What is a Winding Up Order?
A Winding Up Order is a legal process that creditors (someone you owe money to) can use to enforce the payment of a debt. The Winding Up Order is the final step in the process and will only come after a creditor has made many unsuccessful attempts to collect the money they’re owed.
If you owe a creditor more than £750 and do not pay the debt, they can issue you with a Statutory Demand. After 21 days, the creditor can serve you with a Winding Up Petition. If you do not challenge the petition or pay what you owe, the court can grant a Winding Up Order to liquidate your company.
The expense of going through the courts to obtain a Winding Up Order means creditors who pursue this action are determined to force a repayment and prevent you from accumulating further debts. Larger creditors, such as HMRC commonly take this type of action.
What happens when a Winding Up Order is made?
When you are issued with a Winding Up Petition by a creditor, a court hearing will be set. At the hearing, the judge will establish whether the debt is due and if the company can pay. If they believe the company is insolvent and cannot pay, they will likely grant a Winding Up Order. Once the court has made the order, you have just five working days to save your company.
If you do not challenge the Winding Up Order, the company will go into Compulsory Liquidation. The court will appoint an Official Receiver to act as the liquidator. They will identify and sell the company’s assets at auction and distribute the proceeds among the creditors. Finally, the company will be struck off the Companies House register and will cease to exist.
As part of the process, the Official Receiver will investigate the period leading up to the company’s liquidation. If they find any evidence of misconduct or wrongful trading, you could be made personally liable for company debts or disqualified from acting as a company director for up to 15 years.
Can you get a Winding Up Petition withdrawn, stopped or dismissed?
Paying the petition is the simplest way to get it dismissed, but there are other options available. You should seek professional advice immediately if you cannot afford to pay the debt in full or you dispute the debt. A licensed insolvency practitioner will be able to advise you on the course of action you should take.
It is possible to defend your business against a Winding Up Petition, but you must act quickly. If you ignore the petition, it will be advertised seven days later and your bank will usually respond by freezing your company’s account, making it very difficult to trade. The petition will then be heard in court, where it will be dismissed or approved. If the court approves the petition it will make a Winding Up Order, and at that point, it will be very difficult to save your company from liquidation.
Challenging a Winding Up Order
Challenging a Winding Up Order is not easy and you’re unlikely to be successful unless you have a good reason. Your chances of preventing liquidation are far greater and you will have more options if you act earlier in the process. For example, you might be able to negotiate a Company Voluntary Arrangement (CVA) with your creditors to give you more time to pay what you owe.
You should seek independent legal advice to discuss the options for challenging the petition, however this can be quite a risky strategy to leave it until the court hearing date. An Insolvency practitioner will be able to provide an introduction to a solicitor with the necessary insolvency knowledge.
How can I stop a Winding Up Petition?
Once you have received a Winding Up Petition, there is a seven-day time limit to do one of the following:
Pay the debt in full
Paying the amount you owe in full, plus the creditor’s costs for bringing the petition, will prevent the creditor from advertising the WUP in the Gazette. Alternative funding streams, such as invoice finance or asset-based lending, can provide a quick cash injection to help you make the payment. If you pay the debt and no other creditors wish to pursue the debt, the court will dismiss the petition.
Negotiate an informal repayment arrangement
If you cannot afford to pay the debt in full but want to settle it, it’s worth trying to negotiate an informal repayment arrangement to pay what you owe over time. That may be enough to persuade them not to advertise the petition in The Gazette. However, as they’ve already made multiple attempts to recover the debt, the creditor may doubt your ability to stick to the agreement.
Challenge the petition
You can challenge a Winding Up Petition on four grounds:
1. You disagree that you owe the creditor money;
2. You dispute the debt amount;
3. The creditor also owes you money, which cancels the debt or reduces it to less than £750;
4. There’s a procedural error or delay, such as the details on the WUP are inaccurate, or the petition was not issued correctly.
If you intend to challenge the petition, you must file a witness statement with the court at least five business days before it’s due to be heard. You should also provide evidence of your reasons. This is a serious step and one you should only take if you have substantial evidence to support your reasons for disputing the WUP.
Propose a Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal insolvency procedure that you can set up with the help of an insolvency practitioner. They will propose an affordable repayment plan to your creditors to pay part of or the entire amount you owe via monthly instalments over a typical period of between three and five years.
In this case, it’s not just the creditor who issued the petition who has to accept your proposal. If 75% of your creditors agree to the CVA, the court can decide to dismiss the WUP.
Enter into Company Administration
Administration gives the company some breathing space so you can put a recovery plan in place. When you enter administration, an eight-week moratorium begins, causing all legal action against the company to cease, including the Winding Up Petition. That gives an insolvency practitioner time to determine if and how they can rescue the company.
Consider Pre-Pack Administration
Another option is a process called Pre-Pack Administration. It involves the sale of the business or its assets to a suitable buyer, who is often a director of the existing business. The new company can then continue trading without the threat of the Winding Up Petition, albeit under a new name. You must appoint an insolvency practitioner to assess the company’s suitability for sale and arrange the deal before putting it into administration.
Request an adjournment
It may also be possible to submit a request to the courts to adjourn or cancel the Winding Up Petition hearing. You will need to provide a full statement setting out your reasons why. The court will consider an adjournment if it believes your company is viable and could repay the debt if it has more time.
Liquidate the company voluntarily
If you cannot pay the debt and the company is no longer financially viable, liquidating it voluntarily via a Creditors’ Voluntary Liquidation can be an effective last resort. In terms of the consequences for you personally, A CVL is usually preferable to being forced into Compulsory Liquidation by the court.