An HMRC winding-up petition is a legal tool used by Her Majesty’s Revenue and Customs (HMRC) to collect outstanding taxes from companies that have failed to pay their tax liabilities. When HMRC believes that a company cannot pay its debts and continues to operate while insolvent, it may file a winding-up petition as a measure to force the company into compulsory liquidation.

This action is not taken lightly, as it typically follows multiple attempts by HMRC to recover the owed taxes through reminders and demands. A winding-up petition is considered a last resort when all other efforts have failed and substantial tax debts remain unpaid.

For company directors, this is a critical situation. You risk losing the company and facing scrutiny over your conduct in the run-up to its financial failure.


HMRC Winding-Up Petitions Mean Compulsory Winding-Up by the Court

Yes, HMRC can force your company into liquidation.

When HMRC issues a winding-up petition, it’s petitioning the court to close down your business, sell off its assets, and use the proceeds to pay off any debts.

While normal creditors will always have a clear financial incentive for choosing this route, HMRC will sometimes wind a company up simply due to non-compliance or to make an example.

Upon receiving the petition, the urgency to act cannot be overstated. Promptly engaging with HMRC or seeking legal advice can open up negotiation avenues or payment plans, potentially avoiding compulsory winding-up.

The process begins with the issuance of a statutory demand, a formal request for payment that gives the company a specified period (usually 21 days) to pay the debt or reach a satisfactory arrangement. If the statutory demand is not met, HMRC can then apply to the court for a winding-up order.

Key triggers for HMRC to issue a winding-up petition include:

  1. Persistent Non-Payment: The company has continuously ignored payment reminders and has made no substantial effort to settle outstanding taxes.
  2. Failure to Engage: The company has not responded to attempts by HMRC to contact and negotiate payment arrangements, demonstrating a lack of cooperation or intent to resolve the debt.
  3. Substantial Debt: The outstanding tax liabilities reach a level that HMRC deems too significant to ignore, threatening the tax authority’s ability to collect public revenues effectively.
  4. Evidence of Insolvency: HMRC may proceed with a winding-up petition if there is clear evidence that the company is insolvent—unable to pay its debts as they fall due—and is still conducting business, potentially accruing further liabilities.

The minimum debt required to issue a winding-up petition is £750. This amount reflects the legal standard for debt that can trigger insolvency proceedings under UK law. If a company owes HMRC £750 or more in unpaid taxes, HMRC is legally empowered to file a winding-up petition against the company.

A winding-up petition hearing is where the court decides whether to proceed with closing a company due to its inability to pay outstanding debts. Here is what typically happens:

  1. Both HMRC and the company’s legal representatives present their cases. HMRC outlines the basis of the debt and reasons for the petition, while the company can argue its position, dispute the debt, or present reasons against the winding-up order.
  2. The court examines all submitted documents and evidence, including financial statements and communication records, to assess the legitimacy of the debt and the company’s ability to pay.
  3. Each side may present legal arguments.
  4. After hearing from both sides, the court may deliberate on the information presented. This could happen on the same day or the court might schedule a follow-up session if more time is needed to consider the arguments.
  5. The judge will make a decision based on the evidence and arguments. If the court finds in favour of HMRC, a winding-up order is issued, and the company will enter into compulsory liquidation. If the court sides with the company, the petition may be dismissed, or a resolution may be proposed, such as giving the company more time to pay.
  6. The decision, along with any specific instructions or conditions, is formally communicated to both parties.
Issuance of Statutory DemandDay 0
Deadline to Settle DebtWithin 21 days of issuance
Filing of Winding-Up PetitionPost 21 days if debt unsettled
Serving of Winding-Up PetitionWithin 7 days of filing
Advertisement of PetitionAt least 7 days before hearing
Court Hearing8-10 weeks from petition filing
Court DecisionOn hearing day
Appointment of LiquidatorImmediately if order granted
Liquidation ProcessVaries; months to years
Formal Dissolution of CompanyAfter liquidation completes

The winding-up petition hearing is a critical legal proceeding, and attendance typically includes several key parties:

  1. HMRC Representatives: HMRC will have legal representation to present the case for winding up the company.
  2. Company Representatives: The company can send legal counsel to defend against the winding-up petition. Company directors may also attend, especially if they are directly involved in the financial management and disputes regarding the debt.
  3. Court Officials: The judge presides over the hearing, and there may be other court staff present to manage the proceedings and documentation.
  4. Creditors: Other creditors may attend if they have an interest in the outcome of the hearing.
  5. Interested Parties: Occasionally, other parties who have a significant interest in the company, such as major shareholders, may attend.
  6. Public Attendance: Depending on the jurisdiction and the court’s rules, members of the public and the media may be allowed to attend the hearing, though this is less common in cases involving sensitive financial details.

