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Winding Up Petition

Winding up petitions are increasingly used as a means of a recovering unpaid debt. It is often seen as the nuclear option as the consequences for the recipient company can be catastrophic both reputationally and financially. When responding to a winding up petition time is very much of the essence.

An unchallenged winding up petition will result in the recipient company being placed into compulsory liquidation and eventually dissolved. Given the potential consequences, all companies should have a procedure in place for a recognising winding up petitions, ensuring it is dealt with by an appropriate individual as a priority.

Once a winding up petition has been served on the company, the petitioning creditor must wait at least 7 business days before it can be advertised in the London gazette. That 7 day period used to provide the recipient company with a window in which seek to resolve the petition before it could be advertised and picked up by credit agencies, creditors and suppliers. However, that no longer seems to always be the case. It is not uncommon for companies served with a winding up petition to be picked up by creditor agencies soon after it has been issued and well before it can be advertised. This can result in other creditors supporting the winding up petition which makes the position a lot more complicated to resolve. If you are served with a petition we recommend the following:

  1. If the sum within the petition is due and not challenged, pay it immediately. You will usually be required to pay the petition and creditors costs in addition. Ensure that as soon as cleared funds are received by the petitioning creditor payment is acknowledged and then you can immediately file an application at court for the withdrawal of the petition;
  2. If you cannot afford to pay the petition immediately, take steps to try to agree a payment plan with the petitioning creditor. If possible try and negotiate the withdrawal of the winding up petition, to prevent other creditors from supporting it. If you are unable to convince the petitioning credited to withdraw the petition, seek an undertaking from the petitioning creditor not to advertise it providing you comply with the agreed repayment plan. The sooner you can pay the debt the less likely it is that the petition will get into the public domain.
  3. If you genuinely dispute the sum claimed in the winding up petition you need to provide the petitioning creditor with details of the dispute as a matter of urgency. At the same time, you must request an undertaking that the petition will not be advertised. Having set out the details of the dispute, you should invite the petitioning creditor to voluntarily withdraw the petition on the basis that the sum claimed is disputed. If you do not get a satisfactory response you will need to file an urgent application (before the date the petition can be advertised) for an injunction to restrain the advertisement of the petition. At the same time, you should seek an order for the dismissal of the petition on the grounds it has been issued in respect of a genuinely disputed debt and is an abuse of process. You should seek your costs on the indemnity basis.

Never ignore a petition in the hope that it will simply go away. The sooner you act the more likely it is that you will be able to protect your business from serious reputational and financial harm. Similarly, as soon as winding up proceedings are mentioned our experience is that dealing with the issue head on is the sensible, and often most cost efficient, response.

To discuss any debt recovery matters please contact a member of our team on 01204 377 600. Alternatively, you can send an email with your name, contact information and brief details as to the nature of your issue to disputeresolution@afglaw.co.uk and one of our team will be able to help you.

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