Five things you should do if a creditor threatens to wind up your company

If a creditor is owed £750 or more and has not been paid it has the ultimate sanction of being able to petition to wind up your company. At a cost of at least £3,000 it is not a cheap option but it does bring finality and ensures that a liquidator carries out an independent review of your company and the actions taken by its directors. If a petition is filed at Court and served on your company you should:

  1. Take the threat seriously
    The most prolific petitioner is HM Revenue & Customs (“HMRC”) accounting for 50% of all petitions and if it threatens to wind up your company you should assume it will follow through. You may have had your head in the sand up to now or been delaying payment for a perfectly legitimate reason but now is the time to wake up and address the issue. If you do nothing legal costs will escalate and you could lose control of your business. You have a choice of doing nothing effectively calling their bluff or taking matters into your own hands. We nearly always recommend you do the latter. HMRC aside, if a creditor does not have a judgement debt or has not issued a statutory demand that has expired then it is less likely that it will proceed with a winding up petition but if they are prepared to take the additional risk and adopt an aggressive stance they still could.
  2. Consider paying if you can
    Sounds obvious but if the debt is due and you can pay it now is probably the time to do so. But before you do its best to consider the overall picture. Is this a sign that business is financial difficulty? Are other creditors threatening as well? Maybe now is the time to take advice from your accountant, solicitor or an insolvency practitioner.
  3. Negotiate
    If the debt is not disputed try to negotiate a standstill or payment schedule in return for their agreement not to proceed with a petition if you can. The threat is designed to make you take action. The creditor wants paying and if you offer to do that within a reasonable period (a petition will take three months or so to be heard by the Court) that should be good enough. If the debt is disputed set out in writing the reasons for the dispute. Whilst a disputed debt cannot be used to wind up the company you don’t really want to be relying on that defence at a winding up hearing. It is best to sort it out now. If you can’t and the debt is significant why not consider formal mediation.
  4. Take advice and understand your options
    If your business is in financial difficulty take advice now to help you understand what your options are. It can help you keep control. Insolvency practitioners deal with this sort of thing all the time and we would be pleased to help you without any obligation on your part.
  5. Consider the consequences
    Once a winding up petition is filed in Court then the stakes rise considerably, including:
    -It cannot be withdrawn and only the Court can dismiss it.
    -Once it is advertised in the London Gazette (no later than 7 days before the Court hearing) the “world” will get to know about it. Anyone with a data feed from an information agency will be notified.
    -Other creditors often find out about the petition – even before it is advertised – and can support if they wish. Then the sum you have to pay to settle the petition can go through the roof.

If you find your company in this position then it is already too late to consider a wide range of options that would otherwise be available. So it is much better to act before a petition is filed. Just give us a call on 0800 331 7417 for a no obligation basis and we will take you through your options.

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