Times are tough for businesses throughout the UK. The recession has hit hard, slowing demand and choking off credit, especially for start-ups and other SMEs. It is due to this recession that many companies, which would have been prospering during good times, are being hit with winding up orders from the courts. Far and away, the most frequent issuer of winding up petitions is HMRC, pointing to the fact that the Government is aggressively seeking to recover debt in order to shore up its own coffers. Fortunately, it is possible to defend your business and prevent a winding up order from being issued, giving you the time that you need to make a recovery and work your way back into the black.

What are Winding up Petitions, and How Do They Relate to Winding up Orders?

A winding up petition can be issued by any creditor whom you owe over £750, and who has previously made a statutory demand for the payment of this debt. Once 21 days has elapsed without the debt being paid off or the demand being appealed against, a petition will be issued. This means that your creditor is applying to the courts to force your company into liquidation, allowing them to recover the money you owe them. At the court hearing, interested parties will be permitted to make arguments before the judge, after which a decision will be made. If it is decided that liquidation is the proper course of action, a winding up order will be made, and your company will be liquidated by a court-appointed Receiver.

How Can I Avoid a Winding up Order?

It is possible to protect your company from winding up orders. The most appropriate course of action will be determined by the stage in the winding up process which your company has reached. If the statutory demand period has not yet expired, the best thing to do is to tackle the issue here, before the debt becomes subject to court proceedings. Negotiating a payment plan with your creditor, or immediately reducing the debt to a figure below £750, will mean that you will be spared a day with a judge. It is also possible to simply dispute the demand if you believe it to be incorrect. If the situation is more desperate, company directors should consider voluntarily placing their business into administration, or entering into a Company Voluntary Arrangement (CVA). Though most directors will be understandably keen to strive to save their company, this is not always the best option. Independent advice should be sought in order to best protect both the business and its owners from increased liability.

A Brighter Future

Receipt of a statutory demand or winding up petition doesn’t have to mean the end of your company. With protections put in place in order to safeguard businesses being available, savvy directors will fully explore the available options before shutting up shop for good.
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Tom Omar is an insolvency practitioner and blogger. He has over 20 years’ experience in advising entrepreneurs on company debt issues.