Does Issuing a Winding up Petition Give me Priority For Debt Repayment?
- By Derek Cooper
- Published Saturday 27th 2010
- Financial
- Unrated
Derek Cooper
If your business is in financial difficulty why not talk to us about possible solutions http://coopermatthews.com/winding-up-petition.html Derek Cooper is Managing Director of Cooper Matthews Limited Cooper Matthews specialise in working with small to medium sized businesses to solve financial difficulty - we help you turn your company around.
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It is becoming increasingly common for both business and individuals to issue winding up petitions as a method of collecting their debts. However, this strategy is not without risks. Once a petition is granted then those who are owed money may receive no return at all.
When a winding up petition is granted by the court, proceedings start to close the business. This will cause the company bank account to be frozen. At this point it will be unable to make any payments to creditors without express permission from the court.
One of the big questions is:
does the person or company who initiated the winding up process get any preferential treatment as a creditor if the company is subsequently wound up - the answer is absolutely not. The liquidator will be paid first together with any secured creditors or debenture holders.
If there are any funds remaining after the liquidator and debenture holders have been paid, these will be distributed fairly to all remaining unsecured creditors including the initiator of the petition. Generally if a business is insolvent, there will be little or no funds available at this stage and unsecured creditors will receive little or no return.
The threat of winding up may force payment
Given that an insolvent company is wound up, little or no funds are likely to be available for unsecured creditors, why then
would any such creditor consider a winding up petition?
The answer to this is that the threat of the petition may be enough to scare the company into paying its debt. If granted, a winding up petition is extremely inconvenient for the company involved as it will find it difficult to use its bank account and therefore continue to trade.
This is clearly a situation directors of the company would not want, and defending the petition in court to avoid winding up and hence closure of the company will be a big expense for the company.
Ensure you have pursued all other reasonable measures to collect the debt, and ensure you have evidence of that before you start down the route of initiating a winding up petition. If you have not done this then it is quite likely that the court will throw out the petition and suggest you try other methods of getting repayment first.
As such, before going down this path, it is best to issue a county court judgement first which the company will have a reasonable opportunity to pay.
Using a winding up petition is becoming more and more common as a debt collection tool largely because the threat of such action may be enough to force a payment to be made or at least a repayment plan to be agreed.
However, beware, if you start proceedings to wind up a company in the hope of collecting a debt, and the procedure goes ahead, unless you are a secured creditor or debenture holder, it is unlikely you will ever receive your money.
When a winding up petition is granted by the court, proceedings start to close the business. This will cause the company bank account to be frozen. At this point it will be unable to make any payments to creditors without express permission from the court.
One of the big questions is:
does the person or company who initiated the winding up process get any preferential treatment as a creditor if the company is subsequently wound up - the answer is absolutely not. The liquidator will be paid first together with any secured creditors or debenture holders.
If there are any funds remaining after the liquidator and debenture holders have been paid, these will be distributed fairly to all remaining unsecured creditors including the initiator of the petition. Generally if a business is insolvent, there will be little or no funds available at this stage and unsecured creditors will receive little or no return.
The threat of winding up may force payment
Given that an insolvent company is wound up, little or no funds are likely to be available for unsecured creditors, why then
The answer to this is that the threat of the petition may be enough to scare the company into paying its debt. If granted, a winding up petition is extremely inconvenient for the company involved as it will find it difficult to use its bank account and therefore continue to trade.
This is clearly a situation directors of the company would not want, and defending the petition in court to avoid winding up and hence closure of the company will be a big expense for the company.
Ensure you have pursued all other reasonable measures to collect the debt, and ensure you have evidence of that before you start down the route of initiating a winding up petition. If you have not done this then it is quite likely that the court will throw out the petition and suggest you try other methods of getting repayment first.
As such, before going down this path, it is best to issue a county court judgement first which the company will have a reasonable opportunity to pay.
Using a winding up petition is becoming more and more common as a debt collection tool largely because the threat of such action may be enough to force a payment to be made or at least a repayment plan to be agreed.
However, beware, if you start proceedings to wind up a company in the hope of collecting a debt, and the procedure goes ahead, unless you are a secured creditor or debenture holder, it is unlikely you will ever receive your money.
