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What is a Winding up Petition?

A winding up petition, not to be confused with a winding up order, is an application made to the Court by an irate creditor or 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.

Simply put, the petition or application is asking the Court to wind up or liquidate the struggling company as they believe it to be insolvent. If the Court decides to 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. 

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What can be done about 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 are the options?

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. 

When a winding up order has been served

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 for free and confidential advice from one of our professional