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K2 Business Rescue The Emergency Service for Business
Call Tony Groom on 0844 8040 540
The journey for every business is different. We listen to you and your objectives before proposing a plan for survival and growth. We work alongside you and your team and focus on protecting and improving your wealth.
Published on 31 December 2010 by Tony Groom
Winding Up Petitions (WUP) and How to Deal With Them
A Winding Up Petition (WUP) is a legal application by a creditor to the High Court or
another appropriate court asking that a company be closed down.
The purpose of winding up a company is generally to remove control of a company
from its directors so that its affairs can be dealt with properly. At the end of the
process the company is dissolved and ceases to exist.
Compulsory winding-up is a legal process by which, if granted by the court, the
official receiver is appointed to oversee closing down the company and may then
engage a licensed insolvency practitioner as approved liquidator.
The petition must be properly served on the company, normally by personal delivery
at its registered office, and must be advertised in the London Gazette. The
advertisement is intended to notify the public but in practice is also how banks and
other institutional creditors learn of the petition. The process of service and notice is
complex and often petitions are rejected in Court when the petitioning creditor is
unable to prove that the correct process has been followed.
Directors, on receipt of the petition, should be aware that when the bank learns
about it may freeze the company bank account. They should also be aware that
any further trading after the date of receipt may mean that they can be held
personally liable for any company debts accrued after that date if, when their
actions are investigated, they are found not to have acted in the best interests of the
company’s creditors.
If the directors wish to continue trading in order to save the company then they
should seek help from a business rescue adviser if the company is insolvent. If they
K2 Business Rescue The Emergency Service for Business
Call Tony Groom on 0844 8040 540
believe that trading on would benefit creditors through recovering assets, then they
should seek help from an insolvency practitioner who might well be introduced by
the bank or another secured creditor. Whatever the reason for continuing to trade,
trading while insolvent there are issues for directors who are advised to seek
professional help.
Failure to respond to a petition can lead to a company being closed down. In view
of the complexity of the process the directors should not try to deal with the petition
without expert guidance from an insolvency, legal or business rescue adviser, who
would normally introduce an insolvency barrister to represent the company in court.
The need to use a barrister is because only two people have rights of audience in
the winding up court, either a director or counsel acting on the company’s behalf.
Although the petition is very serious and should not be ignored it does not mean that
the company is doomed to closure. With proper representation based on a credible
plan to deal with the company’s difficulties it is possible to have a winding up
petition dismissed.
For example, if the debt has been paid or if a Company Voluntary Arrangement
(CVA) has been approved. It is not uncommon for the court to adjourn the petition
hearing if the company can demonstrate that it is attempting to resolve the petition
debt. Reasons for adjournment might be asking for time to pay the debt or for time
to hold a meeting of creditors to consider proposals for a CVA. However only a few
weeks will generally be granted.
Should the debt be disputed, the petition is not dismissed but instead it is adjourned
pending judgement on the claim’s validity. It relies on written evidence with a date
by which the defence must be provided to the court, the next date being when the
claimant must have responded, then a date by when the court is to have
considered the evidence from both parties. Following that the court will determine
whether there is sufficient evidence for judgement or a hearing or a full trial.
A WUP is often used as an action initiated out of frustration following attempts by a
creditor to agree terms for repayment of money owed or after repeated attempts to
contact the company have been ignored. Some creditors use WUPs as a means of
debt collection, which can work when a company pays before the hearing.
HM Revenue and Customs (HMRC) regularly uses the petition when its repeated
written reminders and requests for repayment of outstanding PAYE, VAT or tax have
been ignored but the petition can equally be used by private creditors.
Surviving a petition does not always mean that the company will survive. All too
often companies pay the debt but leave themselves without sufficient cash to pay
other bills or even wages. Sometimes directors use personal funds or their pension to
pay the debt, but the debt has purely moved from one creditor to another where
K2 Business Rescue The Emergency Service for Business
Call Tony Groom on 0844 8040 540
recovering it from the company remains a problem. Too often directors try to deal
with a petition without advice, which is surprising given the high stakes involved.
We are not Insolvency Practitioners. We operate within the law to protect our clients and their wealth. Our team has worked for over 20 years to help stabilise and return hundreds of businesses to profitable growth. Once appointed, Insolvency Practitioners do not work for you, they work for creditors and use your company’s assets to pay themselves. We work for you, not creditors.
More Free Resources for Directors and Business Owners in Difficulty www.rescue.co.uk
We Save Businesses We provide experienced advice to directors
We negotiate with HMRC and creditors We are on your side
Need Immediate Help – Call Tony Groom on 0844 8040 540