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Will issuing a winding up petition against a company debt get me my money back?

Will getting a winding up petition against them get me my money back?

Business and individuals who are owed money by companies are increasingly opting to issue winding up petitions as a method of collecting their company debts. However, this strategy is not without risks.

Will getting a winding up petition against them get me my money back?

Winding up petitions are increasingly being used as a method of debt collection. However once a petition is granted, those owed money may receive no return at all.

Business and individuals who are owed money by companies are increasingly opting to issue winding up petitions as a method of collecting their debts. However, this strategy is not without risks.

When a winding up petition is granted by the court, proceedings start to close the business. This will cause the company bank account to be frozen. At this point it will be unable to make any payments to creditors without express permission from the court.

One of the big questions is:

does the person or company who initiated the winding up process get any preferential treatment as a creditor if the company is subsequently wound up - the answer is absolutely not. The liquidator will be paid first together with any secured creditors or debenture holders.

If there are any funds remaining after the liquidator and debenture holders have been paid, these will be distributed fairly to all remaining unsecured creditors including the initiator of the petition. Generally if a business is insolvent, there will be little or no funds available at this stage and unsecured creditors will receive little or no return.

With little or no funds likely to be available to reimburse unsecured creditors, why would a creditor want to consider a winding up petition against a company ?

The answer to this is that the threat of the petition may be enough to scare the company into paying its debt. If granted, a winding up petition is extremely inconvenient for the company involved as it will find it difficult to use its bank account and therefore continue to trade.

Any defence of the petition will have to be made by the company in court which will normally have to be paid for by the company directors and or shareholders. A situation which company directors clearly want to avoid.

Ensure you have pursued all other reasonable measures to collect the debt, and ensure you have evidence of that before you start down the route of initiating a winding up petition. If you have not done this then it is quite likely that the court will throw out the petition and suggest you try other methods of getting repayment first.

As such, before going down this path, it is best to issue a county court judgement first which the company will have a reasonable opportunity to pay.

Using a winding up petition is becoming more and more common as a debt collection tool largely because the threat of such action may be enough to force a payment to be made or at least a repayment plan to be agreed.

However, beware, if you start proceedings to wind up a company in the hope of collecting a debt, and the procedure goes ahead, unless you are a secured creditor or debenture holderArticle Submission, it is unlikely you will ever receive your money.

Article Tags: Petition Against, Unsecured Creditors

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR


Will getting a winding up petition against them get me my money back?

If your business is in financial difficulty why not talk to us about possible solutions http://www.winding-up.info

Derek Cooper is Managing Director of Cooper Matthews Limited.

Cooper Matthews specialise in Business Debt Advice providing straight forward insolvency advice for businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses.



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