Winding Up Petition - Help, Guide & Advice
A winding-up petition is a legal notice submitted to the court by a creditor. If the petitioning creditor is owed more than £750 and the debt remains unpaid for over 21 days they may petition the court to liquidate the company, believing it to be insolvent. The liquidation proceeds can be used to repay creditors.
HM Revenue & Customs are responsible for issuing the majority of all winding-up petitions.
This action is undoubtedly the most severe that can be taken against your company, often following a statutory demand. Frequently, the company has shattered the creditor's trust, with failed payment arrangements, unfulfilled bank transfers and directors who haven't kept their promises to pay. Despite your company's best efforts to meet payment deadlines, lower-than-expected sales or slow customer payments may have hindered progress.
When would a creditor issue a winding up petition?
If one of your creditors is owed £750 or more, has unsuccessfully attempted to recover the debt through standard means, and the debt is not disputed, they can issue a winding-up petition with the intention of shutting down your company.
They must be able to prove the debt's existence, typically done via a 21-day statutory demand for payment issued before the winding-up petition. Failure to pay the demand legally establishes the debt, allowing the creditor to initiate winding-up proceedings.
If your creditor already possesses an unsatisfied County Court Judgment (CCJ) against the company, they will not need to issue a statutory demand, as the unpaid CCJ effectively verifies the debt's existence without question.
For more information on CCJs and the Stay of Execution, you can read our article on Stay of Execution – How to Stop CCJ Enforcement Action Now!
The Process of Filing a Winding Up Petition
The winding up petition process is as follows:
Filing the petition
A creditor submits a winding-up petition to the court, which includes information about the outstanding debt with supporting evidence. The petition will have a hearing date endorsed on it and then must be served at the registered office of the company.
The company has an opportunity to respond to the petition, either by disputing the debt, settling the debt, or seeking independent legal advice.
Advertisement in The Gazette
The winding-up petition must be advertised in The London Gazette at least seven days before the court hearing date. Once advertised, other creditors may support the petition, and if the original petitioner is paid, or seeks to withdraw, may take over the petition.
Court hearing and winding-up order
The court reviews the case and if the winding-up order is granted, the company then enters compulsory liquidation.
Appointment of the official receiver
The official receiver is automatically appointed as liquidator of the company. Alternatively, the creditor(s) can seek to appoint an insolvency practitioner as liquidator. If a private liquidator is appointed, 50 per cent of creditors in value can ask for this, or 10 per cent of them can request a creditors’ meeting.
Investigation of company's affairs
The official receiver/liquidator examines the company's financial affairs, including the conduct of its directors.
Liquidation of assets
The company's assets are sold, and the proceeds are distributed to the creditors in accordance with the legal order of priority.
The company is dissolved, and its name is removed from the Companies House register.
After the petition has been issued, the brief 7-day window is often the only time directors have to prevent compulsory liquidation. If an alternative solution is to be found, directors must respond quickly.
Rescuing a company is possible even at this late stage, but as time passes beyond the time the petition is advertised, the task becomes increasingly difficult.
Effects of a Winding Up Petition
Company's Bank Accounts are Frozen
Upon advertisement of a winding-up petition, your company's bank will be informed as it is published in the London Gazette. Consequently, your bank account will be frozen. This occurs because the court may reverse any transactions made after the winding-up petition has been served. As a result, no further payments can be processed, either incoming or outgoing, through the account. Naturally, this creates significant issues for the company.
The bank account can be reopened, but only if a validation order is acquired. Moreover, the company's credit rating will plummet to zero. Once the petition is advertised, other creditors may add their claims as well, potentially leading to a snowball effect as more claims accumulate against the company.
Further Legal Action
The company must bear any associated costs and inconveniences arising from handling the petition. For instance, this could include collaborating with solicitors or seeking legal advice on the petition. Moreover, if the petition is justified, the company will be required to cover the petitioner's expenses related to the petition in addition to the petition debt itself.
For more information on if your bank would issue a Winding Up Petition for a bounce back loan, you can read our article on Will My Bank Issue A Winding Up Petition For A Bounce Back Loan?
What are the Winding Up Petition fees?
From the 1st of November 2022 onwards:
- £302 – Court fee due on presentation of winding-up petition
- £2,600 – Insolvency Service / Official Receiver’s petition deposit (refundable)
- £1,500 to £3,000 plus VAT – Solicitor’s fees
- £100 to £200 plus VAT – Process Server fee
- £103.60 + VAT – London Gazette advertisement fee
- £2 – Company House search fee
- £12 to £45 – HMCTS Companies Court search fee
Who can File a Winding-up Petition?
