A winding up petition is the most serious action a creditor can take against a company to recoup their money once they have exhausted all other methods of payment collection.
The best course of action for directors is to respond quickly and appoint an authorised insolvency practitioner to save the company and avoid compulsory liquidation. If the winding up petition isn’t paid, disputed, adjourned or had withdrawn by the company, the Court will grant a winding up order within eight to ten weeks. Therefore, it is crucial that the company acts swiftly.
A petition is dismissed if it is paid by the company. In this case, the directors must be thorough and ensure that the petition is withdrawn from the Court record. This action prevents the petition being taken over by another creditor. If another creditor replaces the original petitioning creditor and the company was wound up, the payment to the original creditor would have to be repaid to the liquidator to avoid ‘preference’ or preferential payments. This is the legal term for when one creditor (the petitioning creditor in this instance) is placed in a more beneficial position to the detriment of remaining creditors. This is also known as a change of carriage petition.
If the company disputes the accuracy of the debt and is able to show that it is invalid, the petition can be dismissed by the Court. When a debt is disputed successfully, the Court strikes the petition out and orders significant costs against the petitioning creditor. A petition can also be dismissed, if the Court decides that the company is able to repay some or all of the debt through an agreement with its creditors or via a Company Voluntary Arrangement (CVA), which effectively creates a payment plan with the petitioning creditor.
The Court needs a good reason to grant an adjournment in winding up proceedings. If the company can convince the Court that it can pay the debt and continue to trade, the Court will give the business the breathing space it requires to collect monies owed to the company or work out the logistics of placing their company into an insolvency process.
Sometimes the petitioning creditor decides that it’s not worth continuing with the process. When the threat of closure has been delivered to the company and it still hasn’t paid, the creditor may well decide to withdraw its petition to avoid paying the full cost of the winding up proceedings.
If you have been threatened with or served a winding up petition and would like to discuss the options, please call 08000 746 757 or email [email protected] for free and confidential advice from one of our professional advisers.