Reviewed 18th February 2020
Winding-up petitions can be used by creditors to close businesses down when they fail to repay an owed debt. When a creditor has tried unsuccessfully to recover their debt, a winding-up petition may be their last recourse for repayment.
We can advise you on what to do if a creditor has presented a winding-up petition to court, and whether you’re in a position to defend it. But how do winding-up petitions work, and at what stage might a creditor take this action?
The creditor can present a winding-up petition at court if they’re owed £750 or more, but they’re expected to have made several attempts to collect the debt through the usual methods of meaningful negotiation and reminders, before taking this action.
A hearing is arranged, and seven days after the petition has been served it’s advertised in the Gazette so that other creditors are aware of what is happening. This typically leads to bank accounts being frozen and suppliers withdrawing their supplies.
At court, the petition is either dismissed, or a winding-up order granted and the liquidation process begins.
Winding-up petitions are typically used against limited companies, but can also be used in relation to unregistered businesses such as sole traders and partnerships. The creditor must be owed a minimum sum to be legally able to petition this way:
A typical scenario involves several attempts by a creditor to recoup their money or negotiate repayment. This often includes sending the debtor a Statutory Demand, which if unpaid after 21 days, provides proof to the court that the debt exists.
Scotland Debt Solutions can help your business at any stage, not just when it’s in decline. We will help you plan for a strong financial future, but if you know that a winding-up petition is likely, you’ll need to act quickly to prevent compulsory liquidation.
So what are some of the issues we can help you with?
Challenging the winding-up petition
We have broad experience of helping Scottish companies that have had winding-up petitions issued against them, and can quickly determine whether a challenge is possible.
Negotiating with creditors
HMRC are known to use winding-up petitions to close down businesses that owe them money. We understand HMRC’s systems and processes, and may be able to negotiate for more time to pay.
Identifying alternative options
Alternative finance may be an option for your business, so you can pay your debts from a cash lump sum or over an extended period. Other options that can help the company survive include a Company Voluntary Arrangement (CVA) or placing the company into administration, which could both involve restructuring your company’s debts.
If you’re dealing with severe debt and believe a winding-up order is imminent, or one has already been served, you need to act quickly to avoid liquidation. Scotland Debt Solutions help Scottish businesses to deal with insolvency – we can guide you through your options and help you defend a petition where appropriate.
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Administration is an insolvency process that provides breathing space for companies struggling with debt, giving them the time needed to establish a plan going forwards. With several options potentially available at the end of administration, it’s an effective step for many businesses.
A Company Voluntary Arrangement (CVA) can help a company to escape debt by negotiating a formal payment plan with creditors allowing for reduced monthly repayments. Directors retain full control of their company during a CVA and the business is allowed to continue trading throughout.
When a limited company becomes insolvent, it’s important for directors to place the interests of creditors first and do all they can to minimise further losses. Creditors’ Voluntary Liquidation (CVL) is an insolvency process that allows this to happen, and ensures directors comply with strict insolvency laws.
Members’ Voluntary Liquidation (MVL) allows you to close your business and extract the profits in a tax-efficient way. It’s a process that’s available to solvent limited companies, and requires you to make an official Declaration of Solvency prior to commencement.
A director’s loan account (DLA) can become overdrawn if too much money is taken from the company that isn’t salary or a dividend. Directors’ Loan Accounts are useful when operated with caution, but can be a cause of concern if the company becomes insolvent.