Have you received a winding up petition from HMRC or other Creditor?
What is a Winding Up Petition?
A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent. The petition is sent to the registered address of the company with a court date. If the petition is successful then the company will be put into compulsory liquidation via the court process.
Proceeds of the liquidation can be used to pay back creditors. HMRC issue about 60% of all the winding up petitions.
This is by far the most serious action that can be taken against your company and it is often preceded by a statutory demand. Often the company has broken any trust the creditor had and payment deals have failed.
So, the creditor reacts with the “nuclear” option. Of course, sometimes it’s not as simple as that; in some cases, we have seen creditors issue malicious petitions as a means of trying to settle disputes. We can advise how to deal with this.
In Scotland, a threat of a winding up petition is even more dangerous to a company, so read our page on the procedural differences.
If a creditor moves to wind your company up, they are usually serious in their intent to recover the money it is owed and/or put the company out of business.
What are the consequences of a winding up petition?
ANY payments from the company after a petition has been served will be voided in the event of a liquidation. This means that legal advice, accountants advice, even wages, cannot be paid without a validation order. This will in effect stop the company from trading.
Therefore it is vital to take action as soon as possible! There may still be time for a company voluntary arrangement if you act quickly – it could save your business.
What is the Winding Up Petition Process?
Typically a creditor, most usually HMRC, asks a solicitor to make an application to the Court to “wind the debtor company up” to recover debts, or to stop the company making its debts worse.
The process is a very legal and technical one but the main thing to remember is you MUST ACT as directors when a petition or threat of a petition is received.
Prior to the issuing of the petition the creditor will need to set out.
- Details of the amount of the debt, how it arose and how it is overdue
- A request for the debtor’s proposals for the payment of the debt.
- A statement as to the creditor’s intention to present a petition if no acceptable proposal for payment of the debt is made by the debtor within 21 days.
Advertisment of the Petition
The creditor must allow 7 clear days after the serving of the petition on your registered office, before the petition can be advertised in the London Gazette. It must be advertised no less than 7 days before the petition hearing date. The main reason that the petition is advertised is for other creditors to see that the company is insolvent. They may then ‘piggy-back’ on to the same petition and make a claim for their own debt, serving a notice of support on the original petitioner.
It is possible to stop the advert if you act fast. Bear in mind, even if your company pays the debt and the advertisement is stopped, the case can still be heard at court and made public. That’s why it’s so important to take action before a winding up petition is issued!
What happens after the winding up petition is advertised?
Freezing of accounts
At this stage the bank will find out and they will generally FREEZE the company’s bank account to prevent any “disposition” or sale of assets at undervalue or other illegal acts by the directors. This can paralyse the company and stop it trading. Actually it is not legally necessary for the bank to freeze the bank account, but most banks tend to do this.
Recently the banks have been employing agents to search the court register for companies that have had winding up petitions. This means that they can find out BEFORE the petition is advertised! Either way if you receive a petition you must ACT.
Why do bank’s freeze accounts?
Well the technical answer is under section 127(1) of the Insolvency Act 1986, if a company is wound up, any sale of the company’s property, any transfer of shares made after the commencement of the winding-up is void, unless otherwise ordered by the court. This means that it is very difficult for a company to continue to trade after a winding up petition is advertised. Banks therefore assume that they have to freeze the accounts to stop assets being dispositioned. It is a safe step in their eyes.
Paying the debt and then obtaining a “Validation Order” is generally the only way to get a new account opened and have the assets released by the bank. We can advise on this process but it requires an application to court and obviously not insubstantial legal fees. If you need advice on a validation order contact us. We have a very aggressive law firm ready to help your company.
A Court Hearing of the Petition For a Winding Up Order
The Judge will hear the petition and if the company cannot pay and there is no evidence or defence that it can pay in the future then the Judge will issue a WINDING UP ORDER. Once this has happened the Official Receiver will start the process of liquidating the company. You MUST respond to any requests for information and records by the Official Receiver or an appointed liquidator. Failure to do so, is a criminal offence
Once a company has been ordered to be wound up by the court, the Official Receiver or the appointed liquidator must investigate the activities of the company directors to ensure that they have acted properly and according to their legal and “fiduciary” duties. If the liquidator believes that the directors are guilty of wrongful trading they may recommend that the directors are banned from all current and future directorships for a period of time up to 15 years; However, this is quite rare.
