Throughout the pandemic, there was much talk about the future cliff edge that businesses faced. This was once supported by the Government stopped and the temporary restrictions on winding-up petitions came to an end.
It appears the cliff edge has arrived with the ending of the restrictions on the 30th March 2022. The Corporate Insolvency and Governance Act 2020 put various measures in place to include raising the minimum amount on which a petition could be issued from £750.00 to £10,000.00. It is with some surprise that the minimum amount returned to £750.00 at the end of the restrictions. This amount has been widely debated for many years since the increase of the bankruptcy threshold to £5,000.00.
Businesses are struggling with supply chain issues, inflation and rising interest rates which has resulted in an alarming 75% increase in compulsory liquidations, in the last three months. It is expected that this number will only increase with the ending of the insolvency protection measures.
A winding-up petition is an alternative to issuing county court claims and can be issued on the basis that a company is insolvent if it is unable to pay its debt as and when they fall due. This petition is not to be used when a debt is disputed on grounds that appear to the court to be substantial, or when the creditor has adequate security for the debt. You will need to issue a claim at court or start some form of alternative dispute resolution in this instance.
Prior to Issuing
A statutory demand can be served. This will set out the debt owed to you and details of how the payment can be made. The debtor will have 21 days from the date the demand is served to deal with the demand.
We can send a letter giving notice of intention to issue this petition. This letter would give a set number of days, usually three, five or seven for the debtor to make payment failing which a winding-up petition will be issued.
The Petition Process
Once a winding-up petition is issued, it will need to be personally served at the Registered Office of the Company. This often prompts payment as the company only has seven business days to deal with the petition before the creditor is able to advertise in the London Gazette, once advertised, the information will be in the public domain.
Once the bank is aware that this petition has been issued, it will freeze the company’s bank accounts. This will stop the company from being able to trade.
Advertising the winding-up petition acts to warn other creditors that the company is insolvent and may soon go into Liquidation. Creditors may decide to support the petition and withdraw credit facilities and demand payment upfront for further supplies or services. Some could even refuse to do business with the company.
Should payment remain outstanding then a hearing will take place to determine if the company should be wound up. If a winding-up order is made, then the company will be investigated by the official receiver or independent insolvency practitioner with a view to realising the assets of the company for the benefit of the creditors and ascertaining any misconduct of the directors. Misconduct of the directors can result in personal liability.
We are likely to see a sharp increase in creditors deciding to take the route of issuing a winding-up petition. Depending on the value of the debt owed, this route is often cheaper than issuing a county court claim and is usually a much quicker process.
If you would like further information about issuing this petition. Please contact Penny Daisley, Lawyer & Head of Business Development at firstname.lastname@example.org or telephone 07884 016915 for Legal Recoveries.