Written ByKeith Steven
Managing Director
Keith is the Managing Director of KSA Group Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
A winding up petition is a legal action initiated by a creditor seeking to force a company into compulsory liquidation. It’s typically issued when a company owes more than £750 and has failed to repay the debt within 21 days, and is a formal request to the court to dissolve the company and use its assets to repay outstanding creditors. HMRC are responsible for approximately 60% of all winding up petitions and there can be serious financial implications for businesses facing such legal proceedings.
Receiving a winding up petition often indicates a complete breakdown of trust between a company and its creditors. This can stem from repeated payment failures, broken payment agreements, missed bank transfers, or a general inability of the directors to meet financial obligations. While a company may have legitimate challenges, such as slow-paying customers or unexpected revenue shortfalls, creditors view a winding up petition as a final resort to recover their funds.
The petition serves as an extreme measure that can effectively halt a company’s operations. Bank accounts may be frozen meaning that even essential payments like wages cannot be paid. Paying staff may require a visit to the court to ask a judge to “validate” the payments by way of a validation order. More on this later. In Scotland, a threat of a winding up petition is even more dangerous to a company, so read our page on the procedural differences.
The process of a winding up petition can move quickly and have immediate, devastating consequences for a business. It can take 8-12 weeks if the money owed is not paid before the eventual winding up of the company. The process can also be extended by a further 28 days if the company can get the initial hearing adjourned. In exceptional circumstances, the court may grant another adjournment if the company is on the cusp of receiving additional finance or is likely to be paid the money it is owed.
Usually the petition will be issued, served and advertised in The Gazette seven working days later; it will then be heard at court, where it is either dismissed or approved.
The petition advertisement process follows strict legal protocols designed to protect both creditors and debtors. Creditors must wait 7 clear days after serving the petition before advertisement, and the petition must be advertised 7 days before the hearing date. The main reason for this is to alert other potential creditors who may wish to support the original petition. Even if the debt is paid and advertisement stopped, the court case may still proceed. This highlights the importance of quick strategic action when facing a winding up petition.
Once a winding up petition is advertised, banks typically freeze company bank accounts, paralysing business operations and preventing the sale of any assets.
But the implications extend beyond immediate financial constraints. Credit rating agencies have access to court data and so will update their records to show a petition has been served. This means that creditors and banks can find out before the petition is advertised, so severe reputational damage becomes a risk.
The window for intervention is incredibly narrow, and the consequences of inaction can be catastrophic. Professional, swift legal and financial guidance becomes not just advisable, but essential when coming up against a winding up petition.
Banks typically freeze company accounts because of the principles outlined in section 127(1) of the Insolvency Act 1986. This section stipulates that any transfer of shares made after the commencement of the winding-up is void, unless otherwise ordered by the court. Therefore, it is very difficult for a company to continue to trade after a winding up petition is advertised. For this reason, banks see the freezing of accounts as a protective measure to stop assets being dispositioned.
The process creates significant challenges for businesses, essentially grinding trading activities to a halt and giving them limited options to access their financial resources. The main way to release frozen assets is by obtaining a “Validation Order” from the court. This process is complex, expensive, and requires lawyers to represent you in court. At Company Rescue, we have a strong law firm ready to help.
During the court hearing, the judge will carefully examine the company’s financial position and potential for future solvency. If the company cannot demonstrate an ability to pay its debts and lacks a credible defence, the judge will issue a Winding Up Order. This is a critical turning point for the business initiating its compulsory liquidation.
Once the order is issued, the Official Receiver assumes responsibility for liquidating the company. Directors face strict obligations during this process, including:
You MUST respond to any requests for information and records by the Official Receiver or the appointed liquidator. Failure to do so, is a criminal offence
The Official Receiver, will thoroughly examine the directors’ conduct, ensuring they have fulfilled their legal and fiduciary duties. In cases of suspected wrongful trading, there’s potential for serious consequences, including director disqualification for up to 15 years.
Directors face significant personal risk when a company approaches insolvency. If company directors are found guilty of continuing to allow a business to trade while they knew it was insolvent, they become personally liable for the debts incurred by the company.
To mitigate these risks, keeping good records is essential. From the earliest stages of financial difficulty, directors must:
The key to protecting personal liability lies in transparency, prompt action, and professional guidance. Waiting too long or attempting to conceal financial challenges can dramatically increase personal risk.
Don’t leave it too late to get help; the sooner you act, the more KSA Group can do to help you and your company.
Typically, a creditor asks a solicitor to “wind the debtor company up” to recover debts, or to stop the company making its debts worse. The process involves a formal application to the high court where detailed documentation is presented, including the debt’s specifics, amount, origin, and overdue status.
The creditor’s preliminary steps, prior to issuing a winding up petition, typically include:
Directors must act immediately upon receiving a petition threat, as failing to do so could result in personal liability for company debts. Download our 78-page expert guide designed specifically for worried directors, and gain all the essential information you need to navigate winding up petitions.
Once a winding up petition is received, a company’s options become severely limited. and restrictions typically include:
However, some potential options remain:
An Administration Order, if granted by the court, will “stay” or stop the winding up petition and prevent a winding up order being made and any other legal action (except with leave of court).
Companies may challenge the petition if the debt is disputed or incorrectly calculated. However, legal advice is crucial, as any payments might be voided in potential liquidation.
Remember that if you do not agree with the debt and the action is clearly unfair, you should seek legal counsel immediately.
Not all petitions are legitimate and, while HMRC winding up petitions are typically well-founded, other creditors may misuse the legal process. Companies should carefully examine the circumstances surrounding the petition, looking for potential irregularities such as:
The grounds for challenging a petition can be complex. If there’s a belief that the petition represents an “abuse of court process” immediate legal intervention is essential.
Ali Akram of LexLaw has written a good piece on his blog about using a winding up petition as a debt collection tactic being an abuse of process.
Expert legal professionals can potentially prevent petition advertisement, seek injunctions, negotiate with the petitioning creditor, or obtain an adjournment of the hearing if the petition has already been advertised.
We have a good working relationship with expert lawyers who can advise on your situation and help you to obtain an adjournment, with prices starting at just £695.
Looking at the statistics reveals significant legal pressure on businesses. In 2023, nearly 6,000 winding up petitions were filed in the High Court and HMRC initiated approximately 46% of these petitions.
In the month of October 2024 alone, 410 petitions were served, with 231 orders granted.
Do not let this happen to your company. We can get lawyers to adjourn petitions and we can start a rescue proposal very quickly
Administration to protect the company after a winding up petition was threatened by HMRC. This was then followed by a company voluntary arrangement (CVA), paying 100p in £1 for all creditors. Followed some years later by our client selling for millions!
Murray Duncan approached KSA Group 10 years ago when his company, Paralaw Limited, was facing severe financial distress and cash flow pressure. This had resulted in a substantial liability accruing with HMRC. HMRC was in the process of taking enforcement action and was in the process of issuing a winding up petition.