Winding-up petitions

Statutory Demands and Winding Up Petitions

Your creditors will naturally want to get back as much of the money owed to them as possible. That means they will usually try a variety of ways to collect some or all the outstanding amount before resorting to more serious measures. The best option is to try to come to some sort of agreement but if there is no deal possible and you cannot pay, creditors have various options when pursuing monies due to them.

One of the options is to serve a Statutory Demand.

The why and what of a statutory demand

A statutory demand is basically the last warning that unless you pay in full, or reach a payment agreement, the creditor will pursue the full payment via court action. You must not ignore a statutory demand. It is the creditor drawing a line in the sand and they will always follow through with further action.

There are several reasons why Creditors use a Statutory Demand. These are as follows:

• The process is simple to do and does not require any prior notice.
• It does not require a solicitor and so it is a low-cost option.
• They are often seen as more effective and cost less than a County Court Judgement.
• They do not need to involve the Court to send a Statutory Demand.

Once a Statutory Demand has expired (you have 21 days to reply), the creditor can issue a winding-up petition. Whilst this has a cost, it is important to note that some creditors are credit insured and quite often it is a requirement of the insurance to show that the debtor, the company who owes them money, is unable to pay the sums due. A Winding Up Order is a clear way to show this so they can claim on the insurance.

We are also aware that some creditors also do this as a matter of policy. Commonly, this is in a particular trade or profession. The argument is that they want to show to all parties that they will pursue customers to the end in all cases. In many respects, we have seen that this policy works for the creditor as they will often be paid first over other creditors who are less aggressive.

What if you receive a winding-up petition?

It is vital that you act as soon as possible. The reason for this is that the creditor will advertise the petition. The advertisement will happen at some point between 7 business days after you received the petition and 7 business days before the Court hearing.

The reason this is important is that once the winding-up petition is advertised, the following can happen. 

• The Company’s bank account will be frozen.  The knock-on effect of this is that you will find it very difficult to continue to trade.
• The petition will be notified to various credit reference agencies and so creditors are unlikely to supply any further goods on credit.
• As this information is publicly available, it is likely Creditors, Customers and Employees may become aware of the Petition and rumours will begin.
• It is likely that you will receive several calls from advisors offering help and assistance. These parties may not always be licenced insolvency practitioners so the best option is to be very careful of using them until you have fully checked their credentials.

Given the importance of the above, let us look at your options.

• Pay in full. If you pay the debts in full, including the cost of the petition, the process can be stopped. Obviously whilst this seems straightforward, the truth is that the Company did not have the funds to pay this sum in the past, so it may well not do so now.
• Arrange a time to pay arrangement with the creditor.
• Apply to adjourn the winding-up petition. This can be risky and won’t necessarily stop the advertisement of the order, but may give you extra time to pay the debt.
• Consider a Company Voluntary Arrangement. Have a look at our Company Voluntary Arrangement page for further details.
• Obtain further finance. Again, more difficult given the circumstances, but it may be possible.
• Consider placing the Company into Administration.
• Consider placing the Company into Creditors Voluntary Liquidation.

As noted above, some creditors will pursue winding-up orders to either claim on credit insurance or prove their point. In these circumstances, the insolvency option is often the only way forward as a payment plan may be very difficult to obtain.

The important thing is to consider the best options and take action. Winding-up orders are important and need dealing with immediately. We are happy to discuss this with you further and offer a free 20-minute initial call to discuss your problems.