What is the Winding Up Petition Process?

Shergroup

3 years ago

When a company owes money to their creditor and a repayment plan can’t be worked out between the creditor and the debtor then the creditor can take legal action. Winding up petition is the legal action taken by a creditor against a company that owes them money.

The creditor can file a petition in court if the corporation owes £750 or more. The petition will be stamped with a hearing date and must then be served at the company’s registered office. After a length of time, it will be advertised in The Gazette.

If the petition is made then the creditor can seek to appoint an insolvency practitioner as liquidator.

Winding up petition or liquidation are the last resorts available to the creditor to retrieve the failed debts, so it is only considered when all the other approaches have failed.

The courts do not view it as a debt collection procedure, but rather as evidence that the company is unable to pay its debts and should be wound up so that liquidation (a collective procedure) can be used to collect the company’s assets and distribute them pari passu among creditors after secured creditors and costs.

WUPs are published as public notifications in The Gazette. They are serious legal actions that can result in the freezing of the company’s financial accounts. Suppliers and lenders may decide to stop supplying the company after the WUP is made public, worsening the company’s woes. The petition cannot be made public until the Insolvency Rules permit it.

An outline of the Winding Up Petition Process

Typically, a creditor will hire a solicitor to “wind up the debtor company” in order to recover debts or prevent the corporation from worsening its debts. Any creditor with a debt of more than £750 qualifies.

A petition (PETITION) is filed with the high court, requesting that the firm be wound up. The procedure is legal and complex, but the most important thing to remember is that you must act as a director if a petition threat is received. You must act immediately or you may be held personally liable for the debts.

Before the issuing of the petition, the creditors will need to set out.
details of the amount of the debt, how it arose and how it is overdue;
a request for the debtor’s proposals for the payment of the debt; and
a statement as to the creditor’s intention to present a petition if no acceptable proposal for payment of the debt is made by the debtor within 21 days.

What is the process of Winding Up Petition?

The WUP is essentially issued, served, publicised in The Gazette seven working days later, and then heard in court, where it is either rejected or approved. Other creditors may support the petition after it has been publicised, and if the original petitioner gets paid or withdraws, they may take over the petition.

The winding-up order is issued if the petition is approved. The order will be served on the company, and the official receiver will take over as a liquidator. If a private liquidator is appointed, 50% of the value of the creditors can request it, or 10% of the creditors can request a creditors’ meeting.

WUPs don’t normally appear out of nowhere, and as a director, you may already be aware that one is on the way. You’re probably aware of any debt issues and may have noticed creditor warning flags. They could have already threatened legal action against the corporation.

Below is a brief timeline of events:

Day 1 | The company can pay or oppose the petition after it arrives at the registered company’s address. If the corporation can demonstrate that there is a genuine disagreement over the debt, the court will not issue the order (but the company may need to seek an injunction to restrain advertisement). If it hasn’t already done so, the corporation should obtain urgent counsel from a solicitor and/or a licenced insolvency practitioner. The company could file for creditors’ voluntary liquidation, go into administration, or enter into a company voluntary arrangement.

Day 9 | If the company is unable to put a stop to the proceedings, the petition is published in The Gazette seven business days after it is served and seven business days before the hearing.

Advertising in The Gazette

The petition is primarily published so that other creditors can notice that the company is bankrupt. They can then ‘piggyback’ on the same petition and file a claim for their debt, serving the original petitioner with a notice of support. The court would not award a winding-up order if there was no notice.

The advertisement is a public document that includes the company’s name and registered address, as well as the name and address of the creditor who filed the petition, as well as the address and date of the next WUP hearing. The designated solicitor or insolvency practitioner’s name and address are also mentioned.

What happens next?

When a bank receives a petition like this, it normally freezes the company’s bank account, thereby halting all transactions. The account is usually frozen by the banks. Any money movement into or out of the account could be overturned by the court if it indicates a movement, or rather, “dispossession,” of assets.

It may be feasible to petition the court for a validation order to ‘unfreeze’ the bank accounts (under section 127 of the Insolvency Act 1986). Before granting this, the court would require a large quantity of evidence and information to examine the issue. Before considering this option, get legal guidance.

If the firm fails to react or file an appeal within the seven days, the WUP will very definitely be allowed by the court, and an order to wind up the company will be issued, with the business and assets being sold by the official receiver or an appointed liquidator. Compulsory liquidation is another name for this process.

How can it affect the director(s)?

Once the order is obtained, the liquidator (insolvency practitioner or official receiver) will investigate the company and its directors to confirm that the company’s predicament was not caused by fraudulent trade or wrongdoing on the part of the directors. They’ll examine transactions from the previous two to five years to see if any need to be reversed. If there is any proof of wrongdoing, the Insolvency Service will be notified, and a fine and/or director disqualification and compensation order may be imposed. If a court finds that the directors acted improperly in some way, they could be held personally accountable for any debt (e.g. in breach of Companies Act duties, or by paying one creditor in preference to another).

Summing-up

Please contact one of our business solutions advisors for free confidential guidance on liquidating a private company and assistance with your current circumstances. You can schedule a call back through our contact page at a time that is convenient for you, or you can live chat with us through our website. We like taking care of your business and solving a client’s problem with our efficient and expert business solutions at Shergroup.