One of the biggest threats a business can face is a winding up petition.
This is a demand to repay overdue debts but unlike statutory demands they have the added weight and threat that the business will be closed down by a court if they don’t make repayments once one has been issued.
The good news is that there are responses a company director or owner can make if they have received one but even if the company does survive it can still be damaged by the experience.
This includes possibly seeing its bank accounts frozen temporarily, suppliers making changes to trade deals or restricting them and negative publicity and staff morale if the news gets out.
In order to obtain a winding up order, creditors have to satisfy two conditions.
The first is that the amount owed has to be £750 or over. Until last month this was restricted by the Corporate Insolvency and Governance Act 2020 to £10,000 or more but this temporary measure put in place for the pandemic has now been rescinded.
The second is that a statutory demand is issued first. The aim of which is to prove beyond all reasonable doubt that a company is insolvent because of its inability to pay off its debts.
This gives the recipient 21 days to either repay any debts in full or come up with a reasonable proposal to suggest a repayment schedule. This also includes commercial landlords who may be seeking repayment of overdue rent.
What can you do if you receive a winding up petition?
Apart from settling the debt in full, there are four workable strategies for a business
The first is to set up an informal arrangement which will see the debt paid down in regular monthly instalments.
The second is to ask for an adjournment. This gives the debtor more time to pay the debt or arrange a repayment schedule or raise alternative funds to settle such as selling assets or obtaining new funding and finance.
The third is to reach an agreement through an administration or a CVA.
Any company entering an insolvency procedure such as administration or a company voluntary arrangement (CVA) will have all creditor actions against them frozen as part of an initial two week moratorium.
This is to give them administrator or insolvency practitioner time to pursue their strategy for the business including reaching an agreement with creditors to repay a proportion of the debt over a period of five years with the rest of the debt being written off.
The final option is to liquidate the company usually through a creditors voluntary liquidation (CVL).
This will give necessary time for agreement to be reached with creditors for potential partial repayment.
Receiving a winding up petition can be a frightening moment for any business especially if they weren’t expecting it.
And while they should take it seriously, they needn’t be unnecessarily frightened.
If they get in touch to arrange some impartial professional advice then they will be better informed and confident to handle any winding up petition or other threat to their livelihood.