Winding up Petition

A winding up petition is an application made to the Court by an irate creditor (often HMRC) who petitions the Court when they are owed more than £750 and this hasn’t been paid for a period of more than 21 days.

For a limited company, it’s the most serious threat there is and you should seek professional advice immediately if you’ve received one.

What is a Winding up Petition?

A winding up petition is the most serious financial threat a limited company can face as it represents a creditors application to the Court for compulsory winding-up due to non-payment of debts. If the Court considers the petition valid, it will issue a winding up order, an Official Receiver (OR) will be appointed to liquidate all of the company’s assets and the proceeds will be used to pay back creditors.

HMRC is an aggressive creditor and around 60% of all winding up petitions are issued by the tax authority. Therefore, company directors who have tax arrears piling up should contact HMRC immediately to negotiate at Time to Pay or TTP arrangement before the tax authority takes legal action to wind up the business. 

Who can Issue a Winding up Petition?

A winding up petition can be presented by any creditor, the directors, a contributory, the clerk of a magistrrates’ court, the official receiver, the Secretary of State, an administrative receiver or administrator, the supervisor of a composition or arrangement and the Attorney General (in the case of a charitable company) 

Petitions are issued for non-payment of a debt of at least £750. The petitioner must be able to prove the existence of the debt to the court: this is usually done via a Statutory Demand letter for which the debt remains unpaid.

Can You Stop A Winding up Petition?

A winding up petition is the first step in the legal process that forces an insolvent company into compulsory liquidation. On receipt of a winding up petition, directors should act immediately before this legal process goes any further for the best chance of saving their business.

In short, companies have seven days to challenge the petition, arrange a company Voluntary Arrangement (CVA), obtain an administration order to put the company into administration or to settle the debt with the petitioner with emergency funding.

The CVA is typically the best course of action for a company as this enables directors to come to a formal agreement with the petitioner as well as with other disgruntled creditors while allowing the company to continue to trade. Having a CVA proposal drawn up and presented by a professional insolvency practitioner considerably boosts the chances of an agreement being reached.

If a CVA cannot be agreed, an administration order could be the next best step. This process involves the company being placed into administration and an insolvency practitioner being appointed to sell some of the company’s assets. It can be a highly useful tool for insolvent companies.

What is the Winding Up Petition Process?

The winding up process begins with the serving of the petition and ends with the Court’s ruling. It is as follows:

• The Winding up Petition is sent to the Court
• The Court sets a hearing date
• Petition is served to the debtor company
• Petitioner files an affadavit verifying that the WUP has been served
• WUP is advertised in the London Gazette, seven days before the hearing. The notice number is 2450.
• Debtor company has until five days before the hearing to file intention to contest, if it plans to
• Creditors, directors and shareholders all have a right to be heard at the hearing
• On the day of the hearing the judge will rule to either dismiss, adjourn, make a winding up order, an interim order or any other order they see fit.

Costs and Fees

The typical fees for issuing a winding are petition are:

• £302 – court fees
• £1,600 – petition deposit (to manage the ‘winding-up’)

Timeline

The timeline of a Winding up Petition is as follows:

• Petition is served 4-8 weeksb eofre court day
• Recipient (the debtor) must reply within 7 days
• WUP is advertised in the London Gazette a minimum of 7 days before the court date

What Happens at the Winding up Petition Hearing

At the winding up petition hearing the Court hears the evidence from the lawyer representing the petitioning company. If they find the evidence proves the debtor won’t or cannot pay what is owed, they will rule to make the petition into a Winding up Order which begins the compulsory liquidation of the company. The hearing will take place in the High Court.

Winding up Petition: Consequences

After receiving a winding up petition, the company’s options become extremely limited. For instance, directors can’t sell the company or any of its assets or issue a Notice of Intention to appoint an administrator. The company can’t be placed in a pre-pack administration and it becomes more difficult to put the company into a Creditors’ Voluntary Liquidation (CVL).

The next stage is a winding up order, which is served once the petition is reviewed, approved and issued by the Court. Once the Court has served a winding up order, there is nothing that can be done to stop the company from being wound up or liquidated. 

What Happens after a Winding up Order?

In this scenario, there are still measures that should be taken to minimise the possibility of directors being brought under scrutiny after the liquidation process. By seeking guidance from a licensed insolvency practitioner as soon as the company receives a winding up petition, directors can benefit from valuable advice on how to record the actions of the company to demonstrate to the Court that they have fulfilled their duties while trading insolvent.

Company directors who have received a winding up petition and are unsure how to proceed to save their business, please call 08000 24 24 51 or email info@businessexpert.co.uk for free and confidential advice from one of our professional.