What is a winding up order?
What is a winding up order?
A “winding up order” is an order issued by a court (in England & Wales) that typically appoints The Official Receiver, who usually immediately makes the workforce redundant, ceases trading and sells the assets to enable the repayment of liabilities. The process is officially called compulsory liquidation, and in most instances is started by a creditor owed money by the company. Once it reaches one of the trigger points in the debt collection process it can present a petition in the local court with insolvency jurisdiction to wind up the company. The minimum debt that can be owed by the company is £750, which can easily accrue with the application of interest and penalties on an otherwise very small debt. It is worth noting that HMRC is the country’s most prolific issuer of winding up petitions (for outstanding PAYE& NIC, VAT, Corporation etc).
What is the Winding up Process?
A creditor will usually present a petition for the winding up of the company. If the petition is granted, usually The Official Receiver (a Civil Servant) will act as liquidator. A creditor owed more than 50% by value can request the immediate appointment of his own chosen liquidator by the Secretary of State. A creditor or creditors owed more than 20% by value but less than 50% can request that The Official Receiver call a meeting of creditors to appoint an independent Liquidator of their choosing.
Who can file a petition for winding up?
A petition for winding up can be filed in court by a creditor owed a minimum of £750 that holds an unsatisfied judgement or an issued, undisputed statutory demand that has been issued for more than 21 days. Petitions are also issued on the back of an established practice whereby a solicitor issues a letter demanding payment within 7 days but payment is not received. Occasionally, directors or shareholders may begin the procedure.
Why are winding up orders granted?
When a firm is unable to pay its debts and is unable or unwilling to agree to any other arrangement with its creditors, a court will issue a winding-up order. Poor financial management, economic downturns, or a deterioration in the company’s industry are just a few causes for companies falling into losses and financial distress.
How long does it take to get a winding up order?
The complexity of the matter and the volume of cases the court is handling can affect how long it takes to obtain a winding up order. The procedure could be completed in a couple of months but if it is opposed (a company has the option to challenge the petition by being represented at the hearing) it could run to more than one hearing and a number of months.
How serious is a winding up order?
The receipt of a winding up petition can have terminal consequences. If settled quickly before it is advertised it can be withdrawn with little adverse consequence If it is advertised then your bank is likely to become aware and will most likely freeze the company’s bank accounts and only release funds if a court issues a validation order to allow some specifically authorised payments to be made. However, the court will need to be convinced of the merit of doing so. If a winding up order is granted and not stayed or rescinded, it signals the company’s liquidation and an end to its operations. The directors, shareholders, and employees of the company may suffer serious repercussions as a result. It is arguably more detrimental to a director’s credibility if he has a Compulsory Liquidation on his director’s record than any other type of insolvency process.
Can a Winding up Order be Stopped or Reversed?
It is difficult, costly and not always possible to stop or undo the procedure once a winding up order has been given. Expert assistance is immediately required to ascertain whether a rescission or stay of the order is feasible. To avoid liquidation, it could be possible in some circumstances to appeal the decision in court or to reach an agreement with the company’s creditors. If you are dealing with a winding up order, it is imperative that you obtain specialist insolvency advice as quickly as possible as some possible solutions are only available in a very short window.
How to challenge a winding up order?
You might be able to appeal a winding up order if it has been issued against your company by asking the court to stay the order. By doing this, you’re asking the court to put the order on hold until a specific requirement is met or until further notice. If you can demonstrate that the petition was flawed or that there are other reasons to put it aside, you might also be able to contest the order. If you want to contest a winding up order, you should get immediate specialist insolvency advice.
The Winding up Petition Court Hearing
A formal court hearing where a creditor tries to wind up your company is known as a winding up petition court hearing. The validity of the creditor’s claim against your firm and whether it is suitable to wind up your business will be taken into account by the court. You will get a chance to address the petition and make your argument. It’s crucial to show up to the hearing or, if you can’t, to get legal counsel to represent you, we can help with this.
What happens after a winding up order?
The Official Receiver or liquidator is appointed to take control of the company, realise its assets and distribute them to creditors, once a winding-up order is granted. The company will cease trading and employees will be made redundant. Any other debt recovery action being taken against the company will cease.
What happens when a winding up order is granted?
The assets of your business will be sold by the liquidator to cover any unpaid creditors’ debts. The shareholders will receive any residual funds. Once the liquidator’s work is done, the company is dissolved by Companies House.
Who gets paid first in winding up?
Secured creditors, like banks or finance businesses, are paid from the proceeds of the assets over which they hold security although an adjustment for assets subject to a floating charge will provide some assets for the benefit of preferential (such as employees for unpaid salary or holiday pay , secondary preferential (for arrears of VAT and PAYE & NIC) and unsecured creditors. Once the debts and expenses of the liquidation have been paid then any surplus funds would go back to the shareholders but that is rare.
Impact of a winding up order for directors
The directors lose their executive capacity to run the company upon the granting of the winding up order. The directors can be held personally liable for some of the debts of the company, through the wrongful trading provisions, if they caused the company to take on credit when there was no reasonable prospect of it being repaid. Similarly, the directors are at risk of being sued for misfeasance or breach of fiduciary duty if they have not acted in the best interest of all stakeholders.
What is the role of The London Gazette in a winding up order?
Official notices, such as winding-up petitions and orders, are published in The London Gazette, a public record publication, available in hardcopy and online. In order to notify creditors, shareholders, and other stakeholders and interested parties, a winding up order is published in The London Gazette. This advert fulfils a statutory obligation however the most likely means of contact with all stakeholders is by correspondence from the Official Receiver or the liquidator.
What is a court issued validation order in a winding up petition process?
A validation order is a court order which allows a company to continue trading after being served with a winding-up petition.
What is the process of validation order?
To apply for a validation order, you will need to make an application to the court that issued the winding up petition and provide evidence that the transactions you are seeking to make are necessary for the company’s business and are in the best interests of the company and its creditors.
What is a stay or rescission of a winding up order?
You can apply to cancel (‘rescind’) the winding up order, for example if your company can pay its debts or if you could not attend the original hearing. You must apply to the court within 5 working days of when the order is made. The Court has the power to grant an extension of time to this deadline.
For further information and impartial advice, feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk