Reasons for a company to go through a winding-up petition
Winding-up petitions are legal notice that is issued by creditors with the aim of forcefully closing the company. Winding-up petitions are judged in the court where the case will be heard by a judge.
Statutory demands preceded the matter. This petition is considered to be one of the serious matters in the field of legal actions that a company could face. A company should decide to act immediately as soon as receiving the petition.
The creditors make an application in case there is any debt outstanding. The application is presented in the court so that the company can wound up immediately and compulsorily.
There are many many problems for which winding-up petition is sent to companies. Some of the problems are:
• Problems of cash-flow
One of the symptoms that indicates that your company is facing serious problems is poor cash-flow. This model generally does not work and one needs to talk to take immediate action and resolve the issue. Another option that is available is to just simply walk away as it cannot be resolved.
This scenario can be that the business model is tired and urgent revamping is needed. The company can take help from experts who can allow to reframe everything. Solutions report and dept analysis is the most important factor that needs to be looked upon during this time.
The problem generally arises when there is a shortfall in the restructuring of business debt and negotiating with creditors. Sometimes, the issue with the latest methods of financing also arises. Invoice finance also becomes a major problem with poor cash flow.
Critical parts of the business also create problems and funds are also needed to solve the issues. Problems with shareholders and director’s disputes also make the cash-flow poor.
• Delayed payments
Another problem that a company faces is a problem with poor cash-flow. The bigger the company is the problem with the delayed payment arises. It is mostly seen that delayed payments are the major cause of poor cash flow. The management of invoice sometimes become tricky due to management of invoice by an inadequate number of staff support. Thus eventually resulting in poor analysis of the system of cash and delayed payments.
• Negotiations with creditors
Big companies often need to deal with angry creditors. This is a part and parcel of rescuing the company. Solicitors or HMRC’s threat often cause problems with creditors. Through many faults of the directors, there is a delay in payment from the creditors, which results in negotiating with the creditors for the business.
• Partial payments
The biggest challenge that a company faces is the partial payment that creditors make. The cash-flow problem faces the biggest problem because of this issue. According to studies, every company faces the issue of payment of invoices is late.
This is a real cash-flow problem because companies do the work but have not received the money for it. Due to this the company not only stays away from profit but also suffers loss because the money is not in the account of the company, as it is already used for manufacturing. Even the smallest of companies face this problem. Even if the partial payment is done, companies tie up the cash.
• Short of cash in hand
The financial safety net is the cash buffer for your business. Cash outflows are used to divide the cash buffer, which is eventually helpful for the needs of the business. This will help to know the number of days when the cash on hand will be available for making up in case of no income.
Companies who struggle and end up winding-up petition believe that it happens because of disorganization. The loss in productivity is mainly because of disorganization. Healthy cash flow is hampered because of disorganization in companies. This challenge is very tough to overcome. If the company is not keeping track or forecasting, you could end up being in the dark about the actual state of the company’s finance.
• Rapid growth
In case the business grows rapidly, that is good news. But rapid growth also makes problems for the directors face growing pains in the long-run. One of the problems is cash-flow. As you make more income, you also need to keep in mind that you need to spend more in the long-run. The overhead increases because outsourcing also increases. The company needs to hire more employees in this case. There is more money needed to upgrade tools to meet higher standards. Money is also needed for inventory upfront.
The bottom line
All the above mentioned-reasons are responsible for a company to face the winding-up petition. This is a very serious legal notice and if not taken action on an immediate basis, it might end up in the closure of the company.