Skip to content

Why to Avoid Company Wind Up

Last week we took a look at the winding up process when companies go into liquidation, either as a voluntary measure or as something that is forced by creditors using a winding up petition in a bid to recover money owed to them and still not paid.   Today we’re going to take a look at the reasons that a winding up petition is bad for your business and why it should be avoided if necessary.

Obviously, if your business is struggling to stay afloat you’re likely to feel stressed about the situation as being unable to pay a supplier or a tax bill can seem daunting to say the least.  If you don’t manage to resolve your financial problems at an early stage, the situation is likely to deteriorate quite rapidly and you’re likely to have creditors chasing you for payment or even face a statutory demand or country court judgement (CCJ).  The next step then could be getting served with a winding up petition from creditors who have lost patience with you, a serious development that could result in the liquidation of your company.  Here are the five major adverse effects of a winding up petition:

·         Company Bank Account Freeze – The company’s bank accounts will be frozen when the firm is served with a winding up petition, which will be advertised in the London Gazette.  You’ll have no access to your company’s money and will not be able to pay your employees, your suppliers, your creditors, or HMRC.  You’ll not be able to pay the costs of disputing the winding up petition with company money.

·         Cease Trading – The Insolvency Act has a legal requirement for an insolvent company to cease trading immediately so that they don’t accrue any further debts.  This may result in an accusation of “wrong trading”, director disqualification and person liability for a portion of the company’s debts.

·         Costly Fight – The expenses when legally challenging a winding up petition with a validation order to stay the proceedings are high as you will need to produce reports and other documentation as well as pay legal fees.  With the company bank accounts frozen you will be unable to access company money to pay for the validation order and a validation order is not guaranteed to reopen company bank accounts for all types of transaction and may only allow the removal of funds to pay staff salaries.

·         Bad Reputation – If your company is faced with a winding up petition, this fact will be advertised in the London Gazette at least a week before the hearing to wind up the company takes place.  During this time, the company’s reputation will suffer in the eyes of your customers, your suppliers and your clients, all of whom will be reluctant to do business with a company that will soon be liquidated. 

If you think that your business could recover from financial difficulties and turn a profit again in the future, you’ll need to do all you can to avoid a winding up petition before it’s too late.  Don’t leave it until the last minute, take hold of the reins as soon as you suspect that your business is in trouble and make sure you do all you can to keep your company solvent.