What Is a Winding Up Order or Petition by Creditors?
19th November 2019.
James Salmon, Operations Director.
A winding up order is a court order that forces an insolvent company into compulsory liquidation – a process in which the court appoints an Official Receiver (OR) to liquidate all of the company’s assets in order to repay creditors.
It results when HM Revenue & Customs or another creditor sends a winding up petition (WUP) to the court after an insolvent company fails to repay a debt of more than £750 (£750 for a business – £5000 for an individual – which would be a bankruptcy order) which has gone unpaid for at least 21 days (There is no upper limit on the debt size).
Upon a Winding Up Petition being advertised, a company’s bank account will normally be frozen, and business activity should immediately halt. While a WUP does not necessarily mean the end of the company, the directors will have to move fast if they want to save it and stop it being wound up.
Should you use a winding up petition to get a debtor to pay?
If the debt is over £750 and your commercial debtor is over 21 days overdue then yes you can issue a winding up petition.
However you want to be absolutely certain that there is no dispute on the debt that is the cause of non-payment as using a winding up petition on a disputed debt will get you in trouble with the courts and have severe consequences.
Also you might want to be sure that the debtor has the means to pay for the debt and also costs. The costs are significant and if the debtor doesn’t respond to the petition by paying the debt (and costs) and doesn’t fight it but accepts going into liquidation then you could be left even worse off than before. You would normally only get your costs back once the liquidators fees and other expenses had been fully covered and your debt wouldn’t be prioritised over other creditors.
If however, you believe your debtor is just being difficult and has the means to pay but just isn’t responding to other collection methods then this could be an option.
For others it’s not about the cost but the principle.
Just don’t expect to ever do business with them again as any goodwill will likely have completely evaporated.
What are the Costs and Fees?
- Court Fee – £1880 (broken down into £280 for court fees and £1,600 petition deposit)
- Serving Proceedings – is the term for having a legal document ‘served’ personally. The current fee for this ranges from £75-£100
- Gazette Advertising Costs – It costs £79.40 plus VAT to advertise the winding up petition in the London, Edinburgh or Belfast Gazette (if required)
How Long Does it Take to Wind up a Limited Company?
Typically, from serving the winding up petition to the Court hearing and serving a Court Order usually takes 4-6 weeks, but depends on how busy the Courts are.
The time of year will also impact as the Courts are closed in Summer and over the Christmas period
Which Court Deals with a Winding up Petition or Order?
If the company involved has a ‘paid up share’ capital of more than £120,000, and or has debts in excess of £50,000 the petition will be heard in the High Court.
If the amount is less than this, it will be heard in the most appropriate court, nearest to the company’s registered office.
Communicate With Creditors
The first stage to avoiding a winding up petition is communication. Communicate with your company’s creditors as soon as you know that you are having financial problems and try to renegotiate the repayment terms.
If the creditor is HMRC, you can propose a Time to Pay Arrangement for the repayment of overdue taxes. Keeping up a constant stream of communication is much more effective at managing the situation than burying your head in the sand and ignoring it.
Don’t Ignore Statutory Demands
A statutory demand is a kind of written warning from a creditor. It will state that if you don’t pay your debt or come to another arrangement that’s acceptable to the creditor, they may start court proceedings to put your company in liquidation or if you are an individual, make you bankrupt.
A Stat demand (statutory demand) can only be issued where there is no dispute. If the debt is disputed then instead issue a county court claim, get your county court judgement (CCJ) and then you can issue the stat demand if it is still unpaid.
You don’t have to go through the court for a stat demand, where there is no dispute. The solicitors will draw up the papers and have them served at the Registered Office address by a process server.
The threat of a winding up petition is all the more concerning if the creditor has already served a statutory demand against you. Once a statutory demand has been served, you have 21 days to either:-
• Pay the demand
• Negotiate with the creditor to settle the debt
• Take insolvency action
• Apply for an injunction to prevent the presentation or advertisement of a winding up petition on the basis that the debt is disputed.
