What to Expect Once a Winding Up Petition has been Issued
Being served a winding up petition is not a nice experience, and there are a few points to keep in mind when thinking about what to expect, next. The petition is usually conducted by a solicitor due to the legal intricacies of the process and this in itself should give some indication of the seriousness of this action. There are also associated legal costs which are not insubstantial if you are employing the services of a lawyer (c£2,000).
Once a winding up petition has been issued the rescue options for a company, though not impossible; may reduce, so you should seek advice immediately to see what options are available to you and your company. The director is ‘served’ with a winding up petition and in the petition will be a hearing date at which the ‘petition’ will be heard so all attendees can have their ‘say’.
At the hearing one of the following results will normally be determined:
- The petition will be dismissed
- The hearing will be adjourned
- The winding-up order will be imposed
- An interim order may be applied
- The court can make any other order it sees fit
Your bank account will usually, be automatically frozen, I usually say as it depends on how efficient your bank is in these matters, but once frozen your bank account cannot be accessed. Even if not frozen you should avoid using the bank account and withdrawing funds as these actions will be closely scrutinised at the petition hearing. Simply because your bank may have made an error would not mean you can withdraw funds as part of the petition function is to freeze the movements of any potential assets for the creditors.
The Official Receiver Interview
Once the hearing has been heard, and the company has been wound up then the company must cease to trade, and the official receiver will write to the directors, and they will be invited to an interview which will normally be recorded. This meeting will typically last around two hours, and you must attend unless you have good cause, which you will be expected to prove.
The official receiver has some roles, but the priority is to obtain the best result possible for the creditors. However, they also have a duty to investigate the directors’ actions and their involvement in the company’s insolvent situation. Keep in mind that depending on the complexity of the case and just how busy the official receiver is, they may delegate the case to another liquidator to act on their behalf.
There is no set time the investigation can take but 6-12 months is not unusual. At the official receiver interview, they will ask you to hand over the company’s books and records, which will include a list of all the company’s finances, bank statements, assets and creditors. You will then be asked to sign a sworn statement of the company’s statement of affairs as a permanent record.
You will need to be able to explain why the company failed and, if applicable, why taxes were not paid, and this may be subject to a particular investigation if HMRC requests it.
The official receiver will also investigate the director’s involvement in wrongful trading that is carrying on trading while insolvent amongst other matters.
They (Official Receiver) will pay particularly close attention to:
- Preferential payments to selective creditors;
- Increasing the company debts knowing the company was insolvent;
- Paying off the bank liabilities where there are personal guarantees;
- Unpaid PAYE/NI when the director’s salary was paid;
- Misuse of the company funds, for example, a director’s personal benefit;
- Theft from the company;
- Repaying a director loan or loan from a relative/friend of the director;
- Movement or sale of assets at an undervalue;
- Use of the company name with a new company.
Following the official receiver interview and subsequent investigation, directors can be banned from being a director or holding a management position in a company from between 2-15 years, if found to have been trading irresponsibly. They can also be made personally liable for company debts; fined, and for the most serious offences be jailed, though this is reserved for criminal activity.
The directors will lose control of the limited company following the winding up order.
If your limited company has been issued with a winding up petition, you will need to act quickly to see if your business can be saved. To speak with one of our friendly team members about winding up petitions, please call us on 08000 746 757; email us at firstname.lastname@example.org; or use the Live Support feature at the bottom-right of the page.