A winding up petition at court is just about every other entrepreneur’s nightmare. How bad can it be you ask? Basically, it can shut down your beloved business by forcing it to liquidate. No ifs and no buts. If that’s not bad enough for you then we don’t know what is.
The premise of a winding up petition at court seeks to put the company in question to a forced liquidation with all of its assets sold and proceeds distributed to creditors to fully compensate for the amounts owed to them by the company or if not in proportion to their interests. If any should remain, this is the only time when distribution to owners and shareholders can be done. Additionally, directors can be put personally liable if proven that they have allowed trade even under full knowledge of insolvency. They will be stripped off their powers and control of the business, its operations and its assets. All accounts shall be frozen along with properties. The appointment of a liquidator shall also be given to the creditors or the court can appoint one.
So as a business owner or director, it is obviously a pain to receive a winding up petition at court filed by your creditors. The effects are horrendous and fatal thus one must keep in mind to be within your creditors’ good graces. But what exactly makes them pursue a winding up petition at court against your company?
First and foremost, you haven’t been paying your dues as should be. Obligations have not been met repeatedly creating concern for your creditors. They want a return and they will seek for it. Of course a petition wouldn’t be filed at court when you first miss out on your dues. It can take time and repeatedly so. This creates distress to your creditors making them unhappy and untrusting of you.
There are many other ways for creditors to collect from you and in most cases a winding up petition at court is their last resort. The reason is because this method requires them to shell out their own resources. It is costly on their part and thus is only often pursued if they have reasonable grounds and confidence of being able to attain more benefits than costs.
So when your creditors file a winding up petition at court, don’t expect them to be all nice and accommodating.