The affects of a Winding Up Petition can be very serious. Ongoing trading will become almost impossible. Ultimately the Court may decide that the company should be forced to close.
- Affect of Winding Up Petition on company Bank Account
- Can the company continue to trade?
- Will the company be forced to close?
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Company Bank account Frozen
Once a Winding Up Petition is issued the company has 7 days to pay the outstanding debt. If this does not happen a notice of the Petition is publicised. For companies registered in England & Wales this will be in the London Gazette.
The company’s bank will then become aware of the Petition. They will then freeze its accounts. This means that cash cannot be paid into the account. In addition payments cannot be made. If the company wants or needs to make a payment it must apply to the Court for a Validation Order.
A Validation Order may be granted if the Court feels that a payment will be to the benefit of the creditors. This may be if it is to pay wages thus retaining employees to fulfil an important contract. The cost of applying for a validation order must be borne by the company directors.
If a validation order is granted this will not allow general access to the company’s bank account. The order will allow a specific payment or payments to be made only as highlighted in the order.
Trading of Company Assets suspended
After a Winding Up Petition has been publicised the company must stop trading. This means it cannot continue to sell its products. In addition non of its other assets can be sold. On top of this company shares cannot be transferred without the prior agreement of the Court.
If the company wants to sell any of its assets or goods it must apply to the Court for a Validation Order. The Order may be granted if the Court feels the sale is in the best interest of the company’s creditors.
Company forced to Close
Once the Winding Up Petition is publicised a date for a Court Hearing is also set. The Court will hear arguments from both the petitioning creditor and the directors. The Judge will then make a decision to close the company or not.
It may be possible for the company directors to successfully argue against the closure of the company at the hearing. However if the Judge believes the company should be closed a Winding Up Order will be issued.
Once a Winding Up Order is issued the Court will immediately appoint a Liquidator. The Liquidator will then start the process of closing the company immediately. This will involve collecting any debts owed to the company. Selling the company assets and making any employees redundant.