With the number of winding-up petitions on the rise - according to new data, winding-up petitions were up nearly 30 per cent year-on-year in Q3 2023 - we take a look at this process of insolvency. If you’re in the market for a distressed business, this may be of interest to you.
What is a winding-up petition?A winding-up petition, also known as compulsory liquidation, is a legal action taken by creditors against a firm that owes them money. It is by far the most stringent action a creditor can take against a business, usually coming after other debt collection methods have been attempted, and could ultimately mean the end for the company.
What is a winding-up order?If a winding-up petition is successful, it is followed by a winding-up order. This is a court order that forces an insolvent company into compulsory liquidation.
How does the whole process work?Once the winding-up petition has been issued, it will be publicly advertised, on Business Sale Report, seven days later. It will then be heard at court where it will either be dismissed or approved.
Who issues winding-up petitions?Suppliers, banks and HMRC tend to use winding-up petitions as a way of extracting debt from companies. However, issuing a winding-up petition can be expensive - a creditor would need to pay £280 in court fees and pay a £1,600 petition deposit.
What happens if a winding-up petition is successful?If a company is successfully wound up, the following will happen:
Are there any other options?
Can a winding-up order be cancelled?In some cases, yes. If a company is in the process of liquidation, it can apply to rescind the order, if it can pay its debts, say, or is unable to attend the original court hearing. An application to cancel the petition, which would cost £155 if done through the Companies Court or a district registry, must be made within five working days of receiving it.
How does a winding-up petition affect a company’s directors?If a winding-up order is approved, a liquidator, such as an insolvency practitioner, will investigate the affected company’s situation to see if there has been any fraudulent trading or wrongdoing by its directors. If evidence is found, directors could be fined and/or disqualified, and made personally liable for any debt.
Does a winding-up petition definitely mean the end for a business?While a winding-up petition is certainly very serious, it doesn’t necessarily mean the end for a business. As explained above, in some cases the result of a winding-up petition is not liquidation but administration, which can be a real opportunity for buyers of distressed businesses. Here are a few examples.
This practice, which was established over 40 years ago, is available for sale due to the impending retirement of the practitioner.
This practice, which was established in the 1980s, is available for sale due to the impending retirement of the partners.
This practice, which was established around 2003, is available for purchase due to the impending retirement of the partners.
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