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What is a winding up order and can it be challenged?

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A winding up order is an instruction from the court to close down a company and liquidate its assets. It follows a winding up petition that’s been made by a creditor, which typically follows a series of unsuccessful attempts to recover their money.

If you have received a winding up order, it means the company will be liquidated and permanently closed down. The ramifications for yourself as a director are also serious, as directors must undergo investigation by the Insolvency Service.

Although it’s possible to challenge a winding up order, you need to act quickly as there’s a very limited time period in which to make a challenge. So when are winding up orders issued, and what is the process for challenging them?

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Why are winding up orders granted?

If a company is in serious financial difficulty, it’s often very difficult to pay all creditors in full and on time. Maybe the company is also owed money itself, and until this can be recovered, is unable to pay their creditors.

A common scenario sees creditors chasing their payments and applying pressure on the company via County Court Judgments (CCJs), action by bailiffs, and ultimately a winding up petition.

Sometimes a company might deliberately refuse to pay, but in many cases it’s difficult for directors to know how to respond and deal with the problem. A winding up petition is costly for creditors, so it’s not an action they will have undertaken lightly, however.

Seeking professional advice is key if your business experiences financial difficulty. You’ll find out your best options for the company’s future, which may include entering into a formal insolvency procedure.

What happens when a winding up order is granted?

If you owe more than £750 and failed to pay a 21-day statutory demand sent by the creditor, they’re entitled to issue a winding up petition against your company. If a winding up order is granted you have only five working days to challenge it, so time is of the essence.

The Official Receiver is initially appointed as liquidator in cases of compulsory liquidation, but an independent insolvency practitioner (IP) may be appointed at a later date in some cases.

The office-holder will take control of the company, sell its assets to generate funds for creditors, and distribute these funds accordingly. Once this process has been completed, the company name is removed from the register at Companies House and the business is closed down.

Ramifications of a winding up order for directors

A particular concern if you’re a director in this situation is the potential for being disqualified or held personally liable for some of the company’s debts. The liquidator investigates the conduct of all directors during the three years leading up to insolvency, and will look for any instances of wrongdoing or misconduct.

This could include transactions, such as paying one creditor in favour of another – perhaps because a personal guarantee was attached to a loan – but also other types of transaction including selling assets at undervalue.

How to challenge a winding up order

If you believe you have a legitimate challenge to a winding up order, you have five working days to act. There are two instances where a winding up order can be challenged:

The court didn’t have access to all the facts

If you believe the court didn’t have access to all the relevant facts and information when making their decision, you can apply to the court to cancel or rescind the winding up order. This might be appropriate if you weren’t able to attend the hearing for the winding up petition, for example, or you can now pay the debt.

The winding up proceedings are ‘stayed’

Various parties can apply to ‘stay’ the liquidation, on a temporary or permanent basis, including the liquidator, the Official Receiver, a creditor, or a shareholder.

If you would like more information on winding up orders and challenging liquidation proceedings, please contact one of our expert team at UK Liquidators. We’ll provide the timely advice you need, and help you make a challenge if appropriate. We offer free same-day consultations, and work from local offices around the country.

Jonathan Munnery
Insolvency & Restructuring Expert

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