Court Debenture
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Court Debenture
Will Getting A Winding Up Petition Against The Company Get Me My Money Back?
Will getting a winding up petition against them get me my money back?
It is becoming increasingly common for both business and individuals to issue winding up petitions as a method of collecting their debts. However, this strategy is not without risks. Once a petition is granted then those who are owed money may receive no return at all.
If the winding up petition is granted by the court, then proceedings for the closure of the business will start. At this point the company's bank account will be frozen and it is unable to make payments to any of its creditors without specific agreement 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.
The threat of winding up may force payment
Given that an insolvent company is wound up, little or no funds are likely to be available for unsecured creditors, why then would any such creditor consider a winding up petition?
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.
This is clearly a situation directors of the company would not want, and defending the petition in court to avoid winding up and hence closure of the company will be a big expense for the company.
Ensure other collection options have been exhausted before pursuing Winding Up
The courts generally do not like to issue winding up petitions and will throw them out unless they are convinced that all other reasonable avenues to collect outstanding debt have been exhausted.
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 holder, it is unlikely you will ever receive your money.
About the Author
If your business is in financial difficulty why not talk to us about possible solutions http://www.winding-up.info/index.html
Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.
Cooper Matthews specialise in Company 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.
An example of secured debt would be?
a. contract where two signatures specified how the contract would be paid.
b. contract in which a court kept the contract in its possession to see that nothing would happen to it.
c. contract in which real assets are pledged as security for a loan.
d. debenture.
C a house, car or other asset are pledged for the loan as collateral.
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