WINDING UP A COMPANY IS EXPENSIVE
A winding up petition is definitely the “last resort” for a creditor who is owed money by a company. The reason – it is a costly business. To prove that the debt is owed and issue the petition proceedings, will cost upwards of £2,500 plus VAT. The process normally is:-
|Statutory Demand Route
|Creditor issues a statutory demand giving your business 21 days to settle the debt and this is not set aside.
|If you apply to have the demand set aside and this is dismissed costs for the creditor will increase.
|Add a further £500 or more
|Creditor issues a summons and a judgment is granted. In addition to the original debt the creditor can claim interest on late commercial payments at the statutory rate which is 8% plus the Bank of England base rate.
||Court Fee from £25 to £455 depending on value of debt. For debts above £10,000 it is 5% of the debt. If a solicitor is used there will be additional costs.
|Petition to wind up a company
||Upwards of £2,200 which includes court fees of £280 and petition deposit of £1,600.
HOW DO YOU STOP A PETITION?
It is possible to stop a petition, but it needs very urgent action. The petition can be advertised in The London Gazette 7 days after service and it really is wise to deal with it before this happens. Once the petition is advertised, it can still be addressed. However, once advertised the petition can be picked up by banks and credit reference agencies. As soon as the company’s bank is aware of the petition, they will freeze the company’s bank account with further trading is practically impossible.
Settle or Compromise the Debt
If you can, settle the debt. Alternatively make an offer to the creditor which includes a sizeable initial payment and also agree to settle their costs. It is likely (but not certain) that the creditor will agree to withdraw the petition on this basis. If the petition has been presented by HM Revenue and Customs they will require the debt to be settled in full before the petition is advertised.
Take steps to wind up the company voluntarily
If your business has no way at all of settling the debt, it is possible that the creditor will agree to withdraw the petition, or agree that it should be dismissed, if you can prove you have instructed a licensed Insolvency Practitioner “IP” to take steps to wind up your company voluntarily. The reason you might want to instruct your own IP that you will have more control over who is appointed as Liquidator. You might want to make an offer to purchase the business and its assets, and complete a sale immediately and usually cheaper via voluntary liquidation.
If the business does have a future but is debt laden, an administration order may be appropriate. As there is a petition on file, the application for administration needs to be heard at court. If there was no petition, there would be no need for court involvement and the company could enter into Administration within days.
Request an Adjournment
Unless the creditor agrees to an adjournment of the hearing of the petition, you will need to attend court at the hearing to request an adjournment. It is recommended that you instruct a barrister to attend with you. It is now possible to instruct barristers direct, and if you give us a call we can help with this. The judge will need to be persuaded there is a good reason for the adjournment. If your business needs more time to raise the money, then it is recommended you provide the court with evidence that refinancing or raising the money is a viable option.
Company Voluntary Arrangement (“CVA”)
If your business is viable and can trade on a cash positive basis if historic debt is frozen, a CVA may be appropriate. As there is a petition on file, the best route to a CVA is to lodge an application into court for an administration order which once granted will freeze all action against the business. This will give time to put together proposals for a CVA.
If you need help and advice, pick up the phone to 0333 9999 689. We will provide free advice on the phone and it is looks like we can help with an insolvency process, we will then provide an accurate estimate of the likely costs involved.