Mon 14 / 06 / 21
The return of winding up petitions – where does my Brighton business stand?
To extend a helping hand to businesses undoubtedly hit by the pandemic, the government provided a series of relief measures to lighten the financial burden. As lockdown restrictions pushed all non-essential, physical shopfronts into hibernation mode, businesses were left with limited trading options as they fought for survival.
Companies continue to be propped up by the Coronavirus Job Retention Scheme (CJRS) which is scheduled to close at the end of September 2021, in addition to the Bounce Back Loan Scheme (BBLS) and discretionary grants from Brighton Council.
In addition to this, a moratorium on winding up petitions is also in place until the end of June 2021. The measure was subject to a series of extensions, mirroring the economic tension at that time, however, businesses should now prepare to return to normality.
Working hand in hand with your accountant by conducting regular reviews and financial health checks can help identify whether you can ride out the remainder of the pandemic. Assessing your relationship with creditors and your ability to make repayments will help accurately forecast your future financial position.
Is my business at risk of receiving a winding up petition?
If your business owes money to creditors and you cannot raise the funds to make these payments, your business could be at risk of creditor action. This can quickly escalate from gentle payment reminders to serious threats of legal action, putting your business in the firing line of a winding up petition.
A winding up petition is a request made to the court by a creditor to formally demand repayment. The debt must be £750 or more, and the petition must be issued under ‘just and equitable’ grounds. Failure to pay or arrive at an agreement could result in a winding up order being granted, eventually leading to compulsory liquidation.
Before issuing a winding up petition, creditors are required to take the following steps:
- Payment reminder: Routine follow-ups to encourage early payment
- Final notice and Letter Before Action: Reminder before the matter is escalated, comprising repayment terms and consequences if you fail to comply
- Mediation: If there is a disagreement, a mediator may be used to encourage settlement of the matter and to neutralise the situation
- County Court Judgment: If you fail to make repayment, the court may issue a County Court Judgment which places a notice on your credit record for six years, seriously hindering your access to borrowing
- Bailiffs or Enforcement Officers: Failure to pay the judgment debts could result in enforcement action
- Statutory Demand: A statutory demand provides 21 days for the repayment to be made or a payment plan to be agreed to. Failure to meet either of these conditions or reply to the statutory demand could result in a winding petition
These are clear tell-tale signs that your business may be at risk of a winding up petition. If a court order is granted, a winding up order will be issued, kickstarting the forced closure of your business.
Should I be worried about receiving a winding up petition?
A winding up petition risks the closure of your business, as if left ignored, this could rapidly lead to your business being struck off the Companies House register. Once a winding up petition is issued and advertised publicly, your company bank accounts will be frozen. To continue trading without running the risk of trading wrongfully, you will need a validation order.
If your company received a winding up petition, the steps you take to remedy the financial position of your business will determine the future of your company.
- Pay debts: Raise funds to settle debts
- Negotiate: Arrive at an arrangement to settle debts
- Appeal: If you disagree or believe the WUP has not been issued under ‘just and equitable grounds’, you can appeal the action
- Adjournment: Ask the court to delay action to explore restructuring measures, such as a Company Voluntary Arrangement or Company Administration
Taking the restructuring route can help arrive at the root of the problem, and proactively tackle any existing hurdles encountered by your business on route to returning to a position of strength.
To keep creditor pressure at bay, a Company Voluntary Arrangement can be used to formally negotiate a repayment plan over 3 to 5 years. Alternatively, a business with substantial asset value may turn to Company Administration to settle company debts through asset sales.
As the moratorium on winding up petitions is due to end, you will need to assess the level of risk your business is exposed to. To find an accountant near you, contact Handpicked Accountants, part of Begbies Traynor Group (Brighton Chamber of Commerce Member).
On 16 June 2021, the moratorium on winding up petitions was extended to 30 September 2021.