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The Winding Up Order Process Explained

10 August 2017

Winding up order granted Gavel

What is the winding up order process?

A winding up order is an order issued by the court to close down a company. A winding up petition (WUP) will have been served against the company because it owes money. The case is then heard at court - if the company fails to pay back the debt and cannot provide a reason why this is, the court will issue a winding up order. 

A winding up petition is issued by a creditor usually once they have lost all patience with the debtor and so feel that they have to use the nuclear option of issuing a WUP. Seeking such an order is not a cheap option as the fees will come to at least £2000 so it tends to be reserved for larger debts.

If the debt is not paid then the petitioner is in effect asking the court to issue a winding up order. This will mean that the business is put into compulsory liquidation and that will be the end of the business. The official receiver will then handle the affairs and has a statutory duty to look into the conduct of the directors. They can then seek to have the directors disqualified or even be personally liable for the company's debts. This usually occurs in the event that wrongful trading can be proved.

So what are the steps in the process?

Warning of action

If the creditor is HMRC they will normally issue a 7 day warning letter of intent to issue a petition as you are not able to pay your tax debts.

You would be best to act on this immediately to see if you can come to a time to pay arrangement with them or settle the debt. The same applies for any creditor as in order for a winding up order to be granted the court will need to be satisfied that all other avenues have been exhausted. If the amount is in dispute it is essential to make this clear as an order cannot be granted for a debt that is not proven.

The petition is filed at the court

Once the petition is filed at court you will receive notice and the whole process kicks off in earnest. At this stage then legally the company cannot be placed into creditors voluntary liquidation no assets can be sold, or transferred as such transactions may be reversed by the court.

You may be able to liquidate the company but only if the petition is withdrawn. It may be possible to get a company voluntary arrangement proposed which may persuade the petitioner to withdraw. We have achieved this with HMRC on a number of occasions.

The petition is advertised

The creditor must allow 7 clear days after the serving of the petition on the companies registered office, before the petition can be advertised. It must be advertised 7 days before the petition hearing date. It is possible to stop the advert if you act fast.

You can persuade the petitioner not to advertise and this again is something that HMRC are quite often open to depending on the compliance of the company with its tax affairs in the past.

In Scotland the procedure is different in that as soon as the petition is served it is "walled" at the court and this will mean that the banks are aware of it the moment a petition is served. Perhaps this is why it is harder to rescue a business in Scotland.

The bank will freeze the account

Once the advert is put into the Gazette the credit ratings agencies get hold of it and the bank will find out. Given that any transaction can be reversed by the court the banks will seek to protect themselves by freezing the bank accounts. I This in effect will be a big problem for company. The only way this can be reversed is by seeking a validation order which will need perhaps a draft CVA or proof that the debt is in dispute. A barrister will need to go to court and state their case so again this is likely to be expensive and could cost £2000.

The court will hear the petition

The court will hear the petition and if there has been no payment and the amount is not in dispute then the court will grant a winding up order and the business will go into compulsory liquidation. So why might a judge dismiss a petition? The judge can decide to dismiss the petition if they think that the company is able to pay back a reasonable proportion of the debt i.e. in a CVA or an agreement to pay back over an extended time period. Other grounds might include:

Abuse of process by the petitioner

In this case the judge has to be satisfied that the petitioner is using the court to settle a score/dispute or have a commercial advantage i.e. a competitor. It can also have regard to the position of the other creditors. Re Dollar Land (Feltham) & Ors [1995] BCC 740 reported that the court decided that a winding-up order should be rescinded if there was a real prospect that CVA proposals would be approved by the company's creditors. In other words let the CVA majority decide.

Categories: Winding Up Petition, Winding up petition

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