We are often approached by business owners who have fallen behind with payments to suppliers or to HM Revenue and Customs which has led to legal action against their business. They may have had a difficult trading period leading to cash flow problems and whilst they may have tried to pay their debts, eventually creditors get tired of waiting for overdue bills to be paid. This can lead to a creditor presenting a winding up petition at court and we are often asked what can be done about a winding up petition and how to appeal against a winding up petition or cancel a winding up petition.
When a creditor presents a winding up petition, this means that the court has been asked to order that the company is closed down and put into liquidation. The reality is that companies in liquidation are rarely able to repay their creditors: if the company ceases to trade and the assets are sold, it is unusual for there to be enough money left to pay off the creditors. So a winding up petition is a last-ditch attempt to force the company to pay up: it sends a message to the company that the creditor concerned will not wait any longer and there is often an expectation that the company will find the money from somewhere – often from the business owner’s own pocket.
The most common ‘petitioner’ is HMRC, who use winding up petitions to force companies to pay their tax debts. Depending on how busy the court is, it can take many weeks for a winding up petition to be dealt with at a court hearing. Anecdotal evidence suggests that a large proportion of companies pay off the debt before the petition comes before the court, meaning that the winding up petition is withdrawn and the company can continue trading. Of course, the costs of the petition will also be added to the debt, so it is likely that at least £1,000 will be added to the debt to cover the legal and court fees.
If a winding up petition has been issued by a creditor and the company simply cannot afford to pay off the debt before the hearing, it still is not the end of the story. It is still possible to reach an agreement to repay the debt over a reasonable period of time. If there are other creditors, their debts can also be included in a single arrangement, known as a Company Voluntary Arrangement or CVA. We have recently helped a number of companies to agree CVAs with their creditors, in order to deal with high levels of debt that simply could not be repaid. In many cases, HMRC are involved (sometimes for very high levels of VAT, PAYE and Corporation Tax debt) and we have plenty of experience in dealing with the specific matters that HMRC will be interested in and ensuring that the CVA has the best possible chance of meeting HMRC’s criteria for accepting a CVA. Even if it is close to the date of the court hearing, as part of our service we will seek an adjournment of the hearing to allow time for a plan to be put together.
If not dealt with, a winding up petition will lead to the closure of a company, so if your company is facing a winding up petition, don’t let it close down your business. Call Moorhead Savage today on 01709 331300 for confidential and impartial advice. We can help.