JARGON BUSTING.......WINDING-UP PETITION

In effect any creditor owed over £750 can apply to the court for a Winding-Up Petition, in simple terms the petitioning creditor has had enough of false promises, broken payment agreements and bounced cheques and wishes to stop the company trading (compulsory liquidation). It is a costly action to pursue but very effective, especially if the company has valuable assets. Upon receipt of the petition the court will review the evidence supplied and decide whether the petitioning creditor has taken reasonable steps to collect the debt. In some cases the debtor may believe that a Winding-Up Petition has been issued unfairly and an “abuse of the court process”, legal advice must be sought at this point but it may be possible to have the petition rescinded if it is deemed by the court as an abuse. This would stop any action such as banks accounts being frozen or the petition being advertised. If the court does not believe it to be an abuse of the system then it will still stand and be advertised as normal.

The petitioning creditor has to allow seven full days after serving the petition on the registered office of the debtor company before it can be advertised, also prior to the High Court Hearing the petition must have been advertised in the London Gazette (Edinburgh Gazette for Scottish registered companies) and is usually done so seven days before.

Once the petition is advertised the bank will find out and will usually freeze the company’s bank account. This prevents any illegal actions of the Directors.

There are actions that can be taken to unfreeze the bank account but professional advice should always be sought on obtaining a “validation order”, of course this action is also costly as it incurs legal fees.

If the debtor does not pay the winding-Up Petition or if the petitioning creditor does not agree to any offers it generally leads to a winding-up order being issued and the Official Receiver or court appointed liquidator taking over the company.

At this stage the Directors will personally be investigated, this is to ensure that they did not trade whilst insolvent and acted properly according to their Director duties.

If the company is “wound up”, the Directors will be held personally liable for any debts signed for with a Personal Guarantee (PG).

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