Winding up orders to tackle the late payment problem

A survey among UK companies by the Better Payment Practice Group has found that four out of five have successfully issued a winding up order, which can be issued to put a business into compulsory liquidation when it does not pay its debts.

The poll asked businesses if they had ever issued a winding up order and if so, if it was successful. Of the 370 respondents, 27% had issued an order and of those, 82% were successful.

Philip King, member of the BPPG and Director General of the Institute of Credit Management, commented,

"Winding up orders should be seen as a last resort and only used when other collection methods have proved ineffective. It is also sensible to serve a Statutory Demand on the company first. This is free, save for the cost of preparation, and failure to comply with a Statutory Demand within 21 days is an automatic ground for winding up. If a company is solvent, the mere threat of winding up is often effective in getting them to pay what is due."

"However, as the poll shows, issuing a winding up order against a company can be an effective method to obtain payment of outstanding debts. It works by winding up the debtor company if payment is not received within 21 days and then using its assets to pay those who are owed money. However, if the company is insolvent when it is wound up, there are unlikely to be sufficient assets to pay all creditors in full, and only a proportion of the outstanding debt will be settled. In addition, court fees have to be paid to bring an action and, although the court will add these to the amount owed, there is no guarantee that they will be recovered."

Further information on Statutory Demands or winding up orders can be found on the Payontime website.