A winding up petition is the most serious threat any limited company can face.
While temporarily restricted by the Corporate Insolvency and Governance Act 2020 (“CIGA”) as a result of COVID-19, they are now in use, with some restrictions.
Here we explain what it means, how it works, and whether it can be stopped.
Winding up Petition Definition
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.
They must be preceded by a statutory demand or a county court judgement (CCJ).
The petition is presented at court where a judge will hear the case.
A Winding Up Petition means literally that the court is being ‘petitioned’ to ‘wind up’ a company which owes money.
At the winding up hearing, a presiding judge will hear evidence before ruling.
If the debtor company cannot pay the debt, the company will be placed into liquidation.
Minimum Debt Threshold
Winding up Petitions can not usually be issued for debts of less than £750. COVID-19 restrictions have temporarily changed this to a £10,000 limit to protect smaller businesses.
NB: 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 seven 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. Read a full article here on stopping a winding up petition.
After the seven 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.
The 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 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 seven 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.
High Court Hearings
If the company involved has a ‘paid up share’ capital of more than £120,000, and or has debts in excess of £50,000 the petition will be heard in the High Court.
If the amount is less than this, it will be heard in the most appropriate court, nearest to the company’s registered office.
Winding up hearings happen at the High Court. You can either appear in person or instructor a solicitor or barrister to attend for you.
It’s best to arrive at least half an hour early to familiarise yourself with the court: they are busy places and there will be multiple hearings on any given day.
During your session, the judge will hear evidence and either rule for dismissal, adjourn the hearing, make an interim order or issue a Winding up Order.
If the Winding up Order is granted, the judge will appoint the Official Receiver to begin the company liquidation process.
Read our full article on this here.
- 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
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
- Court Fee – £1180 (broken down into £280 – court fees and £1,600 petition deposit)
- 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.
How to Issue a Winding up Petition?
If you’re come to this page because you’re interested in issuing a winding up petition against a company that owes you money, you need to first fill in the forms here.
Between 1 October 2021 until 31 March 2022 you will need to satsify 4 conditions to submit a winding up petition.
|Condition A||The debt owed; (i) is for a liquidated amount; (ii) has fallen due for payment; and (iii) is not rent or any other payments (e.g. service charges) that are due under a relevant business tenancy;|
|Condition B||The petitioning creditor has delivered a written notice to the company containing, among other things, a statement: (i) that the creditor is seeking the company’s proposal for the payment of the debt; and (ii) that if no satisfactory proposal is made within 21 days of the date of delivery of the notice then the creditor intends to petition for the company’s winding-up (a Condition B Notice);|
|Condition C||21 days have passed since Condition B Notice was delivered and the company has not made a satisfactory proposal for the payment of the debt; and|
|Condition D||The debt owed to the petitioning creditor (or a group of petitioning creditors provided they have all met Conditions A to C) is at least £10,000.|
Depending on the court you may be able to submit the petition online, although you will still have to pay the petition deposit in via the instructions given. After you’ve paid your deposit you must ‘serve’ the petition – this is something your solicitor and the court will be able to help with.
From the moment the petition is served the company in question will have 7 working days to pay what is due. After the 7 days has come to an end, the WUP will be advertised in the Gazette, the official journal of public record. This will happen no less than 7 business days before the hearing, at which a judge will listen to the case and make a ruling.
Do They Require a Statutory Demand?
It is not mandatory to serve a statutory demand before filing for a winding up petition.
It is a commonly used method however because the court requires evidence that a formal demand for payment has been ignored or unmet. The exact wording how a company which cannot pay its debts is defined is found in the Insolvency Act 1986 Section 123.
In practice, even a simple demand letter sent by registered post could prove sufficient evidence.
COVID-19 restrictions in the Corporate Insolvency and Governance Act 2020 on presenting winding-up petitions
For winding up petitions issued between 1/10/21 and 31/03/22, the previous restrictions have been partially lifted.
Winding up petitions cannot yet be issued for debts of below 10,000, or where the debt is in respect to unpaid commercial tenancies that are unpaid due to coronavirus.