What is a Winding Up Order and can it be reversed once issued?

A winding up order can be used by creditors to enforce payment of a debt by a delinquent company. Often as an act of last resort, creditors petition the court to have the business liquidated, usually after several failed attempts to recover their money.

The expense of going through the courts to obtain an order of this type indicates their determination, and this is a method often used by large creditors such as HMRC and the banks.

The winding up order will have been preceded by a 21-day Statutory Demand for payment, and a winding up petition. Once the winding up petition has been accepted by the courts, a winding up order is granted and company liquidation follows.

What are potential causes of being granted a winding up order?

If your company has been threatened with a winding up order, your creditor will have lost faith in your ability to pay, and wants to recover their money as soon as possible. They may have extended you further payment terms prior to this point, that have also not been met, including the Statutory Demand for payment.

Once the 21-day time limit for this payment has elapsed, the creditor probably feels that a winding up petition is the only way to recoup what is owed to them. Generally, with this type of aggressive action the debt is much higher than the stipulated figure of ‘over £750’ as otherwise it would not be worth the costs of going through the courts. This figure has increased to £10,000 as per the Government's temporary measures which will apply for the period 1 October 2021 to 31 March 2022. The cost of winding up a limited company can fall anywhere between £1,490 and £1,990 which is covered by the petitioning company.

From your standpoint, you may have made determined efforts to meet the payment, but been genuinely unable to pay because of other debts, or an inability to collect monies due to your company from your own customers. Alternatively, the market may have dipped resulting in lower than expected sales figures.

Unfortunately, however genuine the reason, creditor action such as this is very serious and could signal the end of your business through liquidation.

What is the criteria for a winding up order application?

The creditor needs to meet certain criteria before the court will consider their application:

• The debt must be more than £750 (temporarily £10,000)
• The creditor is required to send a 21-day Statutory Demand for payment of the debt

If the debt remains unpaid, the creditor is eligible to petition the court for payment.

What is the procedure and timescale of a winding up order?

Your creditor will ask their solicitor or legal team to apply for a compulsory winding up order. The winding up ‘petition’ is the name given to the application sent to court. It is reviewed by the court, and if passed, sent to the insolvent company.

It generally takes around 28 days in total for a winding up order to take effect.

Once you are in receipt of a winding up petition, you need to act quickly to save your company. There is a seven day time limit in which to take one of the following courses of action. It is advisable to seek the advice of a licensed Insolvency Practitioner at this time.

• Pay all monies due to the creditor
• Propose a Company Voluntary Arrangement (CVA) – this is a formal insolvency procedure which provides extended payment terms, sometimes up to five years. It also allows the company to avoid liquidation, and provides an opportunity for business recovery.
• Place the company into Administration via an Administration Order. If the Order is granted, you will need to appoint an Insolvency Practitioner to value and sell company assets, with the intention of paying off the debt. Putting the company into Administration halts all legal action, including the winding up petition.
• Dispute the existence or amount of the debt. You must be sure of your facts however, as you may be seen to be accusing the creditor of abusing the court system.

If you are unable to take any of these steps or have simply run out of time, once the court approves the application for a winding up order, the matter will be taken out of your hands and the liquidation process will begin.

The winding up petition is advertised in the London Gazette, where it will be seen by the banks and HMRC. This often results in the bank taking action to freeze company bank accounts in order to safeguard their money.

The Official Receiver will be appointed to sell business assets, liquidate the company and investigate directors for signs of misconduct or wrongful trading.

Can a winding up order be reversed once issued?

It is possible to reverse a winding up order already issued by the court. There are two ways in which legal proceedings can be stopped:

• Anyone can apply to have the order rescinded within seven days on the grounds that the court did not have all the relevant facts when making their decision to pass the order.
• An application to ‘stay’ liquidation proceedings can be made by the Official Receiver, an appointed liquidator, a shareholder of the company, or a creditor. This can be at any stage after the winding up order has been made, and includes both temporary and permanent staying of proceedings.

It is important to remember that the earlier you act to prevent a winding up order, the better your chances of success. Intervening at the Statutory Demand stage could significantly influence the outcome – your IP may suggest a Company Voluntary Arrangement or other insolvency procedure that would alleviate the creditor’s fear of non-payment.

Begbies Traynor offer same day meetings free of charge to companies in distress. This addresses the need for directors to take swift action on receipt of a winding up petition, and may help to prevent liquidation of the business.