How to Respond to and Stop a Winding-up Petition

To obtain a validation order, you must send information to the court about any payments you intend to make. This should be accompanied by a witness statement explaining how creditors will benefit if the court authorises the payment. The validation order may be granted if you can prove the company is stable, profitable, and solvent. However, the application is likely to fail if the company is insolvent.

Directors become personally liable for transactions and payments made from the company's bank account(s) if they fail to obtain a validation order after a Winding up Order has been made.

Post-petition transactions are business dealings that took place in contrary of section 127 of the Insolvency Act 1986. Post-petition transactions are one of the first things liquidators look for in compulsory liquidation.

Consequently, after discovering that transactions left the company bank account after a petition was issued, a liquidator may say to the director:

"You allowed these payments to be made, which effectively reduced the company's assets during the course of its winding up. As a result, you're personally liable for those losses."

Still, you can make as many post-petition transactions as you like if you're going to pay the debt, and have the Winding up Petition withdrawn or dismissed.

There are several ways to quickly defeat a Winding-up Petition, but two are particularly ingenious. Firstly, the director of an insolvent company can overcome a Winding up Petition by applying for a court injunction. The serving of a Winding-up Petition for a disputed debt is an abuse of the court process. The petition will be deemed invalid if you demonstrate how the debt is disputed. And you won't have to prove the company's solvency.

Alternatively, you can dispute the debt, and make an application to the court for a validation order. If the order is granted, and the company remains solvent, the Winding up Petition will probably be dismissed when the case is heard. It's always best to raise disputes before a Winding up Petition has been presented. But the petition must be withdrawn if you can show evidence:

• Of a genuine dispute
• That Covid-19 caused the inability to pay when due

Ensure that alternative dispute resolutions are included in purchase orders when establishing relationships with new clients. A savvy debtor will have the following written somewhere on their purchase orders:

"All disputes, including unpaid invoices, shall be referred to either arbitration or mediation."

This stops creditors from litigating unpaid invoices. It also keeps costs down by ensuring that any disputes will be resolved outside of the county court. Furthermore, there are no wider ramifications because whatever you agree with the creditor can be legally binding.