If a winding up petition is received what happens to the company bank account?

Receiving a winding up petition can seriously affect your company's ability to trade as its bank account is likely to be frozen.

A winding up petition can be issued on behalf of a creditor if they want to try and force a company to close. If the company is unable to defend its position at a court hearing, it will be ordered to be wound up.

Once a winding up petition is issued, it will be advertised in the London Gazette and the winding up process is deemed to have begun.

All banking institutions monitor London Gazette advertisements. If they identify that one of their clients has had a winding up petition issued against them, they will immediately freeze the company's bank account.

The bank takes this action to protect itself against being held personally responsible for any business transactions which could now be deemed void because the winding up process has started.

All further transactions stopped

No further funds can be paid into the bank account and payments cannot be made from it.

This means that the business will have difficulty collecting cash which is due to be paid by its customers and will not be able to pay key expenses such as staff wages.

In effect the ability of the business to continue to function will be stopped.

Generally, the only way that the bank will allow any transaction to take place is if it is specifically agreed by the court with a validation order.

A validation order my be granted to allow staff wages to be paid if this will result in the completion of any work in progress which would increase the value of the company's assets. However the court is unlikely to do so simply to allow the company to retain employees.

Defending the winding up action

If the directors of the company wish to argue against the company being wound up, they will have to present their position at the winding up hearing in the High Court.

It is clearly sensible to have legal representation at the court. However, because there is no access to the company's bank, the directors will have to fund this process themselves.

If the company is in financial difficulty, winding up action will also be stopped by the implementation of a company voluntary arrangement (CVA). If a CVA is agreed, all further legal action including winding up proceedings against the business must cease.

However, it takes a number of weeks to successfully implement a CVA so directors must act quickly if this solution is to have any chance of success.

A winding up petition will have a dramatic impact on a company's ability to trade because it will result in its bank account being frozen. For this reason, if you have been threatened with winding up and particularly if you have already received a winding up petition, you must get advice and act quickly if you want to save the business.

More details on our website at How to stop winding up

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Business Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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