You’ve heard the term thrown around and know it’s not something good for a company, but for anyone wondering what exactly a Winding Up Petition is, you’ve come to the right place.
A Winding Up Petition is a serious threat to a company that can be made by any creditor owed an amount of £750 and above. It calls the company to cease trading and aims to force the company into Compulsory Liquidation, which is the worst form of Liquidation a company can go through. The petition is a legal document that attempts to “wind the company up” so that the creditor’s debt can be recovered.
It is applied for through court and can cost a creditor up to £2,300 to issue, therefore, as it can be so expensive, it is considered a serious attempt at legal action against a company.
It can come after a creditor has tried to get their money back from a company in other ways, such as county court orders or statutory demand documents, or also if company cheques are bouncing.
What happens after it has been issued?
After the petition is issued, the company cannot be voluntarily liquidated and its assets cannot be sold. A time and date will be set-up by the court for a hearing of the petition – this will be served to the company within 14 days of the hearing.
Seven days before the hearing, the creditor will advertise the petition in the London Gazette, which means other creditors may endorse it or use it as leverage for their own claims against the company.
The company’s bank account will be frozen, so staff and suppliers will go unpaid. The only way to unfreeze it is by attaining a Validation Order – an order against the petitioning creditor a company needs to go to court to attain.
If the company does nothing to fix the situation, the petition hearing will take place. If the creditor wins, the company must enter Compulsory Liquidation.
What if a company disputes the debt?
If the company doesn’t agree with the debt the creditor has issued the petition over, then the company needs to inform the court. The petitioning creditor and their solicitor must also be informed of the dispute. The company must state reasons for why the debt is disputed.
The court may grant an injunction which stops the issuing of the petition being advertised in the London Gazette by the petitioning creditor, though the company must apply for this.
After the company has sent the dispute document to court, court will decide the next best action, which may be adjourning the hearing so that both parties have more time to resolve the dispute.
If the petitioning creditor refuses the dispute and won’t withdraw their Winding Up Petition, the company needs to send court a formal defence, which should include evidence such as accounts and finances, at least five days before the petition hearing date. At the hearing, company directors will have to defend the company against the petition at court.
If you’re interested to learn more about Winding Up Petitions, or want to hear about the liquidation services available at Financial Discuss don’t hesitate to give us a call.