Failure to act in any of the above ways within the three week time frame and the creditor is within their rights to issue a winding up petition against your company.
Calling the creditors’ bluff is an extremely dangerous game to play, particularly with companies that are owed significant amounts of money.
County Court Judgements (CCJs) are Serious
A potential precursor to a winding up petition is having a County Court Judgement (CCJ) issued against you to order the repayment of a debt.
As is the case with a statutory demand, this is generally only an action a creditor will take after making multiple attempts to recover a debt by other means.
Once a CCJ has been issued, a business has 14 days to respond to the court with the necessary paperwork or settle the debt one way or another, although it can ask for a 14-day extension if more time is needed.
Fail to respond to the court request by disputing or paying the debt within 28 days and a CCJ will become a ‘Judgement Order’.
Once a CCJ has been issued, it will be reported on the company’s credit report and will greatly impact the company’s ability to access affordable finance for 6 years. It also opens the door for a winding up petition to be issued against you as it provides a clear indication that the company is insolvent.
Can a Winding Up Order Be Stopped?
Once the court has issued a winding up order there is nothing that can be done to stop the company from being completely liquidated.
However, there is a short period of time during which the directors can take action to prevent the order from being issued in the first place.
It is important here to note the distinction between a Winding Up Order and a Winding Up Petition.
A Winding Up Petition (WUP) is the first stage of the process, and it is here where the directors can challenge the petition before it goes any further.
The directors have a relatively short window of just seven days to mount a challenge or else pay the amount owed.
A Winding Up Order follows once the WUP is accepted by the court. The winding up order is the start of the process for the court to wind up the company and it is extremely difficult to save the business once things reach the order is issued.
Therefore action is essential if you have been served with a WUP. Moving quickly is vital; you should contact a licensed insolvency practitioner without delay as every day that passes limits the options available.
Options on receipt of a Winding Up Petition
If a creditor has brought a winding up petition against you, don’t despair, there are steps available to you to prevent your company from being wound up and stop the winding up petition in its tracks.
These range from showing that you can pay the creditor and that the company isn’t insolvent, to demonstrating that the debt is disputed.
If you have had a winding up petition filed against your company, the options available to you will vary depending at which stage in the compulsory liquidation process you are at. We will look at the options available to you at each stage of the process.
There is a very narrow window of opportunity to take action to stop a winding up petition, however, so we strongly recommend you seek professional advice.
When a creditor such as HMRC or a supplier issues a winding up petition to the court because of an unpaid debt, to the court, it is reviewed, and once approved, issued to the insolvent company.
When a Winding up Petition has been Filed but Not Yet Advertised in The Gazette, You Can Stop It By
- Pay them off! As a credit management company we are going to tell you this is the best option. If you pay all debts owed to the petitioner (whoever is petitioning to liquidate your company, whether it be HMRC or another creditor) including their costs prior to its being advertised in The Gazette, you should be able to halt the petition getting into the public sphere. If it is within your means, if you can borrow the money, scrape the money together, do so and pay off your creditor. If you can’t then you need to accept you are insolvent.
- Negotiate with your creditor so they don’t advertise. Your creditor may be prepared to privately negotiate a settlement. Once the petition is advertised, the banks will close your account. So you need to do this quickly. Request that the courts adjourn or cancel the winding up hearing. You will need to make a separate application for this and file a statement explaining why they should do so.
- Dispute the debt. (You can dispute the existence or the size of the debt) In order for this to be an option there has to be substantial proof that the debt claim is unfair or inaccurate. This is a serious allegation against the creditor known as “abuse of court process.”. Only take this step if you have evidence, as to do so falsely will be misleading the courts and can have very serious consequences.
- Arrange and propose a Company Voluntary Arrangement (CVA) to come to an agreement with the petitioner and your other creditors. A CVA would allow you to save your business and repay the debt gradually over a period of up to 5 years, while also letting your company escape liquidation. 75% of the company’s creditors must agreed to approve the CVA.
