Winding Up Petition & Compulsory Liquidation
A winding-up petition is a process by which a company creditor can apply to the court to wind-up a company for non-payment of its debts. This can result in compulsory liquidation.
What You Need To Know
What Are The Effects Of A Winding Up Petition?
- The petition will be advertised in the London Gazette. This will be anytime not less than 7 days after the presentation of the petition and 7 days before the hearing.
- Critically, once advertised, the Bank account will be frozen, irrespective of whether or not it is in credit.
- Any disposition/sale of Company assets after the presentation of the petition will be void in the event that a winding up order is subsequently made.
- There will be damage to your commercial reputation and suppliers may well refuse to deliver goods. Suppliers may also seek to recover their debts from the Company quicker than they previously have.
- A winding up petition, if not dealt with, will ultimately lead to the winding up of the Company at the winding up hearing. The hearing will be about 8 weeks from the date of the petition.
- This will result in the Company going into Compulsory Liquidation.
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Your Options
What Should I Do If My Company Receives A Winding Up Petition Or A Statutory Demand?
- You should act immediately and seek professional insolvency advice from a Licensed Insolvency Practitioner or a Solicitor experienced in Insolvency matters.
The Details
What Is A Compulsory Liquidation?
- This is when a dissatisfied Creditor issues a winding up petition against the Company and the Court then make a Winding Up Order.
- A Government official, the Official Receiver, will then be appointed liquidator.
- Trading will cease immediately and all employment contracts will automatically terminate.
- Compulsory Liquidation is generally regarded as the least favourable insolvency procedure as it implies that the Directors have not taken steps themselves to resolve the Company’s financial problems, but have allowed Creditors to bring matters to a head.
Weighing Up The Options
What Are The Advantages And Disadvantages Of Compulsory Liquidation?
- There are no cost implications on the Company as it is the petitioning creditor who has to meet the costs of the winding up, these costs ranking as a first charge on realisations in the liquidation.
- However, the fact that the Directors have not taken steps to deal with the affairs of the Company is, in itself, evidence that they were not in effective control.
- There is an increased likelihood that the Directors will be subject to disqualification proceedings rather than had they taken steps to place it into Creditors Voluntary Liquidation.
- The Directors will be subject to investigation by the Official Receiver.
- Any transactions conducted since the date of the winding up Petition (which could be number of weeks before the date of the winding up Order) may be Void and challenged.
- Returns to creditors are therefore extremely low in Compulsory Liquidation.