What should you do if your company is served with a statutory demand or a winding up petition?
Most importantly – do not ignore it.
Creditors can apply to the court to close down a company. This is known as a winding up petition. Whereas a statutory demand is a formal demand for payment made by a creditor to a business who owes them money. Usually, a statutory demand will come before a winding up petition.
If the statutory demand is not responded to within 21 days, a winding up petition can then be made. Therefore, it is essential that a company deals with a statutory demand promptly and appropriately.
A winding up petition is when a creditor asks the court to liquidate a company for the proceeds to go towards paying all outstanding debts (not just the petitioning creditor’s debt).
What can you do if you receive a statutory demand that you do not agree with?
A company can challenge a demand by applying to the court for an injunction to prevent the winding up petition being made to the court.
A court would not usually allow a winding up petition to proceed where:
- the alleged debt is genuinely disputed on substantial grounds.
- the company has a genuine crossclaim or right to set off.
- the company has a reasonable excuse for not paying the debt.
- the English court has no jurisdiction.
What should you do if you receive a statutory demand that you agree with?
If you have the funds, your company is solvent and there is no genuine cross-claim or right of set off then you should go ahead and settle the debt.
What should you do if you cannot afford to pay the debt immediately? If you believe your company is solvent, you should contact the creditor and seek to negotiate payment terms, such as paying by instalments. For the creditor, it is usually far better to receive the full sum by instalments than to proceed with a petition to the court to wind up the company, which may result in the full debt not being paid.
If you believe your company is insolvent, you should seek the assistance of an insolvency practitioner to discuss your options.
What if you do nothing and a winding up petition is issued?
If you can pay the debt, you should do so or at least negotiate payment terms with the petitioning creditor. The petition can only be withdrawn with the consent of both parties and the court. It also needs to be done prior to the petition being advertised in the Gazette and within a certain time frame. So, it is important to respond quickly.
The consequences of a winding up petition are serious. Where a petition to wind up a company has been presented to the court, any disposition of property or assets that occurs after this date will be void if the company is ultimately wound up by the court. In practice, this means that the company’s bank will freeze its accounts, making it difficult for them to enter into transactions or dispose of assets. The company will need to seek a validation order from the court, which would allow them to enter certain transactions.
A winding up petition will have a detrimental effect on the commercial reputation of the company and there are potential risks for the directors personally. These risks are discussed in further detail elsewhere.
If your company has been served with a statutory demand or winding up petition, or you are a creditor considering serving such a demand or petition, Nockolds’ litigation team specialise in commercial disputes and debt recovery and would be happy to advise you on this or any other related queries.
Please contact us on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.