If suppliers, lenders, or HMRC are owed £750 or more and have been awaiting payment for over 21 days, they can resort to submitting a winding-up petition to retrieve the outstanding amount.
When company directors determine the company's insolvency and consider liquidation beneficial for creditors and stakeholders, they may decide to initiate a winding-up petition.
Conversely, shareholders might choose to submit a winding-up petition if they suspect the company is insolvent or have a legitimate reason to believe that the company's management is working against their interests.
For more information on if you have received a Winding Up Petition from HMRC, you can read our article on What You Need To Know If You Receive A Winding Up Petition From HMRC
Stopping a Winding Up Petition
There are several ways to stop a Winding Up Petition, these are explained below:
Settle the debt in full
If possible, pay the entire amount owed to the creditor(s) who filed the petition. You may also be expected to cover the costs of taking the petition to court.
To assist with payments, explore whether your company qualifies for alternative funding options, such as invoice factoring or asset-based lending. This can help you repay the debt in full while maintaining business operations.
Contest the debt
At this point, you can inform the court that you disagree with the petition. This could be because you believe the:
- Debt amount is incorrect or non-existent
- Petition was served improperly
A valid dispute may allow you to apply for an injunction to delay the advertisement or even remove the winding-up petition from the court's records.
You'll need evidence to support these claims and the help of a specialist solicitor.
If you attempt to dispute the debt with insufficient evidence or mislead the court, you could face serious consequences.
Opting for pre-pack or traditional administration brings a stop to all legal actions against a company. This moratorium protects the company from being wound up by creditors and provides you with the opportunity to investigate restructuring alternatives.
We have a page dedicated to Company Administrations.
At this point, you could also contemplate Voluntary Liquidation. Doing so allows you time to manage responsibilities such as personal guarantees, redundancies, and lease terminations.
Furthermore, it may present you in a more favourable light during the liquidator's subsequent investigation. After all, if a director is discovered to have behaved improperly, they could face disqualification or be held accountable for the company's debts.
Negotiate a Company Voluntary Arrangement (CVA)
A CVA is a repayment plan agreed upon between your company and a minimum of 75% of your creditors. It is among the most frequently employed methods to halt winding-up petitions.
You may also consider an informal financial arrangement. However, such agreements are not legally binding and might lead to difficulties if you fail to make payments.
While both options can be beneficial, they may not necessarily prevent a winding-up petition. If you establish payment terms with one creditor (or a group of creditors), another creditor might step in and 'take over' the petition to recover their own debts.
As a result, it is crucial to attempt to have the petition withdrawn from the court records, regardless of the approach you decide to take.
We have a page dedicated to CVAs and the process.
Request an adjournment
Submit a separate application to ask for an adjournment or cancellation of the hearing. You will need to provide a statement outlining your reasons. Potential justifications could include requiring time for:
- An Insolvency Practitioner to identify the most suitable restructuring strategy
- Securing funds to settle debts
How Long Does a Winding-up Petition Take?
The duration of a winding-up petition process can fluctuate based on various factors, such as the case's complexity, the number of creditors involved, and the court's availability.
Typically, it takes around 10 weeks to issue a winding-up petition and for the court to hear the case.
Below is a general outline of the steps in the winding-up petition process and their associated timeframes:
- The creditor submits a winding-up petition to the court and serves it on the company. This step typically takes between a few days and a week, depending on the creditor's readiness and the court's processing speed.
- The company has the opportunity to respond to the petition and present its case to the court. The debtor has seven days from the service date to respond to the petition.
- The court conducts a hearing to examine the petition and the company's response. After the petition has been served and advertised, the court schedules a hearing, which can take anywhere from a few weeks to a couple of months.
- If the court approves the petition, it issues a winding-up order and appoints an official receiver to supervise the company's dissolution and asset distribution. This step generally occurs within a few days of the court hearing.
- The official receiver assumes control of the company's assets and sells them to repay the debts. The liquidation process can last several months or even years, depending on the company's size, the intricacy of its financial matters, and the time required to sell its assets.
- The official receiver provides progress updates on the winding-up process and submits a final report when the process is finished. This step takes place once all the company's assets have been sold and (if there are sufficient funds) its debts have been settled.
Please note that the precise duration of the winding-up process is contingent upon the specific details of each case.
