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Winding Up Petition: What if your Client Gets One?

What are the implications for a firm receiving a winding up petition? Debbie Cockerton explains all

Southend United Football Club received a winding up petition on 13 December 2018; the winding up petition was heard on 6 February 2019 (the hearing was adjourned for 28 days as Southend United is disputing the amount owed to HMRC). My local football team have been in this scenario before, but what are the implications of receiving a winding up petition and what can you do?

Well, the very first thing is to take specialist insolvency advice to know what you can and cannot do and burying your head in the sand is not an option.

Once the petition is presented, then there will be an advert in the London Gazette and this will then mean that the company bank account is frozen. The bank account can only be unfrozen with a court application for a validation order; this is an expensive procedure and is not guaranteed to unlock the bank account. Advice can be given on a validation order, should this procedure be required.

Once a winding up petition has been presented, any payment from the company bank account can be scrutinised by the Official Receiver or Liquidator and can be attacked and reversed and may, ultimately, mean that the monies must be paid back to the company.

If there is a disposal of any of the company assets, then again this will be looked at and can be reversed if the disposal was at undervalue or to a connected party.

There is a saying in the insolvency world of ‘post petition disposition’, which covers just this point and basically means that a disposition can be void if made after the winding up petition has been presented. This is covered by Section 127 of the Insolvency Act. A company may continue with trading in the usual way once a winding up petition is presented and it could mean that if the company pays a supplier who would be unaware of the petition, then a liquidator can recover the amount paid. It is not that straightforward, so specialist advice should always be taken if a company faces having a winding up petition presented against them to be advised what they should and should not be doing to limit their exposure.

Once a winding up petition is received by a company, the director may think that at the forthcoming court hearing that they can attend to state that the debt is disputed and is incorrect. The court will take a very dim view of this, as the company should have lodged paperwork before hand and the court may decide to just grant the winding up order as the matter has been left too late and the hearing date is not a time to discuss any problems with the Winding Up Petition.

If a petition is presented and advertised then this does not mean that you have no other options; however, you would need the petitioner to agree to not proceed with the petition and more than likely meet the costs of the process. A petitioner will not usually agree to back off if the company is insolvent, unless the company intends on entering into voluntary liquidation or if they wish to propose a formal proposal to creditors for repayment under a Company Voluntary Arrangement.

These options will be discussed with you at an initial meeting, however when a petition is presented it does make the process more difficult. Therefore seek advice as soon as a winding up petition is threatened.

• Debbie Cockerton is a Partner at DCA Business Recovery. The dedicated ICPA Freephone Hotline (0800 066 2540) is open 365 days a year, from 8am to 8pm.

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