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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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16th August 2024

Understanding the legal process and implications of a winding up petition, a court order that can force an insolvent company into compulsory liquidation.

Contents
  1. What is a Winding up Petition?
  2. What’s the Winding up Process?
  3. Can a Winding up Petition be Stopped?
    1. Obtaining a Validation Order After Bank Accounts Have Been Frozen
    2. What’s the Cost of a Winding Up Petition?
    3. What Happens if the Court Grants a Winding Up Order?
    4. Can a Winding up Order be Reversed once Issued?
    5. Summary
  4. Help with a Winding Up Petition
  5. FAQs

What is a Winding up Petition?

A winding-up petition is a formal legal document filed by a creditor seeking to initiate compulsory liquidation of a company. This action is typically pursued when a company is insolvent and unable to fulfil its financial obligations.

For a creditor to issue a winding up petition, certain criteria must be met:

  • The debt owed must be at least £750
  • The debt should be undisputed
  • The debtor must have received and ignored a statutory demand served at least 21 days ago, or the creditor must have a court judgment (CCJ) against the debtor

Once a WUP is issued, the case is heard in court, where both parties present evidence. Generally, WUPs are heard in either the High Court of Justice in London (for companies registered in England and Wales and where shareholding is in excess of £120,000) or in local courts for smaller amounts.

Based on this, a judge will make a ruling, and if the debtor company can’t pay, the WUP becomes a Winding up Order, meaning it’s immediately placed into compulsory liquidation [1]Trusted Source – GOV.UK – Getting a winding-up order.

The courts view this as a collective procedure for the benefit of all creditors, not just the petitioning party.

If your company receives a winding-up petition, it’s advisable to seek immediate professional advice. Depending on your business’s specific circumstances and the nature of the debt in question, various options may be available.

Stopping a WUP

What’s the Winding up Process?

The winding up petition process follows a strict legal framework beginning with the issuance of the petition at court.

  • Petition Issuance: The petition is issued at court.
  • Service of Petition: The petitioner formally serves the petition to the debtor company, typically at its registered office. Proper service is critical – errors can significantly impact proceedings.
  • Advertisement in The Gazette: Must occur no less than 7 business days after service and no less than 7 business days before the hearing. This notifies the public, financial institutions, and other creditors and results in banks freezing your accounts.
  • Court Hearing Scheduled: Both parties are notified of the hearing date. The hearing is normally 8-10 weeks after the petition issuance.
  • The Hearing: Provides an opportunity for the debtor company to either settle the debt or present a legitimate dispute regarding the petition.
  • Court Decision: If the court finds the debt valid and the company insolvent, it will issue a winding up order, initiating compulsory liquidation.

Can a Winding up Petition be Stopped?

Yes, a winding-up petition can be stopped either by settling the debt or challenging the petition in court if there are grounds to do so. Prompt action is essential.

Here are the common methods:

The most straightforward approach to halting a winding-up petition is to settle the debt in full. However, if this isn’t feasible, companies can explore negotiation options with the creditor.

This might involve proposing a structured repayment plan or offering a reduced lump sum settlement. Successful negotiations can lead to the creditor withdrawing the petition but it’s crucial to note that any agreement should be formally documented and include explicit terms for the petition’s withdrawal.

Entering administration provides a legal moratorium that prevents creditors from taking further action against the company, including winding-up proceedings. A licensed insolvency practitioner is appointed as the administrator to manage the company’s affairs and attempt to rescue the business or achieve a better outcome for creditors than a liquidation.

A Company Voluntary Arrangement (CVA) is a formal agreement between the company and its creditors to repay all or part of the debts over a fixed period. If approved by 75% of creditors by value, a CVA binds all unsecured creditors, including those who voted against it. A successful CVA proposal will result in the dismissal of any outstanding winding-up petitions.

However, it’s important to note that arranging a CVA can be challenging within the tight timeframe of a winding-up petition. The process of drafting a proposal, gaining creditor approval, and implementing the CVA typically takes several weeks, which may exceed the time available before the petition hearing. Additionally, securing creditor support can be difficult if relationships have deteriorated.

If the company is insolvent and rescue is not viable, directors can initiate a CVL by calling a meeting of shareholders and creditors. This allows for an orderly liquidation process where an insolvency practitioner liquidates the company’s assets and distributes the proceeds to creditors. Choosing a CVL over a compulsory liquidation provides more control and may result in a better outcome for all parties.

If a company has a strong legal defence against the debt claimed by the petitioning creditor, it can challenge the winding up petition in court.

The landmark case of Stonegate Securities Ltd v Gregory [1980] Ch 576[2]Trusted Source – Wikipedia – Stonegate Securities Ltd v Gregory [1980] Ch 576 established that a petition will be dismissed if the company disputes the debt in good faith and on substantial grounds.

This principle recognises that winding up proceedings are not the appropriate forum for resolving genuinely disputed debts, providing companies with a vital defence strategy against unwarranted petitions.

