Winding Up Petition

What is Compulsory Liquidation?

Compulsory Liquidation is generally thought to be the least favourable outcome and is best avoided.

This is because when a company is placed into Compulsory Liquidation overall costs are generally higher and require a court process. A liquidation of company assets through a court led process will likely result in lower realisations for creditors when compared to a voluntary liquidation process.

Staff members are all made redundant and the company is ultimately struck off the register.

If threatened with a Winding Up Petition, we cannot stress enough how important it is that a company acts immediately.

Advice from Hudson Weir is invaluable and can make a huge difference to any organisation facing this situation.

A Winding Up Petition also leads to the company bank account being frozen

The company’s bank account is frozen immediately after the bank realises the petition has been issued.

The petitioning creditor will advertise the petition in the Gazette seven days prior to the hearing and the bank will freeze the company account at this point.

This means it will no longer be able to pay its staff members, suppliers or anybody else. The petitioning creditor and other company creditors will go unpaid as well.

The bank freezes the company account as a means to protect itself in case the firm is liquidated.

To unfreeze this account the company must apply for a Validation Order via the court.

Applying for a Validation Order

A company should only ever apply for a Validation Order if it is 100% certain that the Winding Up Petition should be dismissed.

For a Validation Order to be granted, the business needs to convince the court that unfreezing their bank account benefits it and its creditors as well.

The Validation Order application is made to the court in which the petition hearing will take place and is served upon the petitioning creditor.

It asks the court to unfreeze the company’s bank account and requires solid evidence to back up all the points it makes. This might include:

• Why the directors believe the petition was issued
• Whether the petitioning creditor’s debt is disputed, and if so, why? If not, an explanation of how the company will pay needs to be provided
• A rundown of the company’s financial situation. This needs to include a comprehensive assets list that details the cost of all assets, the cost of security for these assets and a liabilities list. All this must be backed up with documentary evidence such as audits and management accounts
• A cash flow forecast
• A profit and loss projection

The Validation Order has a stronger chance of court approval if the company can pay all its due debts from the bank account that has been frozen.

Similarly, if the Winding Up Petition is going to be dismissed or if a Company Voluntary Arrangement is likely to be approved by the creditors, the Validation Order claim stands a better chance of going through.

If the company disputes the debt, what action must be taken?

The company needs to inform the court, the petitioning creditor and the petitioning creditor’s solicitor formally.

Reasons for why the debt is being disputed have to be included in this.

If the petitioning creditor refuses to withdraw the Winding Up Petition, a defence from the firm must be sent to the court at least five days before the hearing date.

This defence should include supporting evidence. If part of the petitioning creditor’s claim is agreed to, it is best to pay this off before the hearing.

The court will assess the facts and might grant an adjournment of the hearing so that there is more time for both parties to resolve the dispute.

If the company has applied for it, the court may also grant an injunction which stops the issuing of the petition being advertised in the London Gazette. However, the court can also give the order to wind up the company at this stage.

If the dispute goes unresolved before the hearing, company directors will have to defend the petition at the hearing in court.

If the company has applied for it, the court may also grant an injunction which stops the issuing of the petition being advertised in the London Gazette. However, the court can also give the order to wind up the company at this stage.

If the dispute goes unresolved before the hearing, company directors will have to defend the petition at the hearing in court.

What to do if you are issued with a Winding Up Petition

Seeking professional advice from a licensed Insolvency Practitioner immediately is undoubtedly the first thing to do. The sooner the better!

Getting advice while the petition is being threatened is easier than seeking it after it has been issued because more options are available to the business.

Don’t worry though – our team at Hudson Weir will help you out regardless of what stage in the process you are at.

Hudson Weir will take into account your current situation and discuss with you the best options available and how best to proceed.

We can then provide you with the documents that state we are working for you formally. This is part of the legal process in hiring a consultancy firm to act on a company’s behalf.

We work with you to create an action plan that aims to achieve your objectives and get you the best possible outcome.

Do not pay off the petitioning creditor without receiving professional advice from us.

This may lead to you losing money to the creditor and the Winding Up Petition still not being dismissed.

Any other creditors who are using the petition as leverage for their own claims also need to be dealt with and Hudson Weir can help with this too.

We will meticulously and efficiently investigate your situation and deal with any issues you are up against.
We are more than happy to help if you have found yourself in the situation of either being threatened with a Winding Up Petition or have received one.

Next step

We are more than happy to help if you have found yourself in the situation of either being threatened with a Winding Up Petition or have received one.