the company can afford to pay them back.

Who Can Wind Up My Company?

Creditors can apply to have you wound up if you owe them money.

It’s up to the court to decide if this Winding Up Petition becomes a Winding Up Order. The Winding Up Order will then be dealt with by a licensed Insolvency Practitioner.

The directors of a business can also choose to wind up their own business. But, again, only a licensed Insolvency Practitioner can complete the Winding Up Order.

How We Can Help With a Winding Up Petition

A winding up petition is a serious legal process that can have significant consequences for a debtor company.

Companies need to communicate with their creditors, seek professional advice, and take proactive steps to address their financial difficulties, to avoid a winding up petition.

By doing so, companies can improve their chances of survival and ensure that they continue to operate as a going concern.

If you are subject to a winding up petition or winding up order, don’t hesitate to contact us.

One of our compassionate experts will be on hand to discuss all the options available to you. Call us on 0800 088 2142.

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