A winding up petition is a clear indicator that your business is operating inefficiently or inappropriately. It is the clearest indicator that a business is in financial difficulty, and can be the beginning of a chain of events that can lead to a company being liquidated.
Once it has been initiated, the consequences of a winding up petition can often be serious and unavoidable. They can have a lasting, long-term effect on the future of any business.
The end-goal of a winding up petition if not handled correctly can be a winding up order, which can lead to a business being forcibly liquidated.
To give yourself the optimal opportunity to avoid this possibility, it is vital that you recognise the process of a winding up petition, and get a clear understanding of the possible consequences that could arise from it.
What is a Petition to Wind Up a Company?
A petition to wind up a company is a sign that your business is in for a tough time, and likely has been for a while. It is a method used by creditors to attempt to recoup any money owed to them after several failed attempts.
Applying for a winding up petition is generally seen as a last resort, and the request will not be approved unless absolutely necessary due to the possible severe repercussions for the business and all of its employees.
The consequences of a winding up petition can leave a lasting mark on your business, and if appropriate measures are not taken, can ultimately lead to the liquidation of your business.
However, this doesn’t have to be the case. If you find yourself in the position of receiving a winding up petition, not all is lost. There are options available to you that can help you avoid the worst coming to fruition.
Winding Up Petition Consequences
There are several potential consequences of a winding up petition that can affect your business in a multitude of ways. The most severe of these is the compulsory liquidation of your firm and the loss of everything you have worked so hard to build.
However, it is important to note that the serving of a winding up petition does not automatically spell disaster for your company. If you act quickly, you can give yourself the best possible chance of turning things around. This is why seeking specialist advice at your earliest opportunity is essential.
Other Creditors May Get Involved
Once the winding up petition is advertised in the London Gazette, it is possible that any other businesses who feel that they may also have a case against your firm will be able to join with the case currently ongoing, even if you are in the process of paying off the first creditor.
This is called a ‘change of carriage’ and in this scenario you are required to also pay off the outstanding debt to the second company as well as the first.
A change of carriage is not limited only to one company, if there are multiple possible claimants then they can all join the petition. This scenario can quickly snowball if a business owner is not careful.
Limited Time to Rescue Company
It is estimated that there are approximately 4-8 weeks between a company receiving a winding up petition, and finding out its final fate in court.
This means that once the petition is accepted by the court, you have a matter of weeks to attempt to save your business. Immediately putting any company director under immediate pressure to attempt to repay the debt.
Fortunately there are a few options open to you that can help to keep your business afloat, and even put you in a better place for the future.
Frozen Business Bank Account
Once a winding up petition has been advertised in the London Gazette, it won’t take long until your bank gets wind of the situation.
Once your bank is made aware of a winding up petition being awarded, your bank accounts will all be frozen. This means that no payments can be made from or to the company in question.
Additionally, a business who has had their business account frozen by the bank, will also have their credit rating reduced to zero as a result.
It is possible for a frozen bank account to be reopened, but to do so you will need to receive a validation order by a judge — this will give you access to your funds, increasing your chance of keeping your business afloat.
Reputational Damage
A company being issued with a winding up petition can cause serious and substantial long-term harm to the commercial reputation of the business.
Clients and customers may opt to avoid a firm they deem to be insecure, in case they do business and the company is then forced to liquidate, possibly leaving them in the lurch.
Business may also find it much more difficult to obtain credit with an outstanding petition, and any possibly future creditors may deem it pertinent to approach getting their money back much more aggressively due to your company’s track record.
Legal Costs
While a winding up petition against your business is caused by a perceived lack of funds, that doesn’t mean that you only need to pay back what you owe.
Protecting yourself from a winding up petition can be seen as a bit of a Catch 22. You can only attempt to protect the long term financial future of your business by spending additional money to contend with legal expenses that are now required of you.
The business will need to cover all of its own legal fees, and if the winding up petition is found to be justified then you will be obliged to also cover the creditors costs as well, in addition to the petition debt itself.
What Happens if a Winding Up Order is Made?
A winding up order occurs when the judge who is presiding over the winding up petition rules in favour of the creditor. If this happens, it will result in the debtor’s company being placed into liquidation.
This is by far the most serious of all the consequences of a winding up petition, as it represents the final straw for a business. It generally occurs when a company has either not complied with the process, or that they were unable to acquire the necessary funds to pay off the initial debt.
In this situation, your business matters will be taken out of your hands, and the liquidation process will begin.
An Official Receiver will be appointed to the business. Their role is to sell company assets, liquidate the business, and investigate for any signs of misconduct or mismanagement.
A winding up order means the finite end of a limited company, the sale of all assets associated with the business, the termination of all employees, and its dissolution at the United Kingdom’s registrar of businesses, Companies House.
How TaxDebts Can Help with Defending a Winding Up Petition
Receiving a winding up petition can be a stressful time in the life of any business, but it is by no means an excuse to bury your head in the sand, and understanding the consequences of a winding up petition is only half the battle.
The team at TaxDebts are experts in the field, and are here to offer our support and expertise to help you to come out of the other side of what can be a tough time.
A winding up petition could be a hammer blow to the future of any business, but if handled appropriately and efficiently, it doesn’t have to.
For further advice on how you can stop a winding up petition, and to discover more about what TaxDebts can do to help, contact a member of our team today.
