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What does it cost to wind up a company?

As the economy begins a fragile recovery, winding up petitions will continue to be used as a method of debt collection. However, the cost of issuing a winding up order is often considerable

Despite the recent figures suggesting that the British economy moved out of recession in the last quarter of 2009, there are very few who believe that the recovery will not be long and difficult.

During the next 18 months, companies will only survive if they are able to maintain their cash flow. This task will be made all the more difficult as customers demand longer and longer payment terms. Many businesses will be suffering their own cash flow problems and will therefore pay late or not at all.

One way to try and collect overdue debt is to issue a winding up petition against the company who owes you money.

A winding up petition causes the debtor huge difficulties

Once a winding up petition is issued, the company will find it very difficult to trade as their bank account will be frozen. They will incur cost fighting the petition or risk the closure of their business.

Because of this, even the threat of issuing a winding up petition may be enough to get a debtor company to pay an overdue invoice. Its use as a debt collection tool can therefore be very effective.

However, before considering taking action to wind up a company, it is important to understand the potential costs.

Costs can increase up to £2000 with no guarantee of payment

First of all, it is impossible to apply for a winding up petition without first having issued a statutory demand for payment. This would have to be arranged through a solicitor at a cost of between £150-£200.

If payment is not forthcoming in 21 days, a winding up petition can be applied for at the High Court. The solicitor's costs for this application will normally be between £1500 and £2000. However, there is no guarantee that the High Court will issue the petition.

A petition will only be issued if the court is convinced that all other reasonable methods of collecting the outstanding debt have been exhausted.

If the winding up petition is granted, this can only be lifted of the company pays its debt or makes a suitable arrangement for payment. However, if it is unable to do this, it would be wound up. If this happens, the creditor who originally petitioned for the winding up will be treated as an unsecured creditor and is very unlikely to be paid.

The use of the winding up process can be an extremely effective method of debt collection. However, it is not without cost and there is no guarantee that the outstanding debt will be paid, especially of the debtor in question is actually wound up. As such, the use of this process must be carefully planned and thought through.

If your business is in financial difficulty why not talk to us about solutions, more info at http://coopermatthews.com/business-recovery-services-advice.html

More info on Winding Up at http://coopermatthews.com/winding-up-petition.html

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

Cooper Matthews specialise in Business Recovery Services 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, working with Directors, Sole Traders and Self Employed.

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