A winding-up order is often one of the worst-case scenarios for a business facing financial difficulties. It refers to a procedure in which a creditor files with the court to close down your business in order to recover the debts that you owe them. This is one of the worst outcomes, not only because it takes the future of your company out of your control, but because, in many cases, it can be avoided.
You will have plenty of warning before a creditor applies for a winding-up petition, which gives you several opportunities to resolve your debts proactively and avoid the most serious consequences for your business. We will discuss these options in more detail later, and explain how you should respond during this process to ensure you have the best chance to recover your business.
When you receive a winding-up petition, a court hearing will be arranged at which a final decision on the future of your company must be reached. Between receiving the petition and the court hearing, it can feel as though your company has entered a limbo state. Company directors may experience confusion and ambiguity about their company’s financial position, what will happen to its assets, how much freedom they have to make decisions and their role within the business.
Here, the experts at Company Insolvency Advice will explain what happens to business assets when you receive a winding-up petition or a winding-up order; outline how business directors should respond to a winding-up petition and the actions they are allowed to take; and detail ways you may be able to prevent creditors from taking this action.
What should I do when I receive a winding-up petition?
If your business fails to pay its debts to its creditors, they may be able to pursue a winding-up order against you. This is a court order that seeks to ultimately force your business into compulsory liquidation, and is a last resort for creditors who have exhausted other methods of seeking payment. To apply for the winding-up order, a creditor must first request that you pay the debt, then issue a 21-day statutory demand for payment. If these efforts are unsuccessful and the debt remains unpaid, the creditor can apply to the court for a winding-up petition.
This means that there are several opportunities during this process for businesses facing this pressure to make new arrangements, pay their debts and avoid the most serious outcome: a winding-up order. Sometimes, this can be as simple as negotiating new payment terms with a creditor, or applying for a Company Voluntary Arrangement that can give you more time to pay.
If you are facing pressure from creditors at any stage of this process, you should contact an expert advisor or insolvency practitioner. The team at Company Insolvency Advice has significant expertise in supporting organisations through financial difficulties. There may be rescue solutions available to you that can restore an insolvent company back to health, so it is important to explore your options.
When you receive a winding-up petition, a court hearing will be arranged for a time within the next 8-10 weeks. This gives you the opportunity to review your financial situation and determine whether there is a way that you can avoid compulsory liquidation.
If the court believes that your business will not be able to repay its debts and that you have not made sufficient efforts to work with creditors, it may grant a winding-up order. The result of this is that your company is put into liquidation.
In terms of your company’s assets, they are very important to the liquidation process. Here, we will explain what happens to them at each stage and what you are – and are not – allowed to do with a business asset during this type of insolvency procedure.
What happens to business assets after a winding-up petition?
When you receive a winding-up petition, your company’s bank account will be frozen and the company will stop trading. This is because, if the company is put into liquidation, these assets will be sold by the liquidator and the funds generated will be used to pay dividends to the creditors who are owed money.
The directors of the company will remain in their roles at this stage, but are under a legal obligation to avoid any actions or behaviours that could disadvantage the company, worsen its financial position, or affect the ability for creditors to receive their dividends from the liquidation.
This means that you can sell a business asset after you receive a winding-up petition, but you cannot withdraw any profit from the company. Ultimately, a creditor’s interests come first in these cases and you cannot simply sell company assets to prevent a creditor from receiving a dividend.
Sometimes, directors try to sell assets at a price below their full market value – either to transfer their ownership to someone else at a favourable rate, or to prevent the company’s creditors from receiving the money they are owed. In legal terms, this is a type of fraud and can result in significant penalties that include being held personally liable for the company’s debts. You may also face fines and even a criminal conviction, so in most cases, it is best to avoid selling assets or discuss the matter with an insolvency practitioner who can give advice on the potential outcomes of your actions.
What happens after a winding-up order?
If the court grants a winding-up order against your business, it will enter compulsory liquidation. This means that it will be placed under the control of a liquidator, who will take responsibility for selling business assets and using the funds generated to pay dividends to creditors.
Creditors are paid in order of priority – those with secured debts receive the first dividends from the sale of the company’s assets, followed by those with unsecured debts, and so on down a list of potential creditors.
Winding-up petitions are difficult to manage and put company directors under pressure, at a time when they are already struggling because they cannot pay their debt. It is vital to act as soon as you identify a problem and speak to an expert advisor who can discuss the options you have available. In many cases, you can resolve problems before they reach the stage of creditors taking legal action.
For support, speak to the experienced team at Company Insolvency Advice. We can discuss company rescue solutions and debt management strategies that could help you avoid the most serious outcomes, and help you to work with your creditors to restore your business to good financial standing. Call us today on 0800 999 0666 or use our online enquiry form to request a call back.