The moratorium introduced by the Corporate Insolvency and Governance Act 2020 allows an insolvent but viable company to protect itself from creditor actions, including winding-up petitions. By appointing a licensed insolvency practitioner as a monitor, the company can benefit from a 20 business day initial moratorium period, extendable up to 40 days.

During this time, most legal actions are halted, providing breathing space to explore rescue options like refinancing, administration, or a Company Voluntary Arrangement (CVA) without creditor pressure.

Obtaining a Validation Order After Bank Accounts Have Been Frozen

When a winding-up petition against your company is advertised, your bank accounts will be frozen. Banks typically take this action to protect themselves and the company’s assets once they become aware of the petition’s advertisement. This freeze can severely disrupt your business operations and threaten your company’s survival.

If you believe the petition is unfounded and your company has a viable future, you may need to seek a validation order from the court. This order allows specific transactions to proceed, enabling essential business activities to continue during this critical period.

To secure a validation order, you must demonstrate to the court that:

  • The proposed transactions are vital for your business’s survival
  • These transactions won’t disadvantage your creditors
  • There’s a realistic chance of your company avoiding liquidation

The court will only grant a validation order if it believes there’s a genuine dispute over the petition’s validity and that you have a reasonable prospect of successfully defending it.

Given the immediate impact of account freezes and the complexity of obtaining a validation order, we strongly advise seeking expert guidance from an insolvency practitioner or legal counsel without delay.

What’s the Cost of a Winding Up Petition?

The costs of a winding up petition can be significant, and it is essential to factor this in before taking any action. As of 2024, they include:

  • A court fee of £1,880
  • A petition deposit of £1,600
  • Process server fee of £75-£100
  • Company House search fee of £2
  • Advertisement fee of £79.40 plus VAT
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What Happens if the Court Grants a Winding Up Order?

A Winding Up Order is a court order that follows a Winding Up Petition and signifies the commencement of a company’s liquidation process. The order marks the transition from the petition phase to actual liquidation, where an Official Receiver or appointed liquidator takes control of the company, ceases its operations, liquidates its assets, and pays off creditors.

This process concludes with the formal dissolution of the company at Companies House.

Can a Winding up Order be Reversed once Issued?

Once issued, a Winding Up Order is generally considered final and cannot be easily reversed. However, in exceptional circumstances, it may be possible to have the order rescinded or stayed, although this is rare and typically requires prompt and compelling action.

To attempt to reverse a Winding Up Order, the company or its directors must apply to the court. The grounds for such an application usually involve demonstrating that the order was made based on incorrect information or that the company has since secured the funds to pay its debts. Alternatively, the court may consider rescinding the order if the company can reach an agreement with its creditors, such as through a Company Voluntary Arrangement (CVA).

Summary

Below, we have listed do’s and don’ts for company directors that have received a winding up petition. 

Dos:

  • Do seek insolvency advice as soon as possible. It is essential to understand the implications of the winding up petition and have a plan for how to respond.
  • Do consider whether the company has a viable future. If the company is able to trade out of its difficulties, it may be worth considering alternative options to winding up, such as a company voluntary arrangement or administration.
  • If you plan to allow the winding-up petition to go ahead uninhibited, do cooperate with the insolvency practitioner appointed to manage the winding-up process. It is important to provide them with all relevant information and to follow their instructions.

Don’ts:

  • Don’t try to dispose of company assets or transfer them to another entity in an attempt to avoid the winding-up process. This is illegal and could result in personal liability for the directors.
  • Don’t continue to trade if the company is unable to pay its debts as they fall due. This could result in further debts being incurred and could increase the potential for personal liability for the directors.
  • Don’t ignore the winding up petition or the insolvency process. It is important to take action and engage with the process in order to minimise the potential impact on the company and its stakeholders.

Help with a Winding Up Petition

Facing a winding-up petition can be daunting, but you don’t have to navigate it alone. Our experienced insolvency practitioners at Company Debt are here to assist you every step of the way.

Whether you need advice, support, or guidance on restraining the advertisement of a winding-up petition or managing the entire process, we are ready to help.

Contact us today:

Don’t delay; let us help you protect your company’s future.

FAQs

At a winding-up petition hearing, the court examines evidence from both the creditor and the company. The company can dispute the debt or prove its ability to pay, while other creditors may attend to support or oppose the petition. The court then decides whether to grant the winding-up order, dismiss the petition, or adjourn for further evidence.

If an order is made, the Official Receiver takes control to begin liquidation. These hearings are typically brief but can have significant consequences, making proper preparation and representation crucial.

If the court finds the petition legitimate, a winding-up order is issued, and an Official Receiver is appointed to oversee the liquidation process. Assets are sold, and proceeds are used to repay creditors.

Generally, directors are not personally liable unless they have provided personal guarantees or have been involved in wrongful or fraudulent trading.

Preventative measures include maintaining transparent financial records and open communication with creditors. If financial difficulty arises, consult professional advisers promptly to explore alternative solutions like a Company Voluntary Arrangement (CVA).

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – Getting a winding-up order
  2. Trusted Source – Wikipedia – Stonegate Securities Ltd v Gregory [1980] Ch 576