A winding-up petition is the legal mechanism by which a business creditor can apply to the court to wind-up a company for non-payment of debts. It can result in compulsory liquidation.
Winding Up Petition Advice
If you have been threatened with a Winding Up Petition and need advice and help please do get in contact. It may be possible to convince the creditor not to proceed. We have experienced business rescue specialists who advise small businesses in very difficult financial situations including where a Winding Up Petition is threatened by a creditor. The most common situation where a Winding Up Petition is served is where debts are owed to HMRC..
Additionally, another part of our team are Insolvency Practitioners, so we know how situations which may lead to Winding Up are generally approached both by debtors and creditors.
Reasons to Avoid the Winding Up Process
Generally speaking, because the Winding Up process costs the creditor who issues the petition quite a lot of money, the creditors may adopt a hostile approach and may seek to appoint their chosen liquidator (who may then look even more carefully at directors conduct than the Official Receiver), so if there is an alternative way to close your company, this may be a better option. Time is of the essence, so please do get in contact with us urgently.
A winding-up petition is a legal final demand notice issued by a creditor with the intention of forcing payment or forcing the debtor company to close.
The rules around winding-up are laid out in the Insolvency Act 1986.
This Act of Parliament requires a minimum debt threshold of £750, and that the winding-up petition be preceded by a statutory demand or a County Court judgment (CCJ).
The petition is presented at court where a judge will hear the case.
If the debtor company cannot pay the debt, the company will be placed into liquidation.
Once the Winding-up Petition is advertised, banks will automatically freeze company bank accounts meaning you will no longer be able to run your business. You must act promptly if your business is going to survive.
Winding up Orders
As soon as the Order has been issued, the Official Receiver will commence the process of winding -up your company.
At the end of the process, the company will cease to exist.
Can a Winding-up Petition be Stopped?
Whether this is possible depends on multiple factors, including how quickly you take action after receiving it. There are certain actions that can be taken within the first 7 days of receiving a winding-up petition that may help:
- Pay off the creditor – You will also have to reimburse the creditor via payment for their costs in serving the winding up petition. If other creditors have attached to the petition, you will have to pay them too as part of the debt recovery process.
- Obtain an Administration Order this would provide a legal ringfence around the company prevent further creditor action.
- Negotiate a Company Voluntary Arrangement (CVA) with the company’s creditors.
- Go into Voluntary Liquidation – There may a chance to enter into liquidation voluntarily, depending on the situation and timing. It’s worth knowing the merits of voluntary liquidation when compared with compulsory liquidation.
- 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 hearing if there is sufficient evidence.
- Dispute the debt. This step should only be taken where you have evidence that the debt claimed by the creditor is not correct and can be disputed.
If you are successful in the dispute, the creditor will be found to have abused the court application process, which is very serious.
After the 7 day period has elapsed and the winding-up petition becomes an Order, it’s increasingly difficult to rescue the company. Without intervention it is likely that the court will appoint an Official Receiver to wind-up the company.
Winding Up Process Explained
After the petition has been issued, the debtor has 7 days to respond, before the Petition can be formally advertised and this will alert the banks to freeze the company’s accounts. (NB, this can be undone using a validation order under Section 127 of the Insolvency Act 1986, assuming there is good evidence)
This brief 7-day window is often the only time that directors have to prevent compulsory liquidation so, if an alternative solution is to be found, the directors will need to respond swiftly.
It is possible to rescue a ‘business’ or a company even at this late stage, but the more time that passes beyond the advertising stage the more difficult it becomes.
Once the order has been issued, the court will appoint an Official Receiver which may be an appointed Insolvency Practitioner.
The Appointed Liquidator then liquidates the company assets and distributes the proceeds to its creditors such as HMRC.
Advertisement in The Gazette
How Long before a winding up petition is advertised?
At least 7 days after the creditor has served the petition on the company (and at least seven days before the court hearing), the creditor may advertise the petition in The Gazette, an official journal of public record.
The petition advertisement alerts the remaining creditors to the petition and they can use the same petition to claim outstanding amounts owed to them.
Technically once the petition has been filed at court, none of the company’s assets should be transferred or sold.
Frozen Company Bank Accounts
Once the petition has been advertised, you should expect your company bank account to be frozen immediately by the bank.
In some cases it is possible to apply to the court for a Validation Order to have them unfrozen, but only where there is clear supporting evidence.
- Winding up Petition is served to debtor, with a court date of between 4 and 8 weeks in the future.
- Debtor has 7 days to respond to winding up petition
- Gazette advertisement happens at least 7 days before court hearing
Consequences of Winding up
The Official Receiver has to investigate the conduct of the directors as part of the insolvency proceedings and compulsory liquidation process.
In serious cases where a company director is found to be liable for misconduct, they can be disqualified from acting as a director of any company for a 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.
For the creditor issuing the petition, they are as follows:
Costs & Fees of Winding up a Company
The costs of issuing a winding up petition are as follows:
- Court Fee – £1180 (broken down into £302 – court fees and £1,600 petition deposit. This rises to £2600 on 1/11/22)
- Serving Proceedings – is the term for having a legal document ‘served’ personally. The current fee for this ranges from £75-£100
- Gazette Advertising Costs – It costs £79.40 plus VAT to advertise the winding up petition in the London, Edinburgh or Belfast Gazette (if required)
Rules in Scotland
Scottish law works slightly differently. You can read our full article on the subject here.