Can a Winding Up Petition be Stopped?
A winding up order from the Court forces a compulsory liquidation upon an insolvent company. Any creditor owed £750 or more, that has not been paid for more than 21 days after serving a statutory demand, can petition for the order to be made.
If a statutory demand or winding up petition has been issued against a company, there is still time to avoid compulsory liquidation and stop the company from being wound up, but you will need to act very quickly as the window of opportunity to stop the petition is extremely narrow.
The actions you can take depend on what stage in the compulsory liquidation process you are at. As with most things, prevention is better than cure. So if your company is suffering financial difficulty, you should not ignore the problem, as by taking early action, you may be able to avoid a winding up petition even being served.
Options if You Suspect a Creditor May be Planning to File a Winding Up Petition
Our article How to Reduce the Threat of Insolvency provides a full breakdown of the steps you can take, which you should read for further information. Areas covered include:
- Taking Early action
- Talking to Creditors
- Reducing Overheads
- Maintaining Cash Flow
- Sourcing Additional Finance
- Being Aware of Changes in the Market
Avoiding having a winding up petition being served, is by far the easiest way to avoid a compulsory liquidation, as under insolvency legislation, the winding up of a company is deemed to commence upon the presentation of the petition to the Court.
Options if a Winding Up Petition has Been Served, but Not Yet Advertised in the Gazette
Once the petition is advertised, it will alert your bank and other creditors, which could have very serious implications for the company. The bank may freeze the company accounts, meaning you need to cease trading. Other creditors may look to join the petition and you should also consider the reputational damage the announcement will have on any plans for future trading.
Even if you don’t plan to continue the company and avoid liquidation, there are some important differences between the compulsory and voluntary routes. These are covered in greater detail in our article Compulsory vs Voluntary Liquidation ‐ What’s the Difference?
Clearly if you do want to avoid compulsory liquidation, now is the time to act and there are a number of ways you can try to achieve this.
- Pay the debt and costs owed to the petitioning creditor(s).
- Defend the petition at Court, on the basis that the debt isn’t actually owed or on a technicality such as inadequate service.
- Place the company into Administration if appropriate (see our article How Does a Company Enter Administration?).
- Negotiate a CVA (via an Insolvency Practitioner) with the company’s creditors if appropriate.
- Place the company into a Creditors’ Voluntary Liquidation (CVL) before the court hearing if the petitioning creditor(s) agrees.
- Negotiate with the petitioning creditor to withdraw the petition (usually they want payment).
- Submit a request to the Court to adjourn or cancel the hearing.
Although these options remain available, once the petition has been advertised, it is a lot less likely they’ll be accepted, so acting quickly is critical to achieving a desirable outcome.
Options if the Winding Up Order has Already Been Issued by the Court
Once the winding up order is issued and the compulsory liquidation process has commenced, your options for stopping it are a lot more limited.
- Apply to the Court for a Rescission Order and demonstrate that you can either pay the petitioning creditor(s) in full, or that you were unable to attend the winding up hearing.
- Appoint an Insolvency Practitioner (IP) who can potentially apply for an Administration Order if appropriate. This will override the winding up order and the IP will be appointed as administrator.
- Apply for a ‘stay of proceedings’ to pause the winding up process whilst the company negotiates a CVA with creditors.
As we’ve demonstrated, compulsory liquidation and winding up can be avoided but the longer you leave things the less likely this becomes.
If your business is showing any warning signs of insolvency, we encourage you to get in touch with our team for a free, no obligation, consultation.