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New rules relating to Winding up Petitions

It has been widely reported that the UK government introduced various measures to support businesses throughout the COVID-19 pandemic.  These included a suspension on the issue of winding-up petitions and statutory demands, from April 2020.

The protective measures were extended on several occasions but will now be lifted, and new targeted measures to support small business will be introduced.  UK businesses which have struggled through the pandemic should understand their position, with current restrictions now due to expire 30 September 2021.

What has changed with Winding up Petitions?

UK businesses facing financial distress as a result of the pandemic benefited from protection against creditor action, via the Corporate Insolvency and Governance Act 2020.  No creditor could present a winding-up petition to the court, which effectively removed the threat that a company could be forced to close.

The only exception to this rule was that a petition could proceed if the creditor demonstrated that the reason for non-payment of the debt did not relate to Covid-19.

New legislation will:

  • Raise the current debt threshold for a winding up petition to £10,000 or more; and
  • Require creditors to seek repayment proposals from the debtor, and allow 21 days for a response before proceeding with winding up action.

These changes will be in force until 31 March 2022.

What is a winding up petition?

A winding-up petition is one of the most severe debt collection methods a creditor can use to try and recover what they are owed.  Business owners should understand what a winding-up petition is, what can be done if your company receives one, and what happens if the petition is successful and a winding up order is made.

A winding up petition is legal action taken by a creditor (or several creditors) in relation to a company that currently owes them £10,000, or more.  It is usually a final resort.  Other parties can petition but it is most common for this action to be taken by creditors.

Once the petition is filed at Court it will be endorsed and the Court will set a hearing date, at which the petition will be heard.  The petition must then be served at the registered office of the company and it will also be advertised in The Gazette.  If a winding up order is made at the hearing, the company will enter compulsory liquidation and the Official Receiver will be initially appointed as liquidator.    

What can be done to stop a winding up petition?

The options available will depend on whether the petition has been advertised, or not.

Dealing with a Winding up Petition that has been filed but not yet advertised:

  • Dispute the Petition Debt

If the debt is disputed you can notify the Court that this is the case.  However, you can only take this course of action where there is a valid reason for dispute, and you have evidence in support of this.

  • Pay the Petition Debt

It may not be possible, but if you can pay off the full amount owed to the creditor (and their costs of bringing the petition) you may be able to prevent the petition from being advertised and becoming public information.

  • Administration

A company in administration benefits from a moratorium, which prevents any legal proceedings being brought or continued against it. If a petition has been filed you must apply to the court for the winding up petition to be adjourned before it can consider whether an administration order would be appropriate. 

Dealing with a Winding up Petition that has been filed and advertised in The Gazette:

Once the petition has been advertised the above remain open to the company, but it may be more difficult to continue trading as the company’s bank accounts are likely to be frozen.  It will also be necessary to apply for authority to dispose of company property (including cash).

Can Insolvency Practitioners help if my company has a winding up petition?

If a winding-up order is made then the petition process is complete and the Official Receiver will be appointed as liquidator to the company.  The powers of existing directors will cease.

If your company has been threatened with a winding-up petition, or has received one, it is important to act quickly and seek professional advice.  The chances of saving your company from closure are greater the earlier you seek help.

We can:

  • Provide free, no obligation advice, regarding the company’s financial position;
  • Assess the options available to the company and explain the implications of each one;
  • Help you to negotiate with the petitioning creditor, or their representative.

Keywood Group is a Licenced Insolvency Practice and our team has extensive experience in dealing with company closures, or helping you to assess the alternative options available.  If you want further information, please contact us for a no obligation chat.

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