A winding up petition is the legal mechanism by which a business creditor, who must be owed over £750 starts the court process to wind up a company for non-payment of debts. A winding up petition should not be issued unless the debtor has received and ignored a statutory demand served at least 21 days ago or the creditor has a court judgment against the debtor.

A winding up petition can result in compulsory liquidation. The most common situation where a Winding Up Petition is served is where debts are owed to HMRC.

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.

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.

HMRC Winding Up Petition

The most common situation where a Winding Up Petition is served is where debts are owed to HMRC. There are 2 reasons why HMRC can be quite aggressive in moving to wind up a business. The first is that HMRC have preferential creditor status which means that even a company with relatively small assets might be wound up by HMRC because HMRC will have a decent chance of recovering some money. The second reason why HMRC will often follow through on threats to issue a winding up petition is due to public policy, to demonstrate that failure to pay corporate taxes may well result in your business being wound up.

If you are behind with your taxes and being pressured by HMRC it is often best to get advice early, assess your options, communicate with HMRC and avoid being wound up by them. We can help, so please do get in contact.

What happens after a Winding Up petition is issued?

After the petition has been issued, the debtor has 7 days to respond, before the Petition can be formally advertised in The Gazette, an official journal of public record. This will be likely to create even more problems for your company as other creditors, customers or suppliers may well be alerted to the petition and refuse to continue trading with you and/or in the case of creditors, join in the petition, compounding your problem.

Technically once the petition has been filed at court, none of the company’s assets should be transferred or sold.

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.

Winding Up Order

winding-up order is the court order that follows a successful winding up petition and it is this procedure that places a limited company into compulsory liquidation.

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 including:

  • Pay off or negotiate with the creditor .
  • 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.
  • 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.

After the 7 day period has elapsed and the winding-up petition has been advertised, it’s increasingly difficult to rescue the company.

Once a Winding Up Order has been made, the court will appoint the Official Receiver to deal with the liquidation.

Consequences of Winding up

Generally speaking, because the Winding Up process costs the creditor who issues the petition quite a lot of money, he/she/they may adopt a more hostile approach and may seek to appoint their chosen liquidator (who may then look very carefully at your conduct as director), so if there is an alternative way to close your company, this may be a better option.

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.

Need Help with Winding Up?

If you have received an HMRC winding up petition, this should not be ignored as HMRC are usually serious and committed in their aim to recover any money that is owed, or to put your limited company out of business, so it is important to know how to respond.

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.
Call us on a 0800 074 6757 for free confidential advice and a meeting.