- Obtain an Administration Order to have the company put into administration, which would involve a licensed Insolvency practitioner being appointed as an administrator to evaluate and sell some of the company’s assets.Companies in administration are subject to a moratorium that stops creditors from winding them up or bringing legal proceedings against them. With all legal actions stayed, the court will not issue the winding up order against your company.
Stopping a Winding up Petition that has been Advertised in The Gazette
Once it is advertised. You can still pay the debt, dispute the debt, you negotiate a CVA, or apply for a Validation Order (While this isn’t a defence per se, if successful, it will unfreeze the company’s bank accounts and allow you to implement other steps as necessary – The court is cautious about making validation orders so it will need to see credible evidence that the order would benefit all the company’s creditors. As such, transactions that would reduce the level of assets available to creditors will not be validated).
Of the options above, if the debt is valid and you can’t pay it immediately then pursuing a CVA is often the best course of action as this would allow you to come to a formal agreement with the petitioner as well as your other creditors at the same time while allowing you to continue to trade.
This would effectively save your company from liquidation and give you the time and space needed to trade out of its current debt problems.
Unfortunately, the chances of getting your creditors to agree to a CVA during this 7-day period are slim, especially if the CVA proposal is not drawn up by a professional. Having a CVA proposal created and introduced by a licensed insolvency practitioner is the best way to increase the chances of an agreement being reached.
If your creditors refuses to agree to a CVA then seeking an Administration Order may be the next-best course of action. This would involve the company being placed into administration and an insolvency practitioner being appointed to market and sell some of your company’s assets. Although the possibility of a pre-pack administration is not possible after a WUP has been issued, administration can still be a highly useful tool during this time.
In order for this to work the company will have to contact an insolvency firm immediately to give them enough time to assess the situation, draw up an effective administration proposal, and present it to the court before a Winding Up Order can be granted.
Stopping a Winding up Petition at the court hearing
Winding up hearings happen at the High Court. You can either appear in person or instructor a solicitor or barrister to attend for you.
It’s best to arrive at least half an hour early to familiarise yourself with the court: they are busy places and there will be multiple hearings on any given day.
During your session, the judge will hear evidence and either rule for dismissal, adjourn the hearing, make an interim order or issue a Winding up Order.
If the Winding up Order is granted, the judge will appoint the Official Receiver to begin the company liquidation process
You can still stop it now by either paying the debt or showing that the company can pay the creditor and is not insolvent. You will need to be able to substantiate this with evidence.
What Happens If a Winding Up Order Is Issued?
If you were unable to successfully utilise one of the above options, and a winding up order is issued, there is nothing you or anyone else can do to stop the company from being liquidated.
Still, there are preliminary measures you can take to minimise the possibility of directors being brought under post-liquidation scrutiny.
After liquidation the Official Receiver (OR) is given the task of investigating all actions taken by the directors during the time the company was trading insolvent. If evidence of wrongful trading is found the directors could be held personally liable for some of the company debts, or may even be banned from acting as the director of any company for up to 15 years.
By consulting with an insolvency practitioner as soon as you’re issued with a winding up petition you can receive valuable guidance and learn how to record the actions of your company to show the court that the directors fulfilled their duties while trading insolvent.
Apply for a Rescission Order
You can apply to rescind the winding up the order within five business days of the order being made if you can demonstrate that the company can pay the creditor or you couldn’t attend the winding up hearing. The court will hold another hearing to decide whether to rescind the winding up order.
Apply for an Administration Order.
An Insolvency Practitioner (IP) appointed by the company can apply for an Administration Order which effectively overrides the winding up order and allows them to be appointed as administrator.
Apply for a Stay of Proceedings.