Don’t let a winding up petition kill your company. So call us now on 0800 9700539. If the matter is really urgent, call a director on 07833 240747 or email our advisors on firstname.lastname@example.org.
Download our free 78 page expert guide for worried directors and have all the information you need to know about winding up petitions, legal issues and rescue options.
How to Stop A Winding Up Petition
Once your company receives a petition you have fewer options available;
It is almost impossible to put the company into creditors voluntary liquidation.
- You CANNOT sell the company or the assets, as this sale may be reversed by the Court
- You cannot issue a Notice of Intention (NOI) to appoint an administrator
- You cannot issue new securities or charges
- You cannot put the company into pre-pack administration
Other than paying up there are only a few other options. There may still be time to propose a Company Voluntary Arrangement if you act FAST… other options include taking legal advice on defending the petition. For instance, if the debt is not agreed. But remember lawyers may not allow the company to make the payment as any payments might be voided in liquidation.
If the business is viable and has a good future, then administration is a very powerful means to defend your company against the petition.
Now that your company faces winding up, an expensive court process is required. The Court will need to consider the needs of all creditors and the petitioner, before granting an Administration Order.
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).
The administrator, who must be a licensed insolvency practitioner, may propose a Company Voluntary Arrangement to protect the business and allow a repayment of debts for up to 5 years. Alternatively, it may be sold to a new company or buyers (including you as directors).
If the business pays the debt, remember the overall debt will have increased because of the costs of the plaintiff (creditor). The petitioner will want those costs paid too.
What if we do not agree with the debt?
If the action is clearly unfair or an “abuse of court process” then you MUST take legal advice immediately. 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.
Bear in mind that it is unlikely that if HMRC have issued a winding up petition that it is an abuse of process. They are sophisticated creditors and in most cases any tax bill is unarguable.
Examples of wrong doing include the following;
- Not allowing enough time for the debtor to pay the amounts due
- Not giving sufficient warning of legal action
- Threatening to publicize the petition which is not in accordance with the regulations i.e. sending a copy to your bank.
- Adding unreasonable costs to the application to put on further pressure.Read the whole article here;
You may be able to legally prevent the petition from being advertised and indeed have it rescinded if it is considered an “abuse”. We can provide advice on this and our legal partners can assist you rapidly to STOP the Gazette advert by seeking, in rare cases, an injunction to restrain advertisement or by way of formal negotiation with the petitioner as appropriate.
Otherwise, in due course the petition hearing will be advertised in the London Gazette and the hearing will be heard in the High Court of Justice (Companies Court).
If the petition has already been advertised then the business could seek an adjournment of the hearing. However, in order to do this you will need sound reason(s). We have a good working relationship with expert lawyers who can analyse your situation and help you to obtain an adjournment where appropriate prices start at just £695. Call us on 08009700539.
How long does the winding up petition take?
If the money owed is not paid then the whole process, from initial filing to the winding up of the company, can take 8-12 weeks. It may be that the company can get the initial hearing adjourned and this will extend the time by about 28 days. In exceptional circumstances the court may grant another adjournment if the company in question is on the cusp of receiving additional finance or is being paid money that it is owed.
How do I protect myself from personal liability if the company is wound up?
If company directors are found guilty of continuing to allow a business to trade while they KNEW it was insolvent, they may become personally liable for the debts incurred by the company from the time they knew the business was insolvent.
Read our guides for wrongful trading Director’s disqualification and compulsory liquidation
Make sure that all board and management actions have been carefully noted and the assets of the business have not been disposed of. DO THIS FROM AN EARLY STAGE OF INSOLVENCY.
Make sure all management accounts, company books and records and bank statements are available and protected. Act sensibly and promptly. Don’t leave it too late to get help, