The post pandemic return of the winding up petition

A winding up petition is the strongest action a creditor can take against your company.

It is often a last resort after payments and reminders have been ignored.

They were temporarily restricted by the Corporate Insolvency and Governance Act 2020 (CIGA) as a result of the COVID-19 pandemic; however, as of 1st October 2021, some of these restrictions were removed – and from 31st March 2022, all restrictions will be lifted.

So, to find out everything you need to know about the winding up petition process, how it works, and how you can protect your business, read on...

Your FAQs about the post-pandemic return of the winding up petition answered:

What is a winding up petition?

A winding up petition is a serious statement of intent by a creditor to shut down your business due to unpaid debts – and if nothing is done about it, it ultimately means the end of the road for your business.

If you are threatened with a winding up petition, it’s important to act as fast as possible. Once the petition has been served, you have just seven days before your company’s financial situation becomes public knowledge.

It’s therefore important to seek advice from an expert insolvency practitioner as soon as you can.

What measures are still in place under the Corporate Insolvency and Governance Act?

Under the CIGA, there are a few measures in place aimed at protecting smaller businesses from the winding up process until 31st March 2022:

1. An increase of the debt threshold owed by the company from £750 to £10,000.
2. Before presenting a winding up petition, creditors should seek proposals for payment and give 21 days for a response before proceeding with winding up action.
3. Where a debt relates to unpaid rent under a lease of premises due to a financial effect of COVID-19, it is not possible to issue a winding up petition.

When would a creditor issue a winding up petition?

Being issued with a winding up petition is usually a creditor’s last resort in trying to get paid, and it usually follows a series of other, unsuccessful attempts to recoup money using other methods of collection.

The cost to the petitioner is significant (usually £1,500 – £2,000), which is why it is something of a last resort.

If you owe a creditor £750 or more (which was increased to £10,000 during the pandemic to protect small businesses until 31st March 2022), they have unsuccessfully tried to recover the debt using other methods and the debt is not in dispute, they are issue a winding up petition with a view to closing your company.

How does the winding up petition process work?

Your creditor must follow a specific process when issuing a winding up petition. The process usually adheres to the following timeline:

1. After unsuccessful attempts to recover their debt, your creditor will issue at 21-day statutory demand for payment unless they already hold a CCJ against you.
2. If this remains unpaid, they will hire a solicitor to apply to wind up your company.
3. The petition is sent to the high court and served at the company’s registered address.
4. The court will set a date for the hearing, usually 8-10 weeks following the issue of the petition, where a decision will be made on whether or not to issue a winding-up order.
5. Seven days after the petition has been served, the hearing date will also be advertised in the London Gazette.
6. This means that your bank and other creditors are likely to become aware of the situation – which means that your chances of avoiding a compulsory liquidation are significantly lower.
7. At this stage, the bank will freeze your accounts and you will no longer be able to trade.
8. And if no action is taken by your company, a winding up order will be granted, and the Official Receiver will be appointed to forcibly wind up the company and liquidate its assets.
9. The conduct of the directors in the time leading up to the insolvency will also be investigated.
10. Once the assets have been sold and the proceeds distributed between creditors, the company is removed from the register at Companies House and ceases to exist.

So, what can I do about a winding up petition?

If you are faced with a winding up petition, what happens next depends on you and how quickly you act. Generally speaking, you have four main options for avoiding liquidation:

1. You can use a company voluntary arrangement to create a payment plan with your creditors if it’s not too late in the day.
2. You can apply to the court for an adjournment in order to allow you to explore company administration.
3. You could convince the court to dismiss the petition by showing your company needs more time to pay or by disputing the validity of the debt.
4. If you can find sufficient funds to pay the debt, you could pay the creditor in full.

However, it’s important to note that once the petition has been served, the court hearing will still take place even if you pay the petitioning creditor in full – so other creditors could step in and use the petition to recover their monies, too.

How McAlister & Co can help

At McAlister & Co, we are licensed insolvency practitioners with over 20 years of experience in personal and business insolvency.

Depending on your situation, we can advise you on what to do next if you are faced with a winding up petition and possibly help you to postpone or even avoid the winding up process.

The sooner you seek advice the better, so be sure to reach out to our team today.