How to Avoid a Winding-up Petition
The most straightforward way to prevent a winding-up petition is to ensure your company settles all its debts with creditors as soon as possible and in full. If the company is struggling or becomes insolvent it may not always be feasible. In such instances it is advisable to communicate with creditors and attempt to negotiate a repayment plan for outstanding debts.
If your company is insolvent, you may want to consider implementing a company rescue process, such as a Company Voluntary Arrangement (CVA) or entering into administration. Alternatively, if liquidation appears unavoidable, opting for a Creditors' Voluntary Liquidation (CVL) allows directors greater control over the company's dissolution and is less public than compulsory liquidation.
When a company cannot meet its debt obligations, it is likely insolvent. In this situation, directors have a responsibility to act in the best interests of the company's creditors. Therefore, you should exercise caution in your actions to avoid breaching your director's duties.
Winding Up Petitions vs. Administration
While both liquidation and administration are formal insolvency procedures, they serve distinct purposes and follow different processes.
In essence, liquidation marks the end of a company by selling its assets and ultimately dissolving the company.
On the other hand, administration is employed when there is potential to salvage a business under significant financial strain. If successful, administration can lead to the full recovery of a business, enabling it to repay debts, escape insolvency and continue trading. Additionally, administration can facilitate the sale of the company's business and assets to a new entity which ensures the continuation of the business.
Administration is generally more favorable for a business as it seeks to rescue viable aspects of the business, allowing it to carry on trading. Conversely, liquidation simply winds down the business in an orderly fashion.
The decision to liquidate or place your business into administration depends on its current financial situation.
We have written an article on What Happens in Company Administration.
The Role of a Licensed Insolvency Practitioner
An insolvency practitioner, also known as an IP, is a professional who is licensed to assist companies and individuals facing financial difficulties. They can be appointed to manage formal insolvency processes, but importantly, they can also provide invaluable support before full insolvency occurs.
It is essential to seek help from 'licensed' insolvency practitioners, as they are regulated by an official body or association and have received extensive training.
The role of an insolvency practitioner varies depending on the situation, but for a limited company in financial distress, they can evaluate the business's position and suggest possible solutions.
Company directors must exercise caution when their business is experiencing financial difficulty. UK insolvency laws dictate that trading must cease as soon as the business becomes insolvent or when directors believe that insolvency is inevitable.
In this situation, consulting a licensed IP is mandatory – failing to stop trading could be considered director misconduct, and creditors could face further financial losses as a result.
Insolvency practitioners must pass Joint Insolvency Examination Board (JIEB) exams and gain wide-ranging practical experience before obtaining a license. They must also be approved and regulated by a professional body, which involves ongoing checks and inspections of their work.
What does an Insolvency Practitioner do?
Professional advice and support
Seeking the professional advice of an insolvency practitioner brings significant benefits to companies in financial distress, helping to prevent further deterioration towards liquidation. It is often assumed that insolvency practitioners only get involved when a business is on the brink of closure, but they can aid companies in recovery through various measures.
With the UK's supportive insolvency regime, there may be multiple options available to financially distressed businesses, and an IP's primary objective is rescue and long-term recovery.
Official insolvency procedures
A licensed IP must be appointed to manage formal insolvency processes in the UK, including company administration, Company Voluntary Arrangements (CVAs), and company liquidation.
An insolvency practitioner realises business assets and distributes the proceeds of sale to creditors, but they are also obliged to investigate the directors' conduct leading up to insolvency.
Closure of solvent companies
IPs are also appointed to close solvent companies. Sometimes, a director may wish to retire, and if there is no suitable successor for the business, they might opt for a solvent liquidation process called Members' Voluntary Liquidation (MVL).
Although the company is solvent, this is an official procedure, so a licensed IP oversees the process and ensures the company is closed down according to statutory regulations.
To understand the differences between Insolvency Practitioners and Liquidators, you can read our article on Insolvency Practitioners vs. Liquidators: What's the Difference?
A winding up petition can be a serious matter for any company. It is important to understand what a winding up petition is, how it works, and what the consequences are.
Seeking professional advice is crucial if you are facing a winding up petition. At Company Doctor, we specialize in providing expert advice and support for companies facing financial difficulties. We have an in-house Insolvency Practitioner. Our experienced team can help guide you through the process of dealing with a winding up petition, ensuring that you have the best chance of achieving a positive outcome.
Remember, it is always better to take action sooner rather than later when it comes to financial difficulties. Contact Company Doctor today to learn more about how we can help you navigate the winding up petition process.
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