10 Top Tips for dealing with Winding-Up Petitions by our Insolvency and Commercial Litigation Solicitors
As Insolvency and Commercial Litigation Solicitors, we regularly act for Directors and Companies who are threatened with the presentation of, or who have been served with, a Winding-Up Petition (‘The Petition’) – a document seeking the compulsory liquidation of a Company.
The Petition, which has a date on it for the hearing, is a serious matter, usually served by legitimate Creditors to force the payment of unpaid debts. Very often panic sets in when it arrives, or when it is threatened.
This article features our top ten tips on how Company Directors should react when a Petition arrives at their registered office. Dealt with properly and with appropriate professional advice, a Petition does not necessarily mean the beginning of the end for the Company. The Company and its Directors still have many options open and available to them.
1. Act Quickly
When ‘the Petition’ is threatened or actually presented and comes to the Company’s attention – do not ignore it. Every day counts. The Company and its Directors have a range of options (see below) available to them, but must act quickly.
2. Get Clued-Up Early and Take Professional Advice
Learn about all the options available to the Company and its Directors and which are appropriate to the particular circumstances of the Company. Those options will include (but are not limited to):
- Seeking and obtaining specialist insolvency law advice from experienced Insolvency and Commercial Litigation Solicitors, such as the team here at NDP. When needed, we have fantastic contacts with Licensed Insolvency Practitioners, all over the UK and can make any necessary introductions on a no obligation basis.
- Negotiating (e.g. time to pay agreements and settlements) with the Petitioning Creditor to get the Petition dismissed or withdrawn.
- Taking steps to oppose and defend the Winding-up Petition and where appropriate, seeking injunctive relief from the Court to restrain presentation and/or advertisement of the Petition, where (for example) the Petition debt relied upon is:
- Disputed by the Company on substantial grounds; or
- Where there is a counterclaim or cross claim available to the Company.
- Creating the conditions for a sale of the business or its assets, whether to the existing management team or to external buyers, whether before or after a formal insolvency procedure for the Company.
3. Nail Your Flag to the Mast
Once you have considered all of the options with your Insolvency Law Solicitors, decide on and implement the strategy that is chosen for the Company, as early as possible. Remember that the strategy and objectives may need to change as the matter progresses.
4. Advertisement of the Petition
It is a procedural requirement that the Petition is advertised in the London Gazette. Once a Petition is advertised (which happens at least 7 business days after its service on the Company and at least 7 business days before the first hearing of the Petition), the Company’s bank account is likely to be frozen by the Company’s bankers.
The advertisement of the Petition has serious consequences for the Company. It might cause other Creditors to formally support the Petition and the making of a Winding-Up Order.
The Company should, in appropriate circumstances, negotiate with the Petitioning Creditor to delay the point of advertisement.
If advertised, the Company still has the option of applying to the Court to free up the Bank account, by application for a Validation Order. That is a potentially expensive route for the Company.
5. Which Advisers Should be Used?
Directors and Shareholders should only ever seek and obtain the specialist legal and insolvency advice the Company and its Directors need from regulated, insured professionals. This includes specialist Insolvency and Commercial Litigation Solicitors. The Company will likely be deluged with offers of ‘help’ from unregulated, uninsured organisations, many promising unachievable or unrealistic solutions.
Resist the temptation to use them. If it sounds too good to be true, it usually is!
6. Duties Imposed on Directors
Remember and adhere to the statutory duties imposed on the Directors and the need to observe them. Those duties are extensive and onerous. Failure to do so (e.g. a failure by Directors to give appropriate weight to the interests of Creditors at the point of insolvency) may (and often does) result in subsequent financial recovery action from a Liquidator against the Directors personally, based on claims of breach of Directors’ duty.
Experience shows that claims by Liquidators against Directors often relate to decisions and the conduct of the Director, in the pressured period before insolvency kicks in.
7. Is the Petition the Beginning of the End?
Do not assume the Petition inevitably means the end of the Company’s trading existence. It doesn’t! Many outcomes where Petitions are presented do not involve a formal insolvency procedure for the Company.
If however a formal insolvency procedure is an option (and it is an option that can be considered alongside rescuing the Company) then choosing the right procedure for each Company, on its particular facts whether it be:
- Creditors Voluntary Liquidation (‘CVL’); or
- Company Voluntary Arrangement (‘CVA’)……
……is vitally important, not only for the Company but also from the perspective of its Directors personally.
