What is a Winding Up Petition?
A winding up petition is a legal action taken by a creditor (someone owed money) to force a company into compulsory liquidation. It is usually the last resort for a creditor who has been unable to collect payment from a company. The petition is filed with the court and if successful, the company will be forced into liquidation, and its assets will be sold to pay off its debts.
It is a serious matter that can have severe consequences for a business, including the loss of assets and closure of the company. If your business is facing a winding up petition, it is important to act quickly and take the necessary steps to stop it.
For expert guidance tailored to your specific situation, call us for a Free Consultation today by contacting us at 0207 459 4037. Our expert winding-up petition solicitors will help you navigate the complexities of winding up petitions and safeguard the future of your business.
Requirements for a Winding-Up Petition
- The debt owed by the company must be £750 or more.
- The debt must be due and payable, and the company must have failed to pay it.
- The creditor must have made a formal demand for payment, and the company must have failed to comply with the demand.
- The debt must not be disputed.
Example of Winding-Up Petition
A small construction company that is struggling financially due to a series of delayed payments totalling £50,000 from a major client. Despite numerous attempts to collect the outstanding debt, the client refuses to pay, leaving the construction company in a difficult situation. The construction company decides to file a winding up petition to force it into compulsory liquidation and recover the debt owed. This legal action puts the debtor company at risk of losing its assets and facing closure if the debt is not settled promptly or if the company fails to take the necessary steps to stop the winding up petition.
How to Present a Winding Up Petition
The relevant legislation governing winding up petitions is the Insolvency Act 1986. The court will apply the “cash flow” test to determine if the company is unable to pay its debts as they fall due. If the court is satisfied that the company is insolvent, it may issue a winding up order, leading to the compulsory liquidation of the company.
Presenting a winding up petition requires careful attention to detail and adherence to specific processes including:
- Complete the Prescribed Form (Form Comp 1): The winding up petition must be in the prescribed form as per the Insolvency Rules. It should include details of the creditor, the company, the amount owed, and the grounds for the petition. Ensure that all required information is accurately provided.
- File the Petition with the Court: Once the winding up petition has been drafted it should be filed with the Court. The relevant Court will depend on the value of the claim, and the local Court to the debt. If you are not sure which Court to present a winding up petition, our expert insolvency lawyers have written an article titled “Which Court to present a Winding-Up Petition?” to assist. You must pay the Court filing fees (£302) and the petition deposit (£2,600) to the Court.
- Serve the Petition: After the winding up petition has been sealed by the Court, you must serve the winding up petition on the company being petitioned. This typically involves delivering a copy of the petition to the registered office of the company or to an authorised representative. This can be done using a process server for a fee of around £100 to £250 plus VAT.
- Comply with any Court Direction: Follow any further instructions or directions provided by the court regarding the winding up petition. Attend any scheduled hearings or case management conferences as required.
- Attend the Hearing: Be prepared to provide evidence supporting your claim, such as unpaid invoices or correspondence with the debtor.
What Happens After a Winding Up Petition is Filed?
Once a winding up petition is filed, the court will set a date for a hearing. This hearing is usually held within 14-30 days of the petition being filed.
During this time, the company will be given the opportunity to respond to the petition and present evidence to the court. If the court finds that the company is unable to pay its debts, it will issue a winding up order, and the company will be forced into liquidation.
How to Stop a Winding Up Petition
If your business is facing a winding up petition, there are several steps you can take to stop it. These include:
Negotiate with the Creditor
The first step you should take is to try and negotiate with the creditor. This may involve coming to an agreement on a repayment plan or settling the debt for a lower amount. If you are able to come to an agreement, the creditor may agree to withdraw the winding up petition.
Apply for an Adjournment
If you need more time to negotiate with the creditor or gather evidence to present to the court, you can apply for an adjournment. This will delay the hearing and give you more time to prepare your case. However, the court will only grant an adjournment if you can provide a valid reason for needing more time.
Challenge the Petition
If you believe that the winding up petition is unjustified, you can challenge it in court. This may involve providing evidence that the debt is not owed or that the creditor has not followed the correct legal procedures. If the court finds in your favour, the winding up petition will be dismissed.
Other Options for Dealing with a Winding Up Petition
In addition to the steps outlined above, there are other options available for dealing with a winding up petition. These include:
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors. It allows the company to repay its debts over a period of time, usually 3-5 years. A CVA can be used to stop a winding up petition and allow the company to continue trading.
Administration
Administration is a process that allows a company to restructure its debts and continue trading. It involves appointing an administrator who will take control of the company and work with creditors to come to an agreement on the repayment of debts. Administration can be used to stop a winding up petition and give the company time to restructure its finances. However, administration is not available once the petition has been presented at Court.
Company Voluntary Liquidation (CVL)
If your business is unable to pay its debts and there is no hope of recovery, you may need to consider a Company Voluntary Liquidation (CVL). This involves closing the company and selling its assets to pay off its debts. A CVL can be used to stop a winding up petition and allow the company to close in an orderly manner.
How to Avoid a Winding Up Petition
By adopting proactive strategies and staying informed about legal obligations, you can mitigate risks and maintain financial stability.
- Maintain Accurate Financial Records: Regularly update and maintain detailed financial records for your business. Monitor cash flows, expenses, and revenues to ensure financial stability.
- Communicate Effectively with Creditors: Stay in regular communication with creditors regarding payment terms and agreements. Be proactive in addressing any financial difficulties and seek solutions to avoid defaults.
- Implement Debt Management Strategies: Develop a debt repayment plan to manage outstanding debts effectively. Consider negotiating payment terms with creditors to alleviate financial burdens.
- Monitor Business Performance: Conduct regular reviews of your business performance to identify potential financial risks. Implement strategies to improve cash flow, profitability, and overall financial health.
Mediation and Negotiation in Winding Up Petition Disputes
Alternative dispute resolution, where suitable, provides many advantages for parties in resolving winding up petition disputes. Our expert insolvency lawyers are strong advocates for mediation, which can often lead to quick and favourable settlements for clients without litigation.
Several of our lawyers are also trained mediators and expert negotiators who are registered members of the Chartered Institute of Arbitrators (CIArb) and the International Mediation Institute. Our expertise in mediation gives our lawyers a significant and unique advantage when navigating settlement discussions.
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Expert Winding Up Petition Solicitors in London
If you are struggling to pay your debts, it is important to seek professional advice as soon as possible. Our expert insolvency and winding-up petition lawyers can help you to come up with a plan to manage your debts and avoid a winding-up petition.
A winding up petition is a serious matter that can have severe consequences for a business. If your business is facing a winding-up petition, it is important to act quickly and take the necessary steps to stop it. This may involve negotiating with the creditor, applying for an adjournment, challenging the petition, or considering other options such as a CVA or administration. By taking the right steps, you can protect your business and avoid the serious consequences of a winding up petition.
Please call us at 0207 459 4037 for a Free Consultation. Let our expert winding up petition solicitors assist you in safeguarding the future of your business and navigating the complexities of winding up petitions.