Challenging a winding-up petition requires a strategic approach, and a company has several options depending on the specifics of its case.

If the company believes the debt claimed by HMRC is incorrect, it can present evidence such as proof of payments made, errors in HMRC’s calculations, or other financial documents that dispute the accuracy of the amount owed. This form of defence is often the first line of argument in disputing the petition’s validity.

Another common strategy is to negotiate a settlement with HMRC. Prior to the hearing, the company may engage with HMRC to arrange a payment plan or negotiate a lump-sum settlement that satisfies the debt. If an agreement can be reached, HMRC may decide to withdraw the petition, thus halting the winding-up process.

Companies may also request an adjournment of the hearing, which can provide additional time to prepare a more comprehensive defence.

Proving the company’s solvency is another effective defence. By demonstrating that it is solvent and capable of meeting its debts as they fall due, the company can argue against the premise of the winding-up petition.

Lastly, companies can challenge the petition on technical grounds, such as improper service of the petition or failure of HMRC to follow due process. These legal irregularities, if proven, can invalidate the petition and provide grounds for its dismissal.

Engaging competent legal advice is crucial when challenging a winding-up petition, as understanding the nuances of insolvency law and the specific legal options available is key to mounting an effective defence.

If a winding-up petition is granted by the court, the consequences for the company are significant and typically irreversible. The process begins with the court appointing an official receiver or an insolvency practitioner who takes charge of the company’s affairs. This appointment marks the commencement of the compulsory liquidation process where all company assets are liquidated to repay creditors.

Once a winding-up order is granted, the company must immediately cease all business operations. This cessation halts all trading activities, resulting in the termination of employment contracts, cancellation of ongoing projects, and the end of business operations. The company’s assets are then sold off, and the proceeds are distributed to creditors in a strict legal order of priority, which usually sees secured creditors paid first.

During this liquidation process, there is also an investigation into the company’s financial dealings and the directors’ conduct leading up to the insolvency. This investigation can uncover instances of wrongful or fraudulent trading, which may lead to personal liabilities for the directors involved. Furthermore, the company’s credit rating will be severely affected, making it nearly impossible to secure future business financing.

The finality of the process is the formal dissolution of the company, erasing its existence as a legal entity. Directors may also face disqualification from managing or directing a company for a certain period if they are found to have contributed to the company’s financial downfall through improper conduct.

When a winding-up petition leads to the compulsory liquidation of a company, the implications for directors can be profound and long-lasting. If the investigation during the liquidation process finds any instances of wrongful or fraudulent behavior, directors may be held personally liable for the company’s debts. This personal liability can lead to significant financial consequences for the directors involved.

Additionally, directors may face disqualification from holding any directorship positions in any company for a period ranging from 2 to 15 years. This disqualification is not only a professional setback but also damages the director’s reputation in the business community, potentially hindering future business endeavors or employment opportunities.

The director’s personal credit score may also be impacted if they provided personal guarantees for business loans or credit facilities. A poor credit score can affect the ability to obtain personal loans, mortgages, or other financial products, further complicating personal financial situations.

Moreover, the director might be subject to legal actions from creditors or shareholders if it is determined that the director’s actions contributed to the company’s financial distress. These legal actions can result in substantial legal costs and, if the creditors or shareholders prevail, significant compensation payments.

Do You Need Professional Advice?

Don’t wait until it’s too late. If your company is under the threat of an HMRC winding-up petition, immediate action is crucial. As outlined, understanding the petition, seeking legal advice, communicating with HMRC, and considering your financial options are essential steps to potentially averting liquidation.

Reach out to our experts today by phoning 0800 074 6757, using our live chat feature, or emailing us at Together, we can explore the best path forward for you and your company, navigating through the complexities of HMRC winding-up petitions with informed strategies and professional support. Let’s work together to secure the future of your business.