What every director has to understand about WUPs
Who can issue a winding up petition?
A WUP can be issued directly by any creditor that is owed money. Multiple creditors can petition for a WUP to be issued and HMRC can also issue one for owed tax arrears.
In the initial stages, a creditor is likely to attempt to recover any outstanding debt by using all other legal methods before resorting to issuing a WUP. It is still very much a last resort but if a company is unable to settle any outstanding debt in full within a period specified by the creditor and the sum is more than £750, then the creditor can instruct a solicitor to draw up a WUP.
£750 seems a small amount to force a company into liquidation and the costs involved of issuing a WUP would raise this amount considerably – the court fees alone are currently £1,880 not including solicitor’s fees.
It’s unlikely a creditor would issue one for that amount or similar but be aware that this is the minimum threshold so if the amount owed is greater then there is always the possibility of issue.
Why would a creditor issue a winding up petition?
There are several reasons why a creditor would seek to issue a WUP. They may have exhausted all other avenues to recover the amount owed, they may have lost patience with the process, they may have no faith that any repayment will be made or they may wish to force an investigation by insolvency practitioners into how the company got into this situation in the first place including looking at the behaviour and actions of directors.
What are the stages leading to a WUP being issued?
There are several late payment collection methods available seeking a WUP option and it is always encouraged that these be exhausted first.
Any company that fails to make payments and doesn’t maintain a dialogue with creditors may force them to take more formal recovery action than simply asking for their money.
The first stage in the process would be a written request from the creditor in the form of a statutory demand, detailing the debt and asking for a repayment schedule to be arranged. The debtor now has received written notice and more significantly, a chance to pay the debt before any more action is instigated.
This isn’t an open-ended action however, the debtor has only 18 days from being served with a statutory demand to dispute the balance due and if they don’t, then action can be escalated to a winding up petition after 21 days have elapsed.
Other options for creditors
If the WUP is the nuclear option for a creditor then what other methods of recourse do they have to recover a debt?
- County Court Summons
The creditor may choose to file a County Court Summons. This gives the debtor the opportunity to make a full repayment of the debt or more usually negotiate a scheduled repayment plan.
This is also time-limited and if the debtor does not respond then the court will issue a County Court Judgement (CCJ) which will remain active on the company’s credit record for a minimum of six years and will make it harder for them to obtain credit and it will be visible to any public search of records for this period.
- Notice of Enforcement
A creditor can also ask a court to issue a Notice of Enforcement. This can take the form of a Charging Order on a business premises, a Bailiff Warrant of Control or a High Court Enforcement Officer’s Writ of Control. It is important to note that the HMRC can offer Notices of Enforcement without having to obtain a court order.
This a formal document from a creditor to a debtor warning that they are preparing to take action to recover owed money, usually within seven working days. If the debt remains unsettled after this time period or no arrangements have been made to settle then the creditor can apply for a Controlled Goods Agreement (CGA).
- Controlled Goods Agreement (CGA)
Previously known as a Walking Possession Agreement, the CGA identifies goods that can be taken from a debtor’s premises to be sold to settle the debt. If a debtor signs this agreement then they will gain an additional seven days to repay the debts in full.
If the debtor refuses to sign then the creditor’s agent or a bailiff can arrange for the immediate removal of the goods. They can also be seized at a later date if the debtor has signed the CGA but not cleared the debt within the mandated seven days. The CGA is legally binding and once the director of a debtor company has signed the agreement then it is illegal for any of the goods to be removed.
- Statutory Demand
As stated earlier, an option for creditors is a statutory demand for payment from the debtor. This is a formal written request that a debt be paid in full or an alternative repayment arrangement agreed. The debtor has 21 days to respond positively once issued.
If the debtor fails to respond or doesn’t comply with the terms of the demand then the next step is usually to proceed to issuing a WUP. This is often used as a precursor to a winding up petition as it avoids the costs of issuing and formalises the debt as being due.
- Winding Up Petition (WUP)
If all the other avenues of repayment have been exhausted then the process of issuing a WUP will begin. The creditor will instruct their solicitor to apply for the WUP which will then be reviewed by the court and if passed, a winding up order will be made against the company.
It usually takes up to 4 – 6 weeks for a WUP to be heard in court. Once received there is a seven day window for the debtor to take action and either pay the debt in full or make alternative arrangements such as a Company Voluntary Arrangement (CVA) which will allow the company to escape the threat of liquidation and provide an opportunity to recover.
They could also apply to be placed into administration by means of an Administration Order. This will see an Insolvency Practitioner sell company assets to pay off the debt but it will see the halt of all legal action including the WUP.
If none of these actions are taken then the WUP will be advertised in the London Gazette where it will be brought to the attention of both the HMRC and lenders including banks. This could result in the debtor company’s bank accounts being frozen in order to safeguard any money in them for the liquidation process.
The Official Receiver will be appointed to administer the process by liquidating the company, selling any business assets and beginning an investigation into company directors for signs of misconduct or insolvent trading. All employees are immediately and automatically made redundant on the making of a winding up order as well.
A winding up petition is something to be taken seriously
If you have received a winding up petition or a statutory demand for payment against your company then time is of the essence. Get professional insolvency advice immediately as a WUP will not just restrict a company’s ability to function but could also have personal liability implications which could negatively impact your future life and career prospects.
Contact a member of the BusinessRescueExpert team today for a free initial conversation on how they can help your business remain viable or for ways to navigate any complex and confusing demands for repayment.