How to Stop a Winding Up Petition

A winding up petition is a type of legal action taken by a creditor against a company that owes them money. It is a formal demand for the liquidation of the company’s assets to repay the debt owed to the creditor. Essentially, it’s a step towards forcing a company into compulsory liquidation.

The creditor must demonstrate to the court that the company is unable to pay its debts. Filing a winding up petition is often seen as a last resort for creditors who have exhausted other attempts to recover what they’re owed.

Once the petition is filed, the court will schedule a hearing where the company can present its case. If the court grants the petition, a liquidator will be appointed to sell off the company’s assets and distribute the proceeds to creditors according to a priority order set out in insolvency law.

If you have received a winding up petition, you may be searching for advice on how to stop a winding up petition.

At Expert Commercial Law, we have access to a specialist panel of commercial solicitors experienced in winding up petitions. If you would like more information on how our panel firms can help you stop the petition, please do not hesitate to get in touch with our team today.

What does it mean to wind up a company? 

To wind up a company means to bring its operations to an end in an orderly manner. This typically involves selling off its assets, paying off its debts, and distributing any remaining funds or assets to its shareholders or creditors, depending on the specific circumstances and legal requirements.

There are several methods of winding up a company, with each method having its specific procedures and implications. Here’s an overview:

Members’ Voluntary Liquidation (MVL)

This method is used when the company is solvent and can pay its debts in full within 12 months. The shareholders initiate this process because they might want to retire, the company’s purpose might have been achieved, or for other personal reasons. The directors must make a declaration of solvency, showing the company can pay its debts. A licensed insolvency practitioner is appointed as the liquidator to wind up the company’s affairs.

Creditors’ Voluntary Liquidation (CVL)

This method is employed when the company is insolvent and cannot pay its debts. It is initiated by the company’s directors after they conclude that the company has no future.

The shareholders must agree to this method, and a meeting with the creditors is held to appoint a liquidator. The liquidator takes control of the company, realises its assets, pays off its debts to the extent possible, and distributes any remaining assets among the shareholders, if any.

Compulsory Liquidation

This occurs when a court order mandates the winding up of a company. It is usually following a petition from creditors, the company itself, shareholders, or the secretary of state.

It is generally a result of the company’s inability to pay its debts. The court appoints an Official Receiver (OR) as the provisional liquidator to secure the company’s assets and investigate the company’s affairs. Later, a liquidator may be appointed to distribute the assets.

Administrative Dissolution

This is a relatively straightforward method for removing a defunct or non-operational company from the company register. It can be initiated by the company directors or by the registrar of companies if there is a reason to believe the company is not operational. However, it does not involve the formal winding up of the company’s affairs or payment of its debts.

During the winding up process, a liquidator may be appointed to oversee the process and ensure that assets are appropriately distributed according to legal requirements and priorities. Once all debts are settled and any remaining assets are distributed, the company is dissolved, and it ceases to exist as a legal entity.

How to stop a winding up petition

Stopping a winding up petition can be a complex and challenging process, especially if the company is unable to pay its debts. However, there are several steps that a company can take to try to stop or challenge a winding up petition:

Negotiate with the Creditor: 

The company can try to negotiate with the creditor to reach a settlement or payment plan that satisfies the debt. This could involve agreeing to repay the debt in instalments or offering alternative forms of repayment.

Apply for an Injunction: 

The company can apply to the court for an injunction to temporarily halt the winding up petition proceedings. This may be granted if the company can demonstrate that it has a valid defence against the petition or that there are other compelling reasons to stop the proceedings.

Dispute the Debt: 

If the company disputes the debt claimed by the creditor, it can file a defence with the court challenging the validity or amount of the debt.

The court may adjourn the winding up petition hearing to allow time for the dispute to be resolved. You can dispute the winding up petition once you have applied for an injunction to prevent the petition from being advertised in the London Gazette.

Explore Alternative Solutions: 

The company may explore alternative solutions to address its financial difficulties, such as restructuring its debts, agreeing a time to pay arrangement, seeking refinancing, or entering into a formal insolvency procedure like entering administration or a Company Voluntary Arrangement (CVA).

Attend the Court Hearing: 

If the winding up petition proceeds to a court hearing, the company should ensure that it is represented at the hearing to present its case and argue against the petition.

The company may be able to persuade the court to dismiss the petition or grant a more favourable outcome.

A validation order can also be obtained. This is a company’s court order used in insolvency proceedings, specifically when a company faces a winding-up petition. It acts as a temporary relief measure, essentially “unfreezing” the company’s bank accounts and validating certain transactions even though the winding-up process is ongoing.

For more advice on how to stop a winding up petition, we would recommend seeking legal advice from a commercial law solicitor.

How can Expert Commercial Law assist?

If you have any queries on how to stop a winding up petition or issuing a winding up order, then our panel of solicitors can assist you.

All of the commercial dispute solicitors on our panel have experience and expertise in the insolvency process.

Please note we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case on to a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.