8. Which Licensed Insolvency Practitioner to Choose?
If a CVL, CVA or an Administration is appropriate as the way forward, choose your Licensed Insolvency Practitioner carefully as different Insolvency Practitioners have different areas of expertise across different industry areas. The phrase Horses for courses comes to mind.
Your choice of Licensed Insolvency Practitioner can make or break the Company and its Directors. Not all Licensed Insolvency Practitioners behave the same. The NDP team regularly make such referrals, to trusted insolvency professionals based on our many years of experience in the insolvency and commercial litigation arena.
9. The Role of HMRC
HMRC present more Petitions than any other Creditor, for the non-payment of Crown Debt. It is important, therefore, to choose an insolvency solicitor who is well used to dealing with HMRC. That will save time and cost and hopefully instil HMRC with some confidence that the Company knows what it is doing, when the Company is trying (for example) to negotiate time to pay agreements with HMRC.
10. Don’t Forget the Director
Remember that whatever course the Directors choose for the Company, it may have consequences for the Director, including:
- Exposure to Personal Guarantee obligations (e.g. from Landlords, Banks or Trade Suppliers). Take steps to address such obligations pre-insolvency or at least be aware of the consequences of not doing so.
- Financial recovery action against the Director from a subsequently appointed Liquidator. The correct pre-insolvency legal advice can reduce or eliminate such exposure.
- A possible Director Disqualification Simple steps taken before formal insolvency can reduce or eliminate the risk.
Why Choose NDP to Advise You When a Petition is Received?
As Insolvency and Commercial Litigation Solicitors, advising on how to deal with Winding up Petitions is a core area of our work. Here are some of the main areas in which we can help:
The Director’s Position
Our Director friendly team never forgets that the interests of the Directors rank equally with those of the Company, at this most difficult time for the Company. What is it that the Directors are looking to achieve for themselves and the Company? Are those competing or compatible objectives? Explore all the options. Go into matters with eyes wide open.
The members of the NDP team have decades of hands-on experience in prosecuting and defending Petitions, both for HMRC and other Creditors. We regularly advise the Company and Directors in such circumstances. We know what Creditors want and how to achieve the desired and best results for the Company and its Directors. The solution to the threat of a winding-up by a Creditor is not always simply a legal question. Practical concerns can and do (and should!) play a big part in the decision making process.
We have established working relationships with the key HMRC teams who present Petitions. We regularly succeed in getting Petitions adjourned (often by consent) and withdrawn. An adjournment is often required to allow (for example) time to negotiate a settlement of the Petition debt or to allow an alternate insolvency procedure to be put in place, with the Company’s choice of Licensed Insolvency Practitioner in place.
Licensed Insolvency Practitioner Relationships
- Our long standing relationships and friendships with key Insolvency Practitioners can, and often do, make the difference. We can arrange, free of charge, meetings with Insolvency Practitioners on little or no notice, at a venue of your choice.
- If the Company does end up in a Court battle, we have excellent relationships with specialist, experienced Barristers who will fight the Company’s corner, with us. We can and do arrange attendance at winding-up hearings at little or no notice.
- Nationwide coverage.
- Free advice in the first instance.
- If the Company’s problems stem from a problem with its Factoring/Invoice discounting arrangements, we have long standing relationships with many financiers, who can and do step in at little notice to refinance businesses in trouble, often where a Petition is live.
- We work with those lenders and the Petitioning Creditor to gain the time to put that new or additional finance in place.
Sadly, it is a common theme that a Company often finds itself in trouble (at least in part) because the Company has failed to file its Tax returns and/or make payments due to HMRC. We have great relationships with Accountants who can step into the breach to help. We can and do work with the existing Company Accountants to allow such positions to be remedied before a Winding-Up Order is made.
For Help and Advice With Petitions, Contact us
Our experienced Insolvency and Commercial Litigation Solicitors are well used to advising directors whose companies have received Petitions. Click here and here to see two testimonials for our work in this area.
Contact us or call us on 0121 200 7040 for a FREE initial conversation. Above all, if you have been served with a winding up petition, speed is of the essence.