Winding-Up Petitions – It’s Never Too Late

This case study by insolvency solicitor and NDP partner Neil Davies shows that it’s never to late to take positive action that can turnaround what looks to be a desperate situation. Neil details a case from the summer when he received a call from a panicked company director who had been served with a winding-up petition and needed help straightaway. As an experienced insolvency solicitor, Neil knows that there are always options available, but he also knows that the quicker action is taken, the more options there are – as the successful outcome of this case shows.

Ready to Go Home and the Phone Rings…………

 Neil takes up the story:

“Imagine the scene, back at the end of this balmy summer…6.45pm on a sunny Birmingham Wednesday evening, sitting at my desk watching the narrow boats on the canal opposite our building, as I prepare to pack up to go home. The office landline rings.  It’s the Director of a construction company, who has found us through the net.  Panicking does not begin to cover it.  His company has been served, 24 hours earlier, with a Petition to wind-up his company, from HMRC.  The company bank account had (unusually) already been frozen at this stage. He desperately needed an insolvency solicitor.”

The Problem Started with an Outstanding £120,000 Liability to HMRC

“His company had £120,000 of undisputed liability to HMRC, and he explained that he had been putting off paying HMRC pending imminent receipt of £400,000 of incoming debtor funds, to his company, from 2 projects.

He could have paid the HMRC debt (and HMRC had been pressing hard for payment) from the £150,000 bank overdraft facility enjoyed by the company.  He had not however done so because he personally guaranteed the company bank debt and he feared funds might not come in from Debtors.  He did not want to place the account in overdraft.  Other company Creditors were overdue and getting irritated but were under control.

The Director had gambled that the incoming Debtor funds would be received before the HMRC Petition was issued.  HMRC won that foot race and issued the Winding Up petition.”

What Had He Done on the Day When He Received the Petition?

“The Director spoke to a firm of London based Insolvency Practitioners.  His Accountant had recommended them.  The company is also London based.  The Insolvency Practitioner, helpfully, met him within the hour at their offices.  An Insolvency Practitioner Partner led the meeting.  All good so far.

The Insolvency Practitioner explained, however, that the game was up, for the company.  Time to throw in the corporate towel.  Liquidate was his advice.  There is of course no suggestion from here that the Insolvency Practitioner’s advice was influenced by the £86,000 credit bank balance in the company account… .”

Having received this advice from the Insolvency Practitioner, the director decided to contact our Insolvency Solicitors here in Birmingham to see if there were options available that could avoid liquidation – a situation he wanted to avoid.

Time was clearly of the essence. Wise and experienced heads, with specialist skills, are always required in these situations. A range of options are almost always available if we are consulted sooner rather than later.

Neil Believed There Were Other Options Available Than Liquidation

‘The Insolvency Practitioner advised without detailed analysis about:

  • ensuring the £400,000 debtors money was collected swiftly, and/or
  • investigating the most efficient mechanics of collecting the debts; since
  • once the £400,00 of debts were received, the company could continue trading without the drama and expense of formal insolvency.

The Insolvency Practitioner did not seem very interested in the other, ongoing, contracts of the company, which would generate an estimated profit value of c.£500,000 over the next 6 months.

No advice was given by the Insolvency Practitioner about: 

  • Trying to pay off HMRC from third party monies (and seeking immediate withdrawal of the Petition); nor about
  • The possibility of seeking a Validation Order, to enable continued trading, under section 127 of the Insolvency Act 1986; nor about
  • any of the other insolvency options available, if needed, to include Administration or Company Voluntary Arrangement.

In this particular case, shutdown and cessation of trade (as advised by the Insolvency Practitioner) would likely have resulted in: 

  • the Debtor money not coming in;
  • the value of the ongoing work in progress being lost/diminished;
  • and the Director’s life work left in the rubble of the company; plus
  • creditors would have lost out completely.”

What to do?

This is where an experienced insolvency solicitor can really add value to the needs of a client. As Neil explains, he and his team moved quickly:

“Against that background we requested and were emailed that same night by the Director with copies of the following:

  • details of the Debtor contracts and correspondence;
  • the Petition to wind-up,
  • various cash flow forecasts and
  • other management accounting information.

This was on the face of it a viable business. The Director had, by playing fast and loose with HMRC, jeopardised its future.  He had made a mistake, but it should not have been, in our view, fatal.

We arranged a meeting with another one of our trusted Insolvency Practitioner contacts, based in the South East. We attended this meeting with the Director and the Insolvency Practitioner the following day, to agree a plan of action.”

The Winding Up Petition was Withdrawn

“All options were explored, within the short time-scale:

  • Firstly, finance was raised and provided to the company, which meant that the Petition debt was paid off. 
  • We liaised with HMRC and its Solicitors on an urgent basis
  • As a result of our work, the Petition was withdrawn on an application to the Court by the company within a couple of days. The immediate panic was over.

Soon, the debtor monies of £400,000 were duly received. The company continues to trade and is flourishing. The Director is, no doubt, a better businessman for the experience,

There was, of course, no liquidation appointment for the initial Insolvency Practitioner on this case, Sometimes, less is more!”

The Key Message – There are Always Options. Talk to an Insolvency Solicitor

There are always options available to Directors when the bad stuff happens or is about to happen, as this case study demonstrates. Get the right professional advice early – as the insolvency solicitors at Neil Davies and Partners were able to give – learn about all of the available options and then make informed decisions.

Neil is fond of saying that there is ‘no hole too deep’ where he or his team cannot make a difference. Each case is taken on its merits, of course, but in this case, it was certainly true.

Click here to see some of our testimonials and contact us or call us on 0121 200 7040 for help and advice if you receive a Winding Up petition, a notice from the Insolvency Service of intent to commence director disqualification proceedings or any other insolvency related issue.