What is a Winding up Petition?
A winding-up petition is the process by which creditors can ‘petition’ a court to close down a company for unpaid debts. It marks a critical point where a creditor seeks to enforce liquidation via legal action.
If you’re facing such a petition, know that options and support are available. Our guide will not only explain what happens when a winding-up petition is issued but also provide practical advice on what you should do next.
- What is a Winding up Petition?
- Can it be Stopped?
- When would a Creditor Issue a Winding up Petition?
- What are the Immediate Consequences of Receiving a Winding Up Petition?
- What’s the Winding-Up Petition Timeline?
- Why Advertise the Winding Up Petition in The Gazette?
- Obtaining a Validation Order After Bank Accounts Have Been Frozen
- What’s the Cost of a Winding Up Petition?
- Can You Stop a Winding-up Petition?
- What if the petition has already been advertised?
- What Happens if the Court Grants a Winding Up Order?
- Directors’ Investigations after a Winding Up Order
- Can a Winding up Order be Reversed once Issued?
- Winding up Petition Advice for Company Directors
- Help with a Winding Up Petition
- Winding up Petition FAQs
What is a Winding up Petition?
A winding-up petition (WUP) 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.
It can only be issued if 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.
Once a winding-up petition is issued, the case will be heard in court, where both parties can present evidence. Based on this, a judge will make a ruling, and if the company can’t pay its debts, it is immediately put into compulsory liquidation.
Can it be Stopped?
Yes, a winding-up petition can be stopped. This typically involves either settling the debt with the creditor who filed the petition or challenging the petition in court if there are grounds to do so. Prompt action is crucial to prevent the petition from leading to compulsory liquidation.
We’ll explore the process of making a challenge in more detail below.
When would a Creditor Issue a Winding up Petition?
The common reasons for receiving a winding up petition are as follows:
- Unpaid Debts: The most common reason is that your company can’t pay its debts, especially if you owe at least £750.
- Fraudulent Trading: If there’s a belief that your company is trading fraudulently, for example, by misrepresenting its finances or engaging in illegal activities.
- Inactivity: If your company hasn’t started business within a year of incorporation or has stopped trading for a whole financial year.
- Just and Equitable Grounds: The court might wind up your company if it sees it as just, perhaps due to director disagreements or lost shareholder trust.
Who can Issue a Winding Up Petition?
A winding-up petition in the UK can be filed by various parties, including the company itself, its directors, creditors, shareholders, the clerk of a magistrates’ court for fine enforcement, official receivers, the Secretary of State, administrative receivers, supervisors of compositions or arrangements, and, in the case of charitable companies, the Attorney General.
What are the Immediate Consequences of Receiving a Winding Up Petition?
Once a creditor issues the petition, it will be advertised in the London Gazette, alerting other creditors and, typically, causing banks to freeze your company’s bank accounts. This freeze can happen shortly after the petition is presented or at any point afterwards.
When your accounts are frozen, you may encounter difficulties paying your employees and suppliers, which could ultimately compel your company to halt its trading activities.
What’s the Winding-Up Petition Timeline?
The entire winding-up petition process, from when it starts with the issue of the order to when the court formally orders the company to close, usually takes about 8-10 weeks. However, this estimate assumes that everything goes smoothly and the process has no disputes or delays.
1. Petition Filing: It usually takes a few days to a week for a creditor to start the process by giving evidence of the debt to the court
2. Company Response: The company has a seven-day window to contest the debt, settle it, or seek legal counsel.
3. Advertisement in The Gazette: A public announcement of the petition is required at least seven working days before the hearing,
4. Court Hearing Scheduling: A date for the court hearing is set, usually 8-10 weeks following the issue of the petition.
5. Court Decision and Receiver Appointment: Typically, within days of the court hearing, a decision is made.
6. Asset Liquidation: The official receiver, or appointed insolvency practitioner, ess of liquidating the company’s assets. The timeline for this varies depending on the size and complexity of the company but typically takes six months to a year for most companies
7. Company Dissolution: The formal dissolution occurs after the assets are sold and proceeds are distributed, which can take several months or longer.
Why Advertise the Winding Up Petition in The Gazette?
Advertising in The Gazette, a journal of public record, serves as a formal public notification, alerting creditors, suppliers, and customers about the company’s financial predicament. It also safeguards the business environment by preventing the company’s directors from entering into new transactions or disposing of assets without other parties’ knowledge.
Obtaining a Validation Order After Bank Accounts Have Been Frozen
When a winding-up petition is advertised, it’s common for banks to freeze the company’s accounts to protect the assets within. This can significantly disrupt business operations. In such situations, obtaining a validation order from the court is a critical step. This order permits the company to use its bank accounts for specific transactions, ensuring that essential business operations can continue.
A validation order may cover various transactions, including payments into and out of a company’s bank account, property transfers, and contracts.
