Winding Up Petition
A Director will often view a winding up petition as a request for payment. Technically it is not but in reality, it often is! Receiving a winding up petition will have serious consequences for the company and its directors.
A winding up petition is actually a request to the Court, from a creditor that is owed more than £750, for the Judge to close the company. The petition is advertised and any other creditors may support the petition. Upon the advertisement of the petition the company bank account can be frozen.
If the Judge agrees to close the company then the Court issues a winding up order. The Company ceases to trade, its employees are dismissed, its bank account is frozen and the company shuts its doors.
The Official Receiver, a Government civil servant, then investigates the company and the conduct of the directors to ensure that they have acted properly and according to their legal duties.
The business assets are liquidated to pay off the debts of the company, often by a nominated Insolvency Practitioner.
A winding up petition from the HMRC is just the same as from any other creditor – however, if your company has received one, then it is only natural that you will be worried.
HMRC Winding up Petitions are normally only issued when a director fails to communicate and/or fails to pay taxes to HMRC.
If a director wants to keep the company then the last thing that the director wants is a frozen bank account.
A winding up petition is advertised in the London Gazette which can often lead to your bank account getting frozen. Banks have a system in place to spot petitions and a policy to keep you from withdrawing your funds, as in that instance your bank can be held accountable for your actions by the Official Receiver.
TaxGone can assist in attempting to prevent this by creditor consent or a validation order to allow certain transactions to be prepared, followed by an application to adjourn the winding up petition to allow the preparation of a Company Voluntary Arrangement. The bank will reopen the company bank account once they have received written evidence that the winding petition has been dismissed.
During the preparation stages of a Company Voluntary Arrangement, an application can be make to Court for a validation order that would allow specific payments to be make out of the company bank account at a time when it has been frozen. However this could be expensive.
The aim of a director should be to get rid of their winding up petition as fast as possible. There are several ways of doing this:
- The debt could be paid in full, plus costs and the winding up petition would be dismissed on the hearing date, unless another creditor substitutes.
- The director could make a deal with the creditor to dismiss the petition at the next hearing on the basis that agreed payments are made over a period of time. It is unlikely that the creditor would do this unless the director provides a personal guarantee.
- The director could instruct TaxGone to prepare a Company Voluntary Arrangement. The winding up petition could be adjourned or dismissed at the next hearing provided that the company voluntary arrangement was accepted. Some insolvency companies may tell directors that there is no way of Stopping a Winding up Petition and they are guided down the voluntary liquidation route and never realised that there was an opportunity that may have saved their company.
A Company Voluntary Arrangement, also known as a CVA, is a formal insolvency procedure used to assist companies to carry on trading when in financial difficulties. If your company owes creditors, including HMRC more than £20,000 and the cash flow of your company is so poor that you can not pay those creditors, then as long as there is potential for continued sales at a profit, then your company may be suited to propose a Company Voluntary Arrangement.
The CVA allows you to repay a fixed amount in monthly instalments, once the end of the term is reached any outstanding debt is automatically written off. A CVA works in relation to a winding up petition because a CVA repayment plan is the best deal that a creditor could get, as a liquidation may result in a lower return.
It may very well be that a director wants to shut the company and a winding up petition is good news. Well, it rarely is good news as the director may be forced to attend an interview with the Official Receiver and the director’s past conduct might be questioned.
If the hearing date of the winding up petition is very close then the director may wish to have more time to collate all the paperwork that belongs to the company and to collate paperwork to protect his position. This could be done with an application for an adjournment of the winding up petition, although the judge would require better reasons than this. Alternatively, a voluntary liquidation may be a more prudent path to take.
Some insolvency companies will tell you that you can’t place a company into voluntary liquidation if a winding up petition is in place. This is only true if the petitioning creditor does not give you consent.
The initial cost comparisons are simple. Zero to allow the company to be wound up in Court through the process of the winding up petition and starting from £3,500 plus vat for a voluntary liquidation there may be petitioning creditors solicitors costs to add to this which should be less than £1000. Many insolvency companies do not tell you this until after you have paid their fees.
It may be possible for a director to utilise the £3,500 plus vat voluntary liquidation fee to purchase, at valuation, up to £3,500 plus vat worth of assets from the company, as long as the £3,500 plus vat is sourced from outside of the company.
1. Nothing: You will regret it. Pay it, Do a Company Voluntary Arrangement or voluntarily liquidate your company. Don’t do nothing – do something.
2. Tell your Bank: Your bank manager has strict unwavering guidelines. By all means give them the news as a problem and then after, the good news, a solution such as a Company Voluntary Arrangement but never a problem on its own, such as a winding up petition because the manager will simply freeze your bank account. You have been warned!
3. Tell your suppliers: If you tell them then they will not supply you. You know that if your company is insolvent with no way out then you should cease to trade immediately – but that’s not you is it? You probably know that if you propose a Company Voluntary Arrangement then you will be able to rescue your business. Do not purchase any goods or services from now on unless you are certain that your suppliers will be paid in full.
4. Tell your customers:Why would your customers risk being supplied by you when you have a winding up petition in place? They wouldn’t so don’t tell them.
5. Tell your friends:They think that they know better than you and all they are all armchair experts. You can sort this problem out but not with their help.
6. Borrow money from your family: You would never hear the end of it if you do. It will haunt you for the rest of your life. Do not remortgage or charge loans against your house. You set up your business in a limited company so that nobody can touch your personal money, remember?
7. Give up: By all means if there is no hope then voluntarily liquidate with the petitioning creditor’s consent. But you’re better than that. Take an honest look at your business. With a bit of tweaking here and there could the business be viable? Perhaps the winding up petition was as a result of a poor cash flow caused by a customer not paying you. If that’s the case then you were perhaps unlucky, but that’s no reason to close your company.
8. Act on early advice: You don’t know enough. Insolvency is not that hard to understand. I bet most people in Insolvency could not do your job but you could do theirs. You have 7 days from receiving the petition before it can legally be advertised so use this period to understand your position. Don’t get help from the first person that you talk to. Insist on Testimonials and make sure that if you want to save your company by proposing a Company Voluntary Arrangement, that the company that you have chosen to help you has a sound record in CVAs.
9. Believe the salesman: You can’t be expected to sort out a winding up petition on your own. You will need professional help. Don’t just sign up with someone on the end of the telephone unless you are confident in their services and have at least spoken to one of their clients. Don’t sign up with an insolvency company that sends out a sharp salesman to persuade you. If you value your company then go and visit them at their offices and poke your nose in. You have to feel comfortable.
10. Don’t look on the Internet: Everything is on the internet. The good, the bad and the indifferent. If an insolvency company carries out distasteful practices – and some do, then you’ll find all about it somewhere on the Internet. Look beyond their website and search social media such as Facebook and Twitter. Only the brave companies are willing to stick their heads above the parapet!