Winding-up and validation orders - what you’re not told in the petition

Posted: Wednesday, 4 March 2009 @ 19:17

As cash flow is becoming an increasing issue for SMEs, we are finding that more and more creditors are issuing Winding-Up Petitions. These can be a very effective way of getting a company to pay its debts.

A Winding-Up Petition will be delivered personally to the company’s office but, unlike most court proceedings, the documents do not state exactly what should be done when one is received.

What must be done is to take immediate action and legal advice.

If the matter is not resolved within 7 business days (which, in practice, means paying the debt and costs in full, reaching an agreement with the creditor or having a genuine business dispute as to whether the debt is valid), then it is likely that the proceedings will be advertised in a publication called the London Gazette.

The London Gazette is read with particular eagerness by bankers, and the moment Winding-Up Proceedings are advertised, the company’s bank will freeze its accounts. This will leave a company dead in the water, as its rent and wages remain unpaid. Even if the company then pays the debt and costs in full, its accounts will still be frozen.

Luckily for the company, there are still a couple of options:

1. if there is a valid business dispute, the company can ask the court before the 7 days are up to make an order to prevent the proceedings being advertised;

2. if the company left it too late and the proceedings have already been advertised, then the company can apply for a Validation Order to unfreeze its accounts if the debt is paid or if there is a genuine dispute.

So, whether you’re a company that has just received a Winding-Up Petition or are thinking of issuing one, take immediate legal advice.

Gary Cousins, Business Solicitor

Blog by Gary Cousins
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
Call Gary on +44 (0)121 778 3212 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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