Stop Winding Up with Pre Pack Liquidation

A Winding Up is the forced closure of a company. The process begins with the issue of a Winding Up Petition. This action may be prevented using Pre Pack Liquidation.

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The Effect of Winding Up

Winding up is the forced closure of a company by its creditors. As such if a company receives a Winding Up Petition it will have very serious implications. Firstly once the Petition is advertised the company’s bank account will be frozen.

The next issue is that the company is no longer allowed to sell its assets or trade its shares. In affect the business of the company is suspended. This situation continues until a Hearing. The Court will then decide whether or not the company should be closed. If so a Winding Up Order is issued

After a company receives a Winding Up Order the Court will appoint a liquidator to close the company immediately. Given this if a creditor threatens winding up the directors must act quickly to save the company.

Can Pre Pack Liquidation prevent Winding Up?

Pre pack liquidation can be a good option for rescuing a business struggling with debt. The process involves setting up a new company. This then buys the assets of the old and starts trading in its place. The advantage is the new company has no liability for the old’s debts.

It is important to understand that a Pre Pack cannot be implemented after a winding up petition is issued. This is because for the solution to work the old company must be in a position to sell its assets. Once a petition is in place this will not be possible.

As such if directors believe a company is struggling it is important they take advice early on. Delaying the decision could mean that the option is lost.

Pre Pack Liquidation can not be used if a Winding Up Petition has already been granted by the Court.

Options if a Winding Up Petition is already issued

If a Winding Up Petition has already been issued the first option to consider is a Company Voluntary Arrangement (CVA). This is an agreement with company creditors to settle unsecured debts over a fixed period.

Generally speaking an insolvency Practitioner will be able to apply for an Interim Order to suspend the Winding Up Petition. This will give time for a CVA to be proposed. If it is subsequently agreed any court action against the company including the Winding Up Petition will be stopped.

A second option for directors is to simply close the company themselves. The process required in this case is called Creditors Voluntary Liquidation (CVL). The advantage of this over allowing a forced closure is that the directors are in more control of the appointment of the liquidator.

If directors want to continue to trade after Liquidation they can always set up a new company. An offer can then be made to buy the assets from the appointed liquidator if required.

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