Winding up petitions advertised increase by 10.5% in month of October. What to do if you have been threatened with one

Winding up petitions advertised increase by 10.5% in month of October

. What to do if you have been threatened with one

The number of Winding up petitions issued by creditors increased/decreased by 10.5% in October compared with September.

A winding up petition once issued is the "nuclear option" that creditors of a business can use to try and reclaim a debt.

If a creditor decides to wind the company up, they're usually serious in their intent to recover the money it is owed and or put the company out of business.

Generally a winding up petition (WUP) costs say 300-800 to issue PLUS 1,190 court deposit and the filing fee. So it is a serious step to take.

Keith Steven of KSA Group says the company takes calls everyday from people who have had winding up petitions threatened or already issued. The problem we are encountering is that business people do not understand the importance of the threat of "going nuclear" and more importantly the advertisement of the petition.

What is a Petition Advertisement?

The creditor must allow 7 clear days after the serving of the petition on your registered office, before the petition can be advertised in the London or Edinburgh Gazette. It must generally be advertised 7 days before the petition hearing date although in many cases creditors or rather their solicitors will advertise it much sooner or after 7 days of the petition being served.

So what happens and what can you do about it?

If the petition is advertised in the London Gazette (this is the newspaper that all statutory notices have to be published infor companies registered in England & Wales, the Edinburgh Gazette deals with Scottish companies) the business is effectively killed off. So how come? Firstly all the credit agencies, receive notification of these petitions and they will blacklist you. The immediate consequence of that sounds bad but the main problem is that your Bank will be notified of the petition and they will in almost every case, freeze your business bank account! Unfortunately once that happens you have effectively lost control of the situation. How can the banks do this?

Well the technical answer is under section 127(1) of the Insolvency Act 1986, if a company is wound up, any sale of the company's property, any transfer of shares made after the commencement of the winding-up is void, unless otherwise ordered by the court.

This means that it is very difficult for a company to continue to trade after a winding up petition is advertised. So banks assume that they have to freeze the accounts to stop assets being dispositioned. It is a safe step in their eyes. This will happen even if your account is in credit! Any monies due to you can be banked, but you cannot have get access to the funds unless you obtain a validation order from the High Court.

Once a petition is advertised you can no longer go down the path of a creditors voluntary liquidation. it is unlikely that there would be sufficient time to propose a Company voluntary arrangement CVA. A CVA gives you the ability to stop creditor pressure and come to an agreement with your creditors to pay off what is owed over a period of 3-5 years, much like an IVA for companies both these arrangements have to be overseen by an insolvency practitioner. A Creditors Voluntary Liquidation (CVL) means you can close the company without having a court appointed Official Receiver looking into your behaviour as a director.

What can you do if you are faced with this "nuclear option"

It is possible to stop the advert if you act fast. Talk to the creditor and seek an adjournment of the hearing. In many cases it is HMRC who issue winding up petitions so talk to them and say you are working on a rescue plan, a CVA for instance, and they may delay the advert. Also double check all the paperwork. The petition has to be served at the registered address. Another possibility is that a WUP has been issued but doing so has been an "abuse of process" by one creditor that could damage the interests of the other creditors. This might be where a creditor happens to be a competitor, or where the debt is in fact disputed.

KSA Group managed to get a winding up petition struck out of court in Scotland when this actually happened. The sheriff agreed and said "it is not equitable to allow a single creditor to make the decision on the company's future, when the law allows for the body of creditors to decide under the company voluntary arrangement process".

Of course you could pay the debt due, it but you need to be careful as if you are technically insolvent then all creditors need to be treated equally and paying the petitioner in full could theoretically be seen as creating a preference. if it leads to the company continuing to trade this technical "preference" argument is not applicable. Indeed we would argue that continuance of trading maximises the interests of creditors.

A word of caution for directors and companies facing such threats.

In almost all circumstances that we get involved with in the turnaround and insolvency world, when a creditor goes nuclear and issues a winding up petition, it is simply the fault of the company's directors and management they fail to act and keep thinking that muddling on will save the day. Remember when a creditor issues a petition, because you have failed to take action, you have already started to cede control of your company to other people and the Court system. Is it really worth taking the risk? Or would getting free initial professional insolvency advice be the smart choice?

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