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Winding Up Petition - a Debt Recovery Tool

A winding up petition, in simple terms is a legal tool which either forces the debtor company to pay the debt owed or the court will make an order to close their company.

winding up petition solicitor

If the court makes such an order, the Official Receiver will be appointed and will liquidate any assets of the petitioned company and then distribute to outstanding creditors.

It is important to note that the petitioner (the person who makes the application for the winding up petition), will not have any preferential treatment in having their debt paid by the Official Receiver. Any secured creditors will be paid first, followed by unsecured creditors.

It is often the case that there is not enough in the way of assets to liquidate to pay all creditors so each creditor will be paid a pro rate proportion of their debt back (e.g. £0.10p for each pound owed).

It does beg the question why someone would wish to go to the expense of winding up a company when it is quite likely that by doing so, they will not recover the full amount of what they are owed.

There are numerous reasons, ranging from shareholder disputes, fraud being committed by the Directors of the petitioned company or companies simply not being in a position to pay there debts as and when they fall due.

Many SME’s are threatened with a Winding Up Petition by a creditor when the reality is, the creditor has no real intention of making the application or spending the money on court and legal fees to do so which is an abuse of process and not something the court take lightly.

If fraud is suspected, then it would be advisable to discuss the matter with a Liquidator. The Liquidator has wide ranging powers, which can be granted to them by the court but from an investigatory point of view, the Liquidator is an excellent choice.

A Liquidator can obtain company bank statements (and also personal bank statements from the directors accounts if applicable) to ascertain if creditors of the company have been defrauded. A good example of fraud would be the directors paying themselves dividends from the company at the expense of outstanding creditors. If this has occurred, it is possible to recover funds directly from the directors.

If you are a creditor who cannot get a company to pay your debt or if you are a company/SME who has been threatened with a winding up petition, speak to a lawyer before you take any action yourself. There are actions a petitioned company can take to stop the winding up petition from being advertised in the London Gazette (by obtaining an injunction) by an over zealous creditor but time is of the essence. As soon as you are served with a winding up petition, seek immediate advice from a Solicitor.

When the winding up petition is advertised in the London Gazette as part of the procedure, it is almost guaranteed that the company bank account will be immediately frozen or closed by the company’s bank. This can have disastrous consequences for a company that wishes to carry on trading.

If there is a genuine dispute as to whether a debt is owed, a winding up petition will not be granted but only if the petitioned company takes the correct legal steps in explaining this to the court. If a winding up petition is simply ignored, then the company will be wound up and the Official Receiver or appointed Liquidator will take over the company affairs immediately.

At Selachii LLP, we often assist both creditors and petitioned companies in insolvency matters. There are strict deadlines and procedure to be adhered to. Therefore, if you are considering such action against a company or if you are being threatened with such action, call Selachii LLP and speak to one of our commercial solicitors who will provide you with sound legal advice.

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