If your company is owed money and you’ve exhausted all other options to recover the debt, you might consider a serious legal step called a winding up petition. This action can force a company into compulsory liquidation if it’s unable to pay its debts, leading to the sale of its assets to repay creditors. It’s crucial to understand that this route is very significant and should be seen as a last resort due to its impactful consequences.

When you file a winding up petition with the court, it triggers a court hearing. This will be in a local county court or the High Court for petitions against companies with a share capital over £120,000.

If the court decides in favour of liquidation, an order is issued to wind up the company. The process involves selling off the company’s assets, and the proceeds are used to pay back what’s owed to its creditors.

It’s worth noting that while HM Revenue and Customs (HMRC) often use winding up petitions, any creditor owed more than £750 can initiate this process.

This guide aims to provide company directors and creditors with a clear understanding of the winding up petition process, highlighting its legal requirements, the steps involved, and the implications for both the debtor company and its creditors.

Winding up Petition Process

The process of winding up a company through a winding up petition starts with the creditor’s decision to pursue this course of action, all the way to the distribution of the company’s assets to its creditors. Understanding each step is essential for any creditor considering this option.

(1) Decision to File a Winding Up Petition – This initial step is taken after all other attempts to recover the owed money have been exhausted. Creditors need to ensure the debt exceeds £750 and consider the costs associated with filing the petition, which are nearly £2,000.

(2) Preparing and Filing the Petition – The creditor must prepare a winding up petition, using Form 4.2, and an affidavit verifying the debt. These documents are then filed with the court. The destination for filing depends on the company’s share capital; petitions against companies with a share capital over £120,000 are filed with the High Court, while those against companies with less are filed with a local court.

(3) Court Fees and Deposit – Filing the petition requires payment of a court fee and a deposit to cover the costs of the winding up process. These fees may be recovered if the company has sufficient assets to repay its creditors.

(4) Serving the Petition – After filing, the petition must be served to the company. This involves delivering a copy of the court-sealed petition to the company’s registered office or, if necessary, to its main place of business or a company director.

(5) Advertisement in the London Gazette – To ensure public notice, the petition must be advertised in the London Gazette no less than seven days after it has been served on the company but at least seven days before the hearing. This step is crucial for transparency and allows other creditors to come forward.

(6) Court Hearing and Outcome – The court will set a date for the hearing of the petition. During this hearing, creditors, the company, and any other interested parties can present their case. The court then decides whether to issue a winding up order, adjourn the hearing, or dismiss the petition.

(7) Liquidation and Distribution of Assets – If a winding up order is made, an Official Receiver or insolvency practitioner is appointed as the liquidator to oversee the sale of the company’s assets and remove the company from the registrar at Companies House at the end of the process. The proceeds from the sale are used to repay creditors in order of priority.

This process is complex and requires careful consideration of legal requirements and potential consequences. Creditors are advised to seek professional advice to navigate this process effectively and ensure compliance with all legal obligations.

Compulsory Liquidation and Winding up Petition Advice for Directors

If you’re a director dealing with the pressure of a winding up petition, remember you’re not alone. Navigating these complex legal waters requires expert advice and strategic action. At Company Debt, our specialist team of insolvency practitioners is ready to provide you with the guidance and support you need during this challenging time. Whether you’re looking for ways to address the petition, explore alternative solutions, or understand the implications for your business, we’re here to help.

Don’t wait until it’s too late. Reach out to our experts today by phoning 0800 074 6757, using our live chat feature, or emailing us at info@companydebt.com. Let’s work together to find the best path forward for you and your company.