To obtain a validation order, the company must demonstrate to the court that the transactions in question are crucial for the business and won’t disadvantage the creditors. It’s a complex legal process and typically requires the assistance of an insolvency practitioner or legal advisor. Directors should act swiftly to apply for this order to minimize operational disruptions and protect the company’s interests.
What’s the Cost of a Winding Up Petition?
The financial implications of initiating a winding-up petition are considerable and should be carefully considered. The typical costs 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
Therefore, the total cost of a winding up petition can be significant, and it is essential to factor this in before taking any action.
Can You Stop a Winding-up Petition?
Stopping a winding-up petition hinges on swift and strategic action. Directors have five main options within the first critical seven days of receiving the petition:
- Settle or Negotiate Debt: Clearing the debt or reaching a settlement can lead to the petition’s withdrawal.
- Put the Company into Administration: This offers legal protection from creditors, allowing for business restructuring.
- Company Voluntary Arrangement (CVA): A formal debt repayment agreement can nullify the petition.
- Opt for Voluntary Liquidation: Proactive liquidation may be preferable to compulsory liquidation, offering more control to directors.
- Dispute the Debt: Contesting the debt in court is viable if there’s substantial evidence to challenge the creditor’s claim.
Post-advertisement of the petition, rescuing the company becomes more complex. Given the high cost and potential adversarial nature of the winding-up process, exploring alternatives for company closure might be prudent. Professional advice at this juncture is essential.
Dismissing or Defending the Winding Up Petition in Court
If a company believes that the winding-up petition against it is unjust or incorrect, it has the opportunity to defend or seek the dismissal of the petition in court. This might involve challenging the legitimacy of the debt, disputing the amount owed, or presenting evidence of a pending payment plan.
The process requires a solid legal strategy and often the support of a skilled legal team. Successfully defending against or dismissing the petition can halt the winding-up process, providing the company a chance to rectify its financial situation or negotiate with creditors outside of court proceedings.
What if the petition has already been advertised?
Once a winding-up petition has been advertised, stopping it becomes significantly more challenging. Realistically, you must take swift action within days of receiving the petition to avoid liquidation. However, there is still hope if the court hearing has not yet occurred. You should contact an insolvency practitioner immediately to explore options.
Obtaining an Injunction to Restrain Advertisement When Disputing the Debt
If you’re disputing the debt, you’ll need to secure an injunction to prevent the advertisement of a winding-up petition in the London Gazette. This is something you’ll need legal advice for, but the basic process is to submit the following:
- Detailed Witness Statements: These should outline the grounds for your application and the reasons for disputing the debt.
- Evidence of a Substantial Dispute: You must convincingly demonstrate that your company genuinely disputes the debt’s existence or amount. Alternatively, you may show that the debt can be set off against money already owed to your company by the creditor.
If successful, the court usually grants a temporary injunction until a full court hearing can be arranged. During this hearing, the legitimacy of the dispute will be thoroughly discussed.
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 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.
Directors’ Investigations after a Winding Up Order
When a Winding Up Order is issued, one of the critical steps in the liquidation process is the investigation into the conduct of the company’s directors. This is a crucial aspect, especially in the context of insolvency.
The appointed liquidator is responsible for reviewing the directors’ actions before the company’s insolvency. This investigation is intended to determine whether there has been any wrongdoing or mismanagement by the directors. The focus is typically on the period leading up to the insolvency, although the scope can sometimes extend further.
The areas of investigation include:
- Wrongful Trading occurs if the directors continued to trade when they knew, or should have known, that there was no reasonable prospect of avoiding insolvent liquidation.
- Fraudulent Trading: This is a more serious offense, involving intentional deception to defraud creditors or for any other fraudulent purpose.
- Misfeasance: This refers to any breach of fiduciary duty or misuse of company assets.
- Preferential Transactions: These are actions taken by directors to favour certain creditors over others just before insolvency.
If the investigation uncovers misconduct, the consequences for directors can be severe. They may face personal liability for company debts, disqualification from serving as a director for up to 15 years, and criminal charges in cases of fraudulent trading.
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).
Winding up Petition Advice for Company Directors
Below, we have listed do’s and don’ts for company directors that have received a winding up petition.
- 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’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 minimize 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:
- Phone: 0800 074 6757
- Email: email@example.com
- Live Chat: Available on our website
Don’t delay; let us help you protect your company’s future.
Winding up Petition FAQs
What Happens at a Winding-up Petition Hearing?
At the hearing, the creditor presents its case for why the winding-up petition should be granted, and the company can respond and present its case. The court will consider the evidence and arguments presented by both parties and decide whether to give the petition and issue a winding-up order.
Can a Winding-Up Petition be Contested?
Yes, a company can contest the petition by demonstrating its ability to pay off debts or by negotiating terms with the petitioner. Legal advice is strongly recommended in such instances.
What Happens if the Court Approves the Petition?
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.
Are Directors Personally Liable for Company Debts?
Generally, directors are not personally liable unless they have provided personal guarantees or have been involved in wrongful or fraudulent trading.
How Can One Avoid a Winding-Up Petition?
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).