What Should I do if Creditors are Threatening Legal Action Such as a Winding up Petition?
One of the more common scenarios in which we are contacted involves a business person, usually the director of a limited company, who is facing increased creditor pressure. As the pressure from an unpaid debt mounts, the creditor begins to threaten via legal means – firstly a Statutory Demand or County Court Judgement, and finally a winding up petition.
This final demand letter usually states that if the debt is not paid within a certain period, then there will be an attempt to wind up the company through the courts.
Here is our advice if that’s the situation you find yourself in.
(1) Avoid the Winding up Petition at All Costs
Once a creditor applies to the courts for a winding up petition, they have pulled a tough card from which recovery is challenging, albeit not impossible. The purpose of the petition is to ask for the court’s help in recognising their failed attempt to have the debt paid and, as a result, forcibly liquidating your company.
Of course, if you can demonstrate that you have maintained clear communication with them, and are in a position to pay the debt, then you will be in a strong position to stop the petition in its tracks. Whether this is not the case, you will need to act swiftly.
With the possibility of the end of your company, and its dissolution from the register at Companies House, it is imperative you find a means of appeasing your creditor, whether it’s through an informal payment plan, a finance agreement, or a formal payment scheme like a Company Voluntary Arrangement.
We recommend you call us at the earliest opportunity to discuss your options, if you’re facing the threat of Winding Up. We don’t charge for initial advice and you may find it a huge relief to know your options.
What will a Winding up Petition Mean for My Company?
It will mean:
- Frozen company bank accounts
- The Petition will be advertised in the Gazette
- Compulsory liquidation
- All of your company assets will be sold to repay creditors
- Directors roles will Cease
- Directors conduct will be investigated
- Ultimately, the company will be struck off the register at Companies House.
Know Your Legal Rights When it Comes to Creditors
(1) They are not allowed to harass you
Keeping a close record of all contact by creditors is a sensible way to proceed once your business runs into difficulty. Creditors, and often debt collection agencies on their behalf, may sometimes overstep the line via behaviour such as:
- Contacting you via your personal social networks
- Not informing you if the debt has passed to a debt collection agency
- Using multiple debt collectors simulataneously
- Telephoning you early in the morning, late at night, or repeatedly within 24 hour period
- Using paperwork which appears to be from the Court in order to give themselves a false sense of authority
- Any kind of physical or verbal threat
- Any of tactic intended to cause you or your company public embarrassment
(2) Business Creditors are permitted to
- Telephone you
- Send you reminders by post, including demands for payment
- If the creditor receives a court order allowing baliff action, baliffs may enter your business premises, although never if there’s a residential element. They may not enter or approach you at your home.