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Debtors are using Coronavirus (Covid-19) as the reason for non-payment of unpaid invoices. However, the presentation of a Winding-up Petition for companies deemed insolvent may still proceed.

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Call 0207 504 1300 to issue a Winding up Petition due to unpaid debts

You (the creditor) should consider insolvency proceedings if a company (the debtor) owes you an undisputed amount, and has not:

  • Paid the debt
  • Offered a reasonable explanation for the lack of payment.

Under these circumstances, you can issue a creditor's Winding up Petition for a court order that forces an insolvent company into compulsory liquidation.

Formal and Statutory Demands

Issuing a statutory demand before serving a Winding up Petition strengthens your case, but it's not always necessary.

We believe the 21-day period debtors are granted after receiving a statutory demand is far too long. Instead, we recommend issuing a formal demand that:

  • Clearly states the amount owed
  • Outlines the circumstances of the undisputed debt
  • Threatens that a Winding up Petition may be served unless payment is made within 5 days.

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You must take action swiftly because your debtor may be:

  • About to collapse
  • Trading while insolvent
  • Causing you and or business to incur losses
  • Paying other companies and people instead of you
  • Using your credit terms as an unsecured, interest-free loan
  • Transferring assets into a new business while leaving you and other creditors to perish in the old 1.

 

Consequences of a Winding-up Petition

The serving of a Winding up Petition should concern a company director because Section 127 of the Insolvency Act 1986 is immediately triggered. Under Section 127, directors are forbidden from taking several actions, including making payments from the company's bank account(s) without 1st obtaining the court's permission.

For example, a director would not be able to access the company's bank account to buy a customer a cup of coffee during a business meeting. Failure to respond to the Winding up Petition, or obtain a validation order may result in:

Furthermore, if the company is wound up; the director will become personally liable for all transactions and payments made from the bank account(s) after the issuing of the Winding up Petition.

 

Talk to Your Debtor

The period before, during and after the commencement of a formal insolvency procedure can be very stressful. You (the creditor / petitioner) should talk to the debtor as they may be open to negotiating a deal to avoid their company being wound up. Strictly speaking, all payments and any use of the debtor company's assets should be validated by the court after a Winding up Petition has been issued.

You should never abuse a Winding up Petition as an instrument of debt recovery. However, it's perfectly okay to present them upon insolvent companies who are unable to pay debts when due.

I&L can help creditors recover payments from overdue invoices. When used in insolvency proceedings, a Winding up Petition is a very serious instrument. Call 020 7504 1300 now for free and confidential advice…

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