An application is made to the court by one or more creditors of the company stating that the company owes £750 or more and they cannot pay its debts. The company’s assets are sold and surplus funds are distributed to the company’s creditors in order of priority.
Top tip: Be aware that if you are the creditor then you might not get all or any of the money owed to you. It is important that you seek advice of other methods to recover money owed to you. Did you know? A winding up petition can still be presented even if a company is already in administrative receivership or voluntary liquidation.
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Have you received a Winding Up Petition from HMRC?
If a creditor’s winding up petition is issued against your business, then you need to act fast as a successful application to the court could result in the petition being advertised in the London Gazette. If the petition is advertised this could have incredibly damaging consequences for your business, as suppliers will know that the company is in trouble and the company bank may take steps to freeze your company account. It is vitally important that you should seek legal advice immediately to postpone the winding up process if you want to continue running the business or obtain more time to get the company’s finances in order.
Top tip: Be aware that there are very tight timelines in insolvency; your company only has 7 days from service of the petition to either pay the debt in full or engage with your creditors as to disputing the debt or entering into an arrangement or even applying for a validation order.
If your company bank accounts become frozen following an advert in the London Gazette, your company may find itself unable to pay its employees and suppliers which means that you may be forced to cease trading. If the company was considering disposing property or assets will become void. In order to deal with these difficulties, we could assist you by applying for a validation order from the court which will help you to continue trading again by unfreezing the company’s bank account.
Did you know that trading without a validation order in these circumstances could result in claims of wrongful trading at a later stage, and potential personal liability for directors if a winding up order is granted?
A validation order will allow the company to continue to trade or dispose of a specific asset, such as a property on the basis it has been determined these transactions are to the benefit of all creditors. It also allows for specific certain payments in and out of a company’s bank account (i.e. for the payment of wages for the employees or payment to suppliers).
Top tip: Beware that the court are cautious about making such orders and may only grant limited relief for a short period or until the winding up order is determined. In any event the court must be satisfied on the evidence that the company is likely to improve the position of creditors by trading at a profit only and no serious risk to the creditors.
If you are considering making the application for a validation order it has to be supported by a witness statement from a person ‘intimately acquainted’ with the company affairs and may even need a witness statement from the accountant as to full details of the company’s financial position. Details of assets and liabilities and any security and the amounts secured must be mentioned. These details should be supported by company’s latest filed accounts, audited accounts and management accounts. A cash-flow forecast for the period of validation is sought. An independent valuation of any property or assets sold. It must be from the evidence that the company is solvent and that it is able to pay its debts as they fall due or that a particular transaction for which validation is sought will be beneficial to and will not prejudice the interests of unsecured creditors.