Is your client facing the threat of a Winding Up Petition from a creditor? Act now

A Winding up Petition is a method whereby a creditor who is owed more than £750 can enforce payment of a debt by a company in default.  If it proceeds to the hearing stage, then if successful, the court will place the company into liquidation, which is a terminal process.
This is a procedure more often used by creditors such as HMRC and unsecured financial initiations rather than trade creditors.
Jason Elliott, Partner and Head of Cowgill Holloway Business Recovery LLP explains the process and technicalities surrounding Winding up Petitions and highlights the importance of seeking immediate advice should your client be issued with one.
From your client’s perspective, they may have made determined efforts to pay the debt, but been genuinely unable to do so.  This could be due to having to meet other more urgent debts, an inability to collect monies from their own debtors, a dip in sales or an unexpected increase in expenditure being just some examples.  Unfortunately, however genuine the reason for non-payment, this type of creditor action is extremely serious and could signal the end of the business via liquidation.

The Process
The Winding Up Petition is usually prepared by a solicitor and served upon the court, before being sent to the company.  It usually takes between four to six weeks for a Winding Up Petition to be heard.
If your client receives a Winding Up Petition, they, in conjunction with yourself must act quickly to save the company.  It is essential to seek the advice of an experienced insolvency practitioner at this time.
Once the court approves the Winding Up Petition, the matter will be out of all your hands and the liquidation process will begin.  The Winding Up Petition is advertised in the London Gazette no later than five business days prior to the hearing, but can actually be advertised as soon as within 7 days of serving the petition on the company. This usually results in the company’s bankers taking action to freeze the company bank accounts, which in turn, cuts off cashflow.

What are the options?
Although the outlook for the company may seem bleak at this point, there are still options available:

• Liquidation of the company can be avoided. If appropriate, a Company Voluntary Arrangement (‘CVA’) can provide an alternative, which if successfully implemented, can preserve the company as a going concern;
• The Company could be placed into administration. As with a CVA the administrator will first of all seek to implement a strategy to rescue the company as a going concern, but if this is not achievable can still salvage some or all of the business;
• Your client can challenge the existence or amount the creditor is seeking, although it is important to be sure of the facts and obtaining legal advice is recommended;
• It may be possible and appropriate to obtain funding in order to pay the debt, which is something we can assist your client with.

Seek Advice
It can be an extremely stressful and distressing time for any business owner faced with this situation, but seeking expert professional advice at the earliest indication of a problem can alleviate the stress and achieve the optimal solution.  It is important to remember that the earlier action is taken, the better the outcome is likely to be.
Jason Elliott can provide urgent advice to Accountants whose clients who have been served with a Petition and are facing the threat of Liquidation.  Contact Jason in confidence on 0161 827 1200 or at jason.elliott@cowgills.co.uk.

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.