In this article we explain the meaning of ‘winding up’ as it pertains to businesses.

We’ll cover the process and procedure by which a winding up petition unfolds, and what the options are for company directors.

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What is Winding Up?

Winding up means to close a business via legal due process, resulting in its dissolution. This means it will be struck of the official register at companies house and cease to exist.

As part of this process all creditors will need to be paid, stock sold off, and liquidated assets distributed to company shareholders.

In the UK the term is often synonymous with liquidation, and rarely used to refer to solvent companies.

What are the Types of Winding up?

It can refer to:

Voluntary Winding Up

The process of closing a company via striking it off the register at companies house.

Compulsory Winding Up

The process of being forcibly wound up by an angry creditor via a ‘Winding up Petition’. This legal threat forces the payment of a debt within 7 days prior to a court hearing at which the judge can rule to compulsorily liquidate the company.

What is the Difference Between Liquidation and Winding up of a Company?

For all intents and purposes they are the same thing. Winding up is the industry jargon used to mean drawing the affairs of a company to a close by the correct legal mechanisms.

Winding up Process

For the purposes of this example, we’ll assume we’re referring to insolvency.

The procedure for compulsory winding up is as follows:

(1) A Creditor Issues the Winding up Petition

Generally, the Winding up Petition comes as a result of a creditor having chased a debt repeatedly, and issued either a Statutory Demand or a CCJ. If those have not been successful, the creditor seeks help from a solicitor to escalate the claim into a Winding up Petition

(2) The Company has Just 7 Days to Object or Appeal

The seriousness of receiving a Winding up Petition cannot be overemphasised. Once the 7 days are up, the judge will hear the evidence and rule upon the Winding up Order which means the end of the company and its striking off the register at Companies House. It is therefore vitally important that directors take immediate action, by contacting professionals such as ourselves, to figure out a coherent strategy. It may be possible to appeal, stop or adjourn the petition but time is of the essence.

(3) The Petition Advertisement is Published

As part of the Winding up Process, the petition is published in the Gazette, which is the official journal of public record. Not only will this affect your company reputation, since this information is widely available, but this advertisement triggers the bank to freeze company accounts. 

(4) Company Bank Accounts are Frozen

Even if the petition has been in error, and you are mounting a credible defence, this is going to prevent the continuation of your business. The banks do this to protect themselves, and it is possibly to apply for a Validation Order to get this unblocked, but is nevertheless a very tricky situation for any business.

(5) The Winding up Petition Hearing

On the day of the winding up petition hearing, the petitioner and the debtor will either attend themselves, or send representation in their stead. The court will assess the circumstances of the case and, if the evidence is found to be credible, rule up the Winding up Order, which means immediate compulsory liquidation.

At that point an Official Receiver will take control of the company, while the director’s powers will cease.

Is Winding up the same as Bankruptcy?

Winding up is relevant to limited companies or partnerships, whereas bankruptcy refers to individuals.

While it remains commonly used language to say a company is bankrupt, the correct term is insolvency and the process of liquidation is known as winding up.

How do I Wind my Limited Company?

If your company is insolvent, you need to gather directors and shareholders together to vote on a ‘winding up resolution’, which is the formal decision to liquidate.

Once this has been agreed (by 75% members) you will need to appoint a licensed insolvency practitioner to conduct the process.

Can I Wind up a Company Which Owes me Money?

If you a creditor, owed a debt of at least £750 (which you can prove), it is your right to petition the court via a mechanism known as a ‘Winding up Petition.’

This final stage threat gives the company just 7 days to make good on its debt. If it doesn’t the case comes before a High Court Judge who rules upon the validity of the claim and, where upheld, issues a Winding up Order which puts the company into immediate compulsory liquidation.

Need Help or Advice?

If your company is being petitioned, you will need to speak to us with the swiftest urgency, as the closer it comes to the 7 day time limit, the less chance there is to find an alternative to compulsory liquidation. If you want free, confidential advice contact us via the live chat, phone or emai