Beware of the dangers of a winding up petition
16 December 2019: Many company directors will have some experience of receiving demand letters from creditors, this can sometimes lead to county court judgements and, in more extreme cases, the company receiving a statutory demand followed by the service of a winding up petition.
It is important to understand that being served a winding up petition gives rise to some specific risks of which directors need to be aware. From the moment that the petition is served any transactions of the company (including payments to employees, key suppliers and HMRC) can be treated as dispositions of property should the Company ultimately enter liquidation. This is because, if the company is wound up by order of the Court, the insolvency process is deemed to have commenced at the time of the petition. It is worth noting that directors can find themselves facing personal liability with respect to transactions considered to be dispositions of property.
Therefore, if the petitioning creditor’s debt cannot be satisfied, receipt of a petition greatly reduces the ability of the directors to take any business actions, even if the objective is to ‘do right’ by employees, HMRC or creditors more generally. This can lead to some difficult discussions with employees and suppliers, in order to preserve the business.
Upon receipt of a statutory demand, which is the legal pre-cursor to the issuance of a winding-up petition, if directors cannot resolve the matter directly with the creditor or are genuinely concerned regarding the potential insolvency of the company, they should immediately seek professional advice and support. This may involve discussions with their solicitor and/or accountant or, of course, us. There have been a number of occasions where we’ve helped clients who find themselves in this predicament and have provided them with positive solutions for the benefit of the company and its creditors.
It is important to obtain guidance from professionals who understand the risks involved with entering into transactions once an insolvency process is potentially underway. To this extent, here at BRI we will only aim to assist the directors and the company by following our ethos of providing the right advice first time every time, irrespective of fee income for us.