Comprehensive guide to winding up an unregistered company

Winding up petitions are the biggest threat for companies, signalling action has been taken to liquidate the business. Once a winding up petition has been submitted, you will need to settle the debt or face losing control of your company. Often, winding up orders are petitioned against larger, registered companies. However, it is possible for an unregistered company to face the same threat. Those businesses include the likes of sole-traders and unincorporated associations, and we are outlining the different process in this article.


The procedure for winding up an unregistered company

As mentioned above, we are outlining the procedure for winding up an unincorporated association, with advice on when to act.

Unregistered company

Difference between a registered and unregistered company?

A registered company refers to a limited company, registered at Companies House. The incorporated business is a legal entity and, as such, is separated from the directors or shareholders. The company directors also benefit from limited liability. In simple terms, they are only responsible for company debts as to the amount of their shares.

An unregistered company, however, is not deemed a legal entity. The company is merely an extension of the owners or directors. An unregistered company could refer to:

  • A sole trader
  • Traditional partnerships
  • Companies registered outside of the UK with branches

 

They are not protected under the Companies Act 2006 and there is, therefore, no limited liability. The personal assets of the directors could well be at risk in the first two instances.

Winding up an unincorporated business

If an unregistered company or sole trader cannot pay their debts, they can be issued with a winding up order. However, more likely, is a bankruptcy order in the latter instance. In the case of an unregistered company, the directors are not afforded the same protection as directors of a limited company. Therefore, they may be responsible for the business debts. An unregistered company can only be subject to a winding up order. Taking control of the process through creditors voluntary liquidation is not an option.

Your company can still challenge the petition, similar to the process for a limited company. Alternatively, you can pay the debts when served a statutory demand. If not, the court can grant the winding up order and look to close down the business.

What can my creditors do?

You are free to challenge the debt owed to creditors, but it’s important to note that liquidation of a company is always the last step. If a creditor asks for a winding up order, they have explored every available channel, due to it being an expensive procedure.

Creditors for sole traders and partnerships can:

  • Take legal action against you personally, issuing you with a CCJ (county court judgement).
  • Petition for bankruptcy against the individual(s)
  • Submit a winding up order if all payment negotiations have failed

 

It’s important to note that a creditor can submit both a bankruptcy petition (against one or more of the owners) and a winding up order. While a creditor must be owed £750 to ask for the winding up of a company, they must be owed a debt of £5,000 or over to file a bankruptcy petition.

Filing for bankruptcy

Filing bankruptcy petitions is an option for creditors, as mentioned above. They can apply to the court to issue a bankruptcy petition against one or more owners. The money recouped from the sale of personal assets will then be distributed to creditors, according to their level of debts owed. This can, ultimately, result in a creditor not receiving all that is owed.

What are my debt solutions?

If your business is facing cash flow issues, we recommend you speak to your creditors at the earliest possible time to see if you can reach agreement regarding monies owed. If you fail to reach an informal agreement, a solution for dealing with the debts could be an Individual Voluntary Arrangement (IVA)/ This will see your debts paid in monthly, manageable installments. However, you must pay the installments when they are due. Not doing so can result in further issues and the possible dissolution of your company. An IVA will also stop your creditors taking more action against your company, thus giving you the necessary breathing space.

Seek advice

Ultimately, you must seek advice immediately if you are struggling to repay your debts. Our business rescue experts can offer you advice on the best possible solutions for your business.

 

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