A winding-up petition is one of those documents directors cannot afford to put in a drawer and think about next week.
It doesn’t mean the company is already in liquidation. But it does mean a creditor has asked the court to wind it up, usually because the creditor says the company cannot pay its debts.
At that point, time matters enormously.
First… establish exactly what has happened
Get a copy of the petition and read it.
Who presented it? How much do they say is owed? Is the debt genuinely due? Is any part disputed? When was the petition presented and served? When is the hearing?
Those sound like basic questions, but they determine what happens next.
A winding-up petition isn’t simply an aggressive debt collection letter. It is court proceedings that can end with the company being compulsorily liquidated.
Don’t assume paying the petitioner solves everything
Directors sometimes think, “We’ll find the money, pay them and the problem disappears.”
Possibly… but don’t assume it.
Once the petition becomes public, other creditors may become aware of it and may support or seek to take over the petition. Banks, suppliers and customers may also react.
So before committing scarce cash to one creditor, understand the company’s whole position.
If paying £40,000 today leaves the company unable to meet wages, VAT and essential suppliers next week, you may simply have moved the problem.
The bank account is a major issue
One particularly important provision is section 127 of the Insolvency Act 1986.
If a winding-up order is eventually made, dispositions of the company’s property made after presentation of the petition are generally void unless the court orders otherwise.
That is why banks can become extremely cautious once they learn of a petition, particularly after it is advertised.
A company that has a viable business can suddenly find its ability to use its bank account seriously disrupted.
This is one reason directors should take advice immediately rather than waiting for the hearing.
Is the debt disputed?
If there is a genuine and substantial dispute about the debt, that needs urgent legal attention.
Winding-up proceedings shouldn’t be used as a substitute for ordinary litigation to determine a genuinely disputed debt.
But saying “I disagree with it” isn’t enough.
Gather the contract, invoices, correspondence, credit notes and anything else showing why the debt isn’t due.
Get a solicitor who understands insolvency litigation involved quickly.
If the debt is due, look at the whole business
The next question isn’t simply whether the petition debt can be paid.
Can the company survive?
I’d want an immediate picture of:
-
cash in the bank;
-
the next 13 weeks’ cashflow;
-
HMRC arrears;
-
wages and pension liabilities;
-
secured lending;
-
aged creditors and debtors;
-
legal action from other creditors;
-
assets available for sale;
-
realistic refinancing possibilities;
-
whether the underlying business is profitable.
That tells us whether we are dealing with one difficult creditor or a fundamentally insolvent business.
There may still be options
A petition doesn’t automatically mean compulsory liquidation is inevitable.
Depending upon the circumstances, possibilities may include paying or settling the petition debt, refinancing, negotiating with creditors, a business sale, a CVA or administration, or a restructuring plan.
But these options need substance behind them.
A vague hope of refinancing isn’t the same as a lender with credit approval and a realistic completion date.
Be very careful about payments and asset movements
Once a petition has been presented, directors shouldn’t carry on moving money around as though nothing has changed.
That includes payments to directors, connected companies and selected creditors, asset transfers and unusual withdrawals.
Some transactions may be necessary to preserve value. Others may create serious problems later.
If continued trading is genuinely necessary, legal advice may be required about applying for a validation order so that particular transactions can safely proceed. The Insolvency Proceedings Practice Direction specifically provides for validation-order applications.
Don’t improvise.
Don’t wait for the court hearing
The hearing date can create a false sense that there is still plenty of time.
There often isn’t.
The petition will be advertised before the hearing, and once that happens, the commercial consequences can accelerate rapidly.
Suppliers may tighten terms. Credit insurers may react. Customers may become nervous. The bank may become involved.
The useful window is often before those things happen.
Takeaway checklist
-
Obtain the petition immediately.
-
Confirm the amount claimed and hearing date.
-
Establish when it was presented and served.
-
Decide whether the debt is genuinely disputed.
-
Get urgent legal advice if it is disputed.
-
Prepare an up-to-date cash position and 13-week forecast.
-
Identify HMRC and other creditor arrears.
-
Check whether other creditors are also taking action.
-
Speak to an insolvency practitioner immediately.
-
Don’t assume paying the petitioner fixes the business.
-
Don’t make unusual payments or transfer assets without advice.
-
Consider whether rescue, refinance, sale, CVA or administration, or a restructuring plan is realistically available.
-
Understand the implications for the company’s bank account.
-
Record the directors’ decisions and the information relied upon.
-
Act before the situation becomes public wherever possible.
Final thought
A winding-up petition is serious, but the worst response is paralysis.
I’d much rather meet a director the day the petition arrives than a few days before the hearing.
Early enough, we may still have choices.
Leave it too long and perfectly sensible options can disappear, not because they were bad ideas, but because there is no longer enough time to implement them.
Meta description: A winding-up petition has been served on your company. Paul Brindley explains what directors should do immediately, the risks to the bank account and the rescue and insolvency options that may remain.
Hashtags: #WindingUpPetition #CompanyInsolvency #Directors #BusinessRescue #Administration #CVA #InsolvencyAdvice
About Midlands Business Recovery
Practical, experienced advice for company directors and their advisers when a business is facing financial difficulty. The right answer may be rescue, refinance, sale, restructuring or an orderly insolvency process. The important thing is to understand the position early enough to have choices.
01902 672323
paul@midlandsbusinessrecovery.co.uk