First seven days of winding up order is crucial
Posted on by Cindy Yip
Estimated read time: 4 mins
A winding up order is very serious and is only normally served as a last resort. It’s a serious threat to the running of your company and following liquidation, directors can face possible personal liability for the company’s debt depending on your company structure.
What is a winding up order?
This is a court order that forces an insolvent company into compulsory liquidation. The courts will appoint an Official Receiver (OR) to liquidate all of the company’s assets so that it can repay its creditors. The winding up order is served as a result of creditors sending a winding up petition (WUP) to the court after the insolvent company fails to repay a debt of more than £750, within 21 days of being issued a claim (an official payment request served after High Court judgement).
First seven days are crucial
If you’ve been issued a winding up petition, you have seven days from the date of service of the petition to file your response with the court. Once seven days has passed and you haven’t responded then the petition can be advertised on the National Gazette, at which point, anyone from banks to suppliers and customers can see this information. This situation can start to go downhill as banks will freeze your account so no movement of money can be made and suppliers and customers may start demanding money back.
After receiving the petition, you have the following options:
- Apply to the court for adjournment which will allow you time to think through your debt options or request more time to pay your creditor. If the court grants this adjournment, any legal action will be paused against your company whilst you’re addressing your options.
- Consider any valuable assets the company owns and explore the possibility of appropriate asset finance options to raise funds to pay your outstanding debts and avoid the winding order altogether.
- Arrange and propose a Company Voluntary Arrangement (CVA) to come to an agreement with the petitioner regarding the debt. A CVA can stop a winding up procedure temporarily and you may be able to write off up to 75 per cent of your unaffordable business debt. It allows the petitioners to receive an affordable percentage of the debt over a maximum term of five years, whilst you legally write off the remaining balance and continue to trade as normal. In most cases, creditors will agree to a CVA as it indicates a positive step forward and provides a greater possibility of them receiving the money owed.
- Obtain an administration order to have the company put into administration, in that time, a licensed insolvency practitioner would be appointed as administrator to evaluate and sell some of the company’s assets. During a court-order administration, all legal actions are put to a halt, which means the court will not escalate the winding up order against your company.
- Dispute the debt. In order for this to be an option for you to go ahead with, you must have substantial proof that the debt claim is inaccurate or unfair. This is a serious allegation against the creditor known as “abuse of court process”.
When you’re faced with a winding up petition or order, it doesn’t mean the end of your company and if you act on the available options quickly, there are ways to resolve this, but remember that speed is the key.