Can you defend a WUP?
It is possible to have a WUP set aside on a number of different grounds. The most common is that the debt may be genuinely subject to a dispute. Alternatively, it could have a procedural defect, such as a mistake in the document. It may not have been served on the debtor company properly or it may have been advertised incorrectly. Finally, the WUP may be an abuse of process and being used to “bully a debtor” into payment. In those circumstances, the petition can be dismissed by way of an application to the court.
Advertising in The Gazette
The main reason that the petition is advertised is for other creditors to see that the company is insolvent, in the sense that it cannot pay a debt that has been demanded. They may then ‘piggy-back’ on to the same petition and make a claim for their own debt, serving a notice of support on the original petitioner.
The advertisement itself is a public document, detailing the name of the company and its registered address, details of the creditor submitting the petition, as well as the address and the date of the future WUP court hearing.
What happens once a WUP is issued?
Once a bank finds out about the issuing of a WUP, it will usually freeze the debtor company’s bank accounts, which effectively puts a stop to all trading. The banks take this action because any movement of money in or out of the account could be reversed by the court, on the basis that it is an invalid transaction under insolvency legislation.
It may be possible to apply for what is called a validation order to be made by the court to unfreeze the bank accounts. However, the court will require a substantial amount of evidence and information to assess the situation before allowing this to happen.
How does a WUP affect the directors?
Once the winding up order is granted, the Liquidator (either a private sector insolvency practitioner or the Official Receiver) will investigate the company and its directors to ensure that the company’s downfall was not caused by wrongful or fraudulent trading, or some other wrongdoing on the directors’ part. They will look at transactions over the last two to five years, to see if they need to be reversed or other action taken against the directors. If there is any evidence of wrongdoing, this will be reported to the Insolvency Service and could lead to a fine or the disqualification of the directors. They could also face being ordered to make a contribution towards the losses suffered by creditors if a court decides that they have acted wrongfully in some way, for example in breach of Companies Act duties or by paying one creditor in preference to another.
Directors need to take professional advice
A WUP does not usually come as a surprise. Directors should be aware of any debt problems building up beyond normal collection procedures and spotted warning signs from creditors that they are losing patience. They may have issued a Statutory Demand as a precursor to a WUP or have threatened the company with legal action in more general terms. This is not a situation where the threat will go away if doing nothing is done.
It is vital to take expert professional advice at the earliest moment and not just about any potential defence to the WUP, but especially to assist in putting together a settlement proposal that will be irrefutably acceptable to the creditor (and where appropriate, the court) under the new cooling off procedure. This could well involve preparing comprehensive and focused data on the company’s financial position and its implication for the creditors, which is a specialist skill. It may also be necessary to look at other options, such as a Company Voluntary Arrangement (CVA) or putting the company into Administration.
If you are already affected by any if these issues or believe you might be, Opus has the expertise you need and is here to assist. If you would like to have a confidential, non-obligatory chat with one of our Partners, about your business, please contact one of our Partners at your nearest office.