What is a Winding Up Petition, or Winding Up Order? What is the Procedure Involved? Can They be Stopped and How to Respond?
If you’ve been threatened with a winding up petition, or you have recently received one, it can be very confusing to know what it means for you and your company. Read our step-by-step guide for understanding the winding up petition procedure and how to respond, to help prevent your company from being compulsorily liquidated.
Received a Winding Up Petition? What is it?
A winding up petition is a legal notice issued by a creditor with the intention of forcing a company into liquidation. The petition is presented at court to establish the insolvency of the company.
What is a Winding Up Order?
A winding up order is a court order that forces a company into liquidation. The courts will issue a winding up order in situations where a creditor of a company has successfully brought a winding up petition against that company. Where a winding up order is issued, the courts will appoint an Official Receiver to liquidate the company’s assets and distribute the proceeds to its creditors.
Who can serve a Winding Up Petition?
Any creditor can bring a winding up petition against a company, as long as the company owes them more than £750 and they can prove that the company can’t pay them. The creditor needs to have issued a Statutory Demand for the amounts outstanding before they can bring a winding up petition.
You may also want to refer to our HMRC tax problems page as HMRC are the largest issuer of winding up petitions within the UK.
Why is this serious? What does it mean for your company?
This is the most serious threat to your company possible. If the petition is successful, it will lead to your company being wound up and the proceeds of its assets distributed to creditors. The winding up petition is advertised in The Gazette, so the compulsory liquidation will be a matter of public knowledge.
How to respond
When you receive an HMRC winding up petition, or a petition from any other creditor, they are usually very serious in their aim to recover their money, or to put your limited company out of business.
If you receive a winding up petition, you should seek professional advice immediately. The quicker you take action, the more chance you have of either stopping the petition or minimising the publicity it receives. It will not disappear if you ignore it and it should be taken seriously.
You have a duty as a director to act in the best interests of your company – minimising the damage brought about from receiving a winding up petition is likely to help your position when your actions are investigated by the Official Receiver (discussed later).
Can you stop or adjourn a Winding Up Petition once it has been served?
Much of this depends on how quickly you take action after receiving the winding up petition. If you seek professional advice immediately after receiving the petition, your adviser will be able to tell you what your options are. There are certain actions that can be taken within the first seven days of receiving a winding-up petition.
- Pay off the creditor who has issued the winding up petition. You will also have to reimburse the creditor for their costs in bringing the winding up petition. If other creditors have attached to the petition, you will have to pay them too.
- Administration. If the company is placed into administration, the court is not able to issue a winding up order. Read more about administration.
- Negotiate a Company Voluntary Arrangement (CVA) with the company’s creditors.
- Negotiate with the creditor so that they don’t advertise the winding up petition in The Gazette. This will help to give you time to pay the creditor before the company’s assets and bank accounts are frozen.
- Request that the courts adjourn or cancel the winding up hearing.
- Dispute the debt. This step should only be taken where you have evidence that the debt claimed by the creditor is not correct. if you are successful in the dispute, the creditor will be found to have abused the court process, which is very serious.
After the seven day period has elapsed, it’s likely that the process will continue and the court will grant the winding up order and appoint an Official Receiver to liquidate the company.
If you want to talk through options available to you, we are happy to talk over the phone or on live chat. Just remember that the quicker you act, the more likely we are going to be able to help you.
The Winding Up Petition Procedure
Understanding the process that unfolds when your company has been served a Winding Up Petition can help you to prepare yourself and your company for what is about to happen. We have outlined the process on the following part of this page. If you have received a Winding Up Petition please contact us as soon as possible for free advice.
Prior to the Winding Up Petition
Prior to the winding up petition, the creditor will issue a statutory demand for the amounts owed. This amount must be for more than £750. It is also likely that there will have been a significant period of time in which the creditor has been chasing the company for the unpaid debts.
The Creditor Serves the Petition
The creditor decides to apply to the courts to have the company wound up. They will fill out a petition and file it with the courts. They must also serve the petition on the company.
The Petition is Advertised in The Gazette
At least seven days after the creditor has served the winding up petition on the company (and at least seven days before the court hearing), the creditor will advertise the petition in The Gazette. This alerts others of the company’s creditors to the petition so they can attach to the petition and use it to claim outstanding amounts owed to them.
Banks also check The Gazette – when they see the winding up petition advertised, they will freeze the company’s bank accounts, irrespective of whether the account has funds in it. This effectively stops the company from trading as it has no access to its bank account.
Although you can apply to the courts for a validation order to reactivate the company’s bank account, this is a difficult and expensive process.
Once the petition has been advertised, none of the company’s assets should be transferred or sold.
The Court Hearing
At the court, the judge will hear the creditor’s petition for the winding up of the company and will decide whether to:
• Adjourn the hearing;
• Dismiss the petition;
• Force the company into compulsory liquidation via a winding up order; or
• Make any other order that the court may think is appropriate.
If the court issues a winding up order, they will appoint an Official Receiver to liquidate the company.
Once the Official Receiver is appointed, they effectively take control of the company and the Directors’ power over the company ends. The Official Receiver will have 12 weeks to decide if they will continue as liquidator, or if they think it is more appropriate for a separate liquidator to be appointed. Either way, they must communicate their decision to the company’s creditors within this time period.
All of the company’s assets are valued and sold, with the proceeds used to pay the creditors in the set order of priority.
The Official Receiver has a duty to investigate the actions of the director and submit a report to the Department of Business, Innovation and Skills (BIS) as part of the liquidation process. The director/s are ‘invited’ to attend a two hour recorded interview and the they will be asked to take along a statement of affairs of the company. Basically this means all the relevant records, documents, statements, accounts, receipts of the company must be provided.
If the Official Receiver finds issues with the directors’ conduct, there can be severe repercussions for that director.
Closure of the Company
Once the Official Receiver has realised all of the company’s assets and distributed the proceeds to the creditors, they will call a meeting of the creditors, issue a final report and obtain the release of their duties. The company will have been officially wound up.
Can a Winding Up Order be Reversed?
A winding up order can be reversed in certain circumstances:
- Within five days of the order being issued, if the company can pay its debts or you couldn’t attend the original hearing.
- Within seven days of the order being issued where the you can show that the court did not have all the relevant facts when they decided to issue the order.
- A temporary or permanent stay of proceedings can be sought by certain parties (such as the Official Receiver or a creditor of the company) – this can be done after seven days at the court’s discretion.
What does this Mean for me as a Director?
The Official Receiver has to investigate the conduct of the directors as part of the compulsory liquidation process. In serious cases where the directors are found to be liable for misconduct, they can be disqualified from acting as a director of any company for period of two years, up to 15 years. This also applies to shadow directors (those acting in the capacity of a director, although not officially appointed as such).
There are additional repercussions for those directors shown to have wrongfully carried on trading after they knew the company was insolvent and they can be held personally liable for any debts incurred after the company became insolvent.
Need some advice?
If you have received a winding up petition, you should now understand why it is imperative that you act immediately as your company is under a very serious threat of being closed and there are potential repercussions for you as a director. Call us on 08000 746 757 for a no obligation chat. Alternatively, you can use the Live Chat function on the bottom right hand side of the screen.
Useful Resources and Related Content
Advertisement of Petition to Wind Up (Rule 4.11 (1)) Form 4.6: http://www.legislation.gov.uk/uksi/1986/1925/article/4.11/made
Petitions to Wind Up Companies – What is this notice: https://www.thegazette.co.uk/insolvency/content/129
Examples of Winding Up Petitions: https://www.thegazette.co.uk/insolvency/notice?noticetypes=2450
Written by: Mike Smith