This won’t reverse the winding up order but will stay its effect for a set period. The court can also order a permanent stay of proceedings, which puts the winding up order permanently on hold. The courts will order a stay of proceedings where you have agreed on a CVA with the company’s creditors.
What are the Potential Consequences for Directors of a compulsory liquidation?
The Official Receiver has to investigate the conduct of the directors as part of the insolvency proceedings and compulsory liquidation process.
In serious cases where the directors are found to be liable for misconduct, they can be disqualified from acting as a director of any company for a period of two years, up to 15 years. This also applies to shadow directors (those acting in the capacity of a director, although not officially appointed as such).
There are additional repercussions for those directors shown to have wrongfully carried on trading after they knew the company was insolvent and they can be held personally liable for any debts incurred after the company became insolvent.
Are you owed money yourselves by creditors?
Are you owed money yourselves? Often companies found to be insolvent are insolvent because their customers aren’t paying them, themselves. The late payment culture is a disease that spreads fast.
If you are in a difficult trading situation because your creditors won’t pay you, why not consider using a professional to get that cash flowing and collect those payments you are due?
If you sold to other businesses on credit, CPA can even help you identify a hidden source of capital withing your own business that might make the difference between survival and liquidation – see the section below “Do you realise you could be sitting on a fortune?”
About CPA
The Credit Protection Association can help!
Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.
At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.
We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.
Companies in trouble usually have very bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.
If you supply on credit, help us help you identify the risks.
Why use a third party collector?
As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When your customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.
Over the years we have collected billions in overdue invoices for our customers.
Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.
You might be hesitant about contacting a debt collection agency. What are they going to be like?
Can they help your particular type of business?
There is no need for concern. CPA are courteous, helpful and very probably have had direct experience of working with your type of business.
Debt collection agencies are not all alike.
Success lies in both recovering money and keeping customers happy. The Credit Protection Association was founded in 1914 and has helped tens of thousands of UK businesses to collect outstanding payments and reduce the risk of incurring bad debt. We believe that creditors deserve to be paid for the work or goods they have supplied but we fully understand the need to maintain
the best possible relationship with customers!
At The Credit Protection Association, we provide solutions, advice and back-up in all areas relating to the supply of services or goods on account. Client-members receive everything they need from a single source to reduce debtor days and write-offs.
The Credit Protection Association has helped has assisted tens of thousands of UK businesses with their credit control requirements, since the First World War.
We are polite, firm and efficient when it comes to recovering outstanding debt.
“We have used CPA for a number of years now. The website is easy to navigate around with lots of helpful reports. The staff are always at hand and very friendly. CPA has helped us reduce our debt over the years and keep track of potential issues with our customers.”
~ CPA client in Buckinghamshire
“The service from CPA has proved to be everything that you said it would be. We have already seen a huge benefit. We have had a number of overdue accounts paid promptly and directly to us. It is also a huge weight off our mind to know that once we have passed an overdue payment over to you, you take care of everything whilst keeping us informed.
~ Credit Controller client in Warrington
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
CPA is passionate about late payment
The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.
We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.
If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.
As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.
Under little used legislation, you are entitled to compensation for those late payments.
Now you can boost your own cash-flow.
CPA can help unearth the those hidden treasures.
We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.
Yes, CPA can help you boost your business cash-flow.
Don’t let your bankers control you, contact CPA today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you realise you could be sitting on a fortune?
Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.
If you sold B2B on credit then there may be a hidden source of capital you can call on.
If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.
Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.
We can help you uncover the pile of gold, you didn’t even know you were sitting on.
If you trade with other businesses and were often paid late then you could be entitled to significant compensation.
Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.
Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.
You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.
That compensation could provide the cash boost your business needed.
But don’t delay, that compensation evaporates if not claimed within six years of the late payment.
How can CPA help?
CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.
We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.
Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.
CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.
The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit. You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.
We do the work, you receive the cash.
If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.
We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.
We are helping business owners who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.
Those former clients who regularly paid you late can finally be made to pay.
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections