What is a Winding Up Petition, or Order? Can the Procedure be stopped and How Should You Respond to HMRC and Creditors?
A winding up petition is a legal notice issued by a creditor like HMRC with the intention of placing a company into compulsory liquidation. The petition is presented to court, where a judge will hear the case and help to establish the insolvency status of the limited company.
A winding up order is a court order that forcefully guides a limited company into compulsory liquidation, once the case has been heard at court. A winding up order may be issued in situations where a creditor of a company such as HMRC has successfully brought a winding up petition against that company via an application at court after the judge has heard the case. Where a winding up order is issued, the courts will appoint an Official Receiver, which can be a chosen Insolvency Practitioner, to liquidate the company’s assets and distribute the proceeds to its creditors.
Read our step-by-step guide for understanding the procedure, how to respond and to help prevent your company from being liquidated via compulsory liquidation.
Understanding the winding up process that unfolds when your company has been served a petition can help to prepare you and your company. 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.
Before the winding up petition, the creditor will issue a statutory demand for the amounts owed, and this can sometimes be served via a solicitor after seeking legal advice and payment of the debt. The amount of debt must be for more than £750. It is also likely that there will have been a significant period in which the creditor such as HMRC has been chasing the company for the unpaid debts. If you have received a statutory demand from a solicitor, we would highly recommend that you contact us immediately for professional advice.
The Creditor Serves the Petition
The creditor (usually HMRC) decides to make their application to the courts to have the company wound up by using one of the Insolvency Service forms to begin the application. They will fill out a petition and file it with the courts. They must also serve the petition against 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.
Once the petition has been advertised, none of the company’s assets should be transferred or sold.
The Court Hearing
The judge will hear the creditors’ application of the petition to the court 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 a winding up order is issued by the court, they will appoint an Official Receiver to liquidate the company.
All of the company’s assets are valued and sold, with the proceeds used as payment to the creditors in the set order of priority.
Once the Official Receiver has realised and liquidated 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 and struck off the registrar of companies (dissolved).
How Long Does it Take to Wind up a Company?
Typically, if the winding up petition is approved at court and sent out to the insolvent company, the winding up order may take effect in around 28 days. This highlights the need for the directors to act swiftly at this stage if they wish to save the company from compulsory liquidation.
Will my Company’s Bank Account be Frozen?
The company’s bank account will usually be frozen when the petition is advertised in the Gazette. Often this may be because the bank was unaware that the company was insolvent up until this point. As soon as the bank is aware of the winding up petition, the accounts will typically be frozen, irrespective of whether the accounts are holding funds. 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.
Who Can Serve a Winding Up Petition?
Any creditor can serve 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 serve a winding up petition.
You may also want to refer to our tax problems page as HMRC are the largest issuer of winding up petitions within the UK.
Can You Stop or Adjourn a 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 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.
- Administration. If the company is placed into administration, the court is not able to issue a winding up order.
- 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 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 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.
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 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.
The Official Receiver’s Role
Once the Official Receiver is appointed (sometimes a chosen Insolvency Practitioner), 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 (appointed Insolvency Practitioner), 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 period.
The Official Receiver has a duty as part of these insolvency proceedings to investigate the actions of the directors 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 they will be asked to take along a statement of affairs of the company. 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.
Why is This Serious? What Does it Mean for Your Company?
This is the most serious threat to your company during corporate insolvency. If the petition is successful, it will lead to your company being wound up and the proceeds of its assets distributed to creditors. The petition is advertised in The Gazette so that the compulsory liquidation will be a matter of public knowledge.
What are the Potential Consequences for Directors?
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 the directors are 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.
The Difference Between Voluntary and Compulsory Winding Up
There are two types of voluntary “winding up”, depending on whether the company is solvent or insolvent. For both solvent and insolvent companies, the process is initiated by the shareholders with the intention of realising assets and cash, either for creditors or the shareholders.
Compulsory “winding up” is usually initiated by a creditor such as HMRC with the intention of forcefully placing a company into liquidation. Typically, the compulsory “winding up” will be due to the company not addressing its financial obligations more than £750, promptly.
How to Respond
If you are threatened with a winding up petition by HMRC or another creditor and have recently received one, it may be a stressful time, and you may feel confused about what it means for you and your company. When you receive an HMRC winding up petition or order, they are usually serious and committed in their aim to recover any money owed, or to put your limited company out of business, so it is important to know how to respond.
You should seek professional advice immediately if you have been served a petition to wind up. 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).
If your company has been served a winding up petition, you should now understand why it is important that you act immediately as your company has received a serious threat of being closed. There may also be potential repercussions for you as a director. Call us on 08000 746 757 for confidential advice. Alternatively, you can use the Live Chat function on the bottom right-hand side of the screen.