Usually when a company owes a debt, their creditor can file court proceedings against them in the hope that they will pay – and use a method of enforcement to recover the money if not. However some circumstances, such as a debtor refusing to engage, make this method of debt recovery an unsuitable option. This is where strong action is needed: A Draft Winding Up Petition (WUP).
What is the difference between a Winding Up Petition and a Draft?
A Winding Up Petition is a petition sent to Court to wind up a company that cannot pay an undisputed debt. A company who cannot pay a debt on demand is deemed insolvent, and this petition starts the process of liquidating them. If a company refuses to engage with their creditor about any outstanding amounts, threatening liquidation is a good weapon for debt collection.
The creditor can ask a solicitor to create a WUP, but hold off on serving it formally. It will be sent only to the debtor with an accompanying letter warning them that if they do not settle the debt within a set time period (usually seven days) then the petition will be submitted at Court. This is known as a Draft-Winding Up Petition. The debtor will be motivated to avoid Court and liquidation, and Lovetts have found that 81% of Draft-Winding Up Petitions result in full payment of the debt.
What happens when a Winding Up Petition is formally served?
If a Draft-WUP did not achieve the desired effect, the next step is to go to Court. This is the process followed in that situation:
When a company goes into liquidation, there is an order of priority when it comes to the distribution of assets.
There are certain criteria to meet before sending the Petition:
At Lovetts we have found the Draft-WUP is much more effective than a Statutory Demand, resulting in payment 81% of the time. Not only does it come with the threat of being liquidated, it also provides only 7 days to take action whereas the Stat Demand gives the debtor a full 21 days to continue delaying payment.
in the way of your other business
When a company has a major financial issue, they can become insolvent. Insolvency comes into effect when the company doesn’t have enough cash to pay its debts on demand read more
We have found that draft winding up petitions have an impressive 81% success rate in commercial debt recovery, usually due to the simple fact that it shows you are serious about recovering the money owed to you read more
A stat demand is not always the quickest solution to payment problems – there’s just not enough urgency behind it to grind the debtor into paying up quickly read more
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