What is a winding up petition?
A creditor may at any time apply to the high court or any other relevant court to have a company closed down. This application is the one that is referred to as the winding up petition.
This petition is generally meant to remove the control of the company from the directors so as to easily deal with the company’s affairs. When this process comes to the end, the company is immediately dissolved and gets out of existence.
If compulsory winding up is allowed by the court, an official receiver is then appointed. He oversees the closure of the company and may look for a licensed insolvency practitioner to carry out the involved process which includes; investigating the actions of the director for the past three years, transforming the company assets into cash and paying creditors
A petition must be served to the subject company through personal delivery at the company’s physical location and then advertised in the gazette. This advertisement is meant to notify the public and to inform any other creditors about the petition. This process is very complex and sometimes petitions are normally cancelled by the court if the petitioning creditor fails to prove that the due process has been followed to the letter.
On receiving the petition, the directors should be aware that the banks may freeze the bank accounts should they learn about this petition. They also need to understand that should they continue operating business after the receipt date, they can be held liable for any debts accrued by the company after this date if, after investigation of their actions, it is found that they have not been serving the best interest of the creditors.
If the directors want to continue operating business in order to save the company, they must ask for assistance from a business rescue expert if the company is insolvent. If they also think that trading may be of any benefit to the creditors through assets recovery, then they need to seek assistance from an insolvency expert who may also be introduced by a secured creditor or even a bank. Whatever the need for proceeding with business while still insolvent, the directors must seek for professional help.
Failure to give feedback to a petition can lead to closure of the company. Due to the complexity of the process, before dealing with the petition it is necessary that the directors seek professional help from a business rescue adviser or an insolvency expert who may introduce an insolvency barrister to act as the company’s representative in a court of law.
Even though the petition is known to be very critical and should never be ignored, it does not mean that the company must be closed down. If proper representation is made, which clearly shows a stipulated plan to settle the overlying disputes; it can be possible to terminate the winding up petition
If for instance the debt has been settled or there has been an approved company voluntary arrangement, the court may not adjourn the hearing of the petition if the company clearly demonstrates how it is attempting to settle the petition debts. Requesting for time to settle the debt or to meet the creditors or even considering proposals for company voluntary arrangement may lead to adjournment but in many cases, only few weeks may be given.
If the debt is disputed, the petition cannot be terminated but can be adjourned until judgment is made on the validity of the claim. It relies on the evidence given to the court by the defense which is followed by a certain date by which a response must be given by the claimant, and finally a date when the court must have considered the evidence from the two parties. Thereafter, the court will determine if there is enough evidence that can be relied on by the judgment.
Surviving the petition may not always imply that the company is very secure. Such companies settle their debts but are often left without enough money to pay other bills. At times the directors go to the extent of using their personal funds.