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A winding up petition is the name given to the process leading to the Court making an Order for the compulsory winding up of a company.  A creditor who is owed more than £750 and who has issued a formal demand for payment (a “statutory demand”) which remains unpaid after 21 days can petition the Court to make an Order for the winding up of the Company.  If a creditor has obtained a Court judgement for a debt of more than £750 a winding up petition can be issued without having to also issue a formal demand for payment.

The Court has very little discretion to delay or refuse a petition for a winding up Order.

It is important to note that once a winding up petition has been issued the Court regards the company liquidation process as having commenced. The company’s directors must  act solely in the interests of the company’s creditors.  The directors must act reasonably to preserve the company’s assets. If the company loses money between the presentation of the winding up petition and the making of a winding up order the directors face being held personally liable for these losses.

Preventing Compulsory Liquidation

If it is realistic  to expect the company can return to profitability then it may be possible to prevent the company entering into compulsory liquidation.  It is important to remember that creditors will need to be paid in full or at the very least agree to scheduled repayments before the Court will be persuaded to withdraw the winding up petition.

It may be more realistic for the directors facing the prospect of their company being compulsorily wound up to propose an alternative formal insolvency process.  This will enable the directors to control to some extent the way in which the affairs of the company are dealt with and should also enable the directors to offer creditors better prospects of higher dividend payments than if the compulsory winding up process continues.

Options which directors may consider in these circumstances are:

Company Voluntary Arrangement (CVA)

Administration

Pre pack Administration

Bank Accounts and Compulsory Liquidation

As part of the winding up process the petitioning creditor must advertise notice of the forthcoming winding up petition.  The company’s bankers will take immediate action to freeze the company’s bank accounts as soon as the notice comes to their attention.  In many cases the bank’s actions in freezing the company’s accounts can be disastrous for the company. It is possible to quickly obtain a Court Order to unfreeze the accounts provided certain  conditions are met.  As directors of the company it is important that you act on the basis of sound professional advice in these circumstances as there you are at risk of being held personally liable for any losses sustained by the company during this time. Free professional advice is available now from experienced insolvency practitioners.

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