Winding up a Company to Recover a Debt
Posted in March 2016
Winding up and debt recovery
Issuing a winding up petition against a company is a legitimate and effective course of action in recovering an unpaid debt, however, there are disadvantages and circumstances where insolvency proceedings are not appropriate.
To wind up a company you request the Court make an order freezing the company’s assets in order that the assets are realised with the proceeds then being distributed amongst the company’s creditors.
Filling a winding up petition is most appropriate where other debt collection procedures have been unsuccessful and should be used only as a last resort. While a statutory demand is usually served to notify the debtor of intended insolvency proceedings, there is no legal requirement to do if the debtor is a limited company provided you have given them notice.
To apply for an order to wind up a company, the company must owe you a sum exceeding £750.00 and the debt must be undisputed. You should have credible evidence to substantiate the sum owed and that the sum remains outstanding.
The Court Process
To apply for the winding up of a company you must file a petition in Court outlining details of the debt and how it was incurred. You must pay the Court a fee of £280.00 and pay a deposit of £1,350.00 to the official receiver. Once a hearing is listed by the Court, you must arrange for the winding up petition to be served on the company by a process server. The process server will provide the Court with evidence to prove the petition has been served. Process server’s fees are usually in the region of £100.00 to £150.00 plus VAT. The debtor will then have an opportunity to dispute the winding up petition. The company or the company’s legal representative, the petitioner, you or your legal representative and any of the company’s other creditors can attend the hearing. Once the Court has granted the winding up order, the official receiver will begin to gather information on the company’s assets and arrange for the assets to be sold.
The Advantages of Issuing a Winding up Petition
1. The prospect alone of facing a winding up petition can exert enough pressure on the debtor to force them to pay.
2. A winding up petition can be an inexpensive and quicker alternative to County Court proceedings and Judgment enforcement.
3. The insolvency process includes the appointment of the official receiver whose role is to maximise the funds available to be distributed to creditors by the sale of the company’s assets.
4. The petition can be withdrawn if the debtor pays the debt provided the Court gives its permission.
The Disadvantages of Issuing a Winding up Petition
1. If the company is able to provide evidence to prove the debt is disputed, the Court may set aside the petition. This may result in you being liable to pay the debtor’s costs on an indemnity basis meaning, the Court could without requirement for proportionality award costs against you.
2. You can only issue insolvency proceedings against a company if no other creditor has already filed a winding up petition and there is no other form of insolvency arrangement registered against the company. If another creditor has already issued a winding up petition your only option is to join the petition as a supporting creditor.
3. Secured creditors will receive preference and as an unsecured creditor there may not be enough assets available to realise to pay your debt in full or your legal costs and fees.
To Wind up or not to Wind up?
If you have spent months unsuccessfully trying to recover payment of a debt and have been ignored, the prospect of spending further months in taking County Court when there is no guarantee a Judgment would be paid can be both daunting and frustrating. Insolvency proceedings may appear to offer a quick and easy alternative, however, there are pitfalls and you should only embark on this course of action once you have thoroughly investigated the company, the company’s assets and the company’s creditors to ensure it is possible to recover not only the debt but also the costs involved in you issuing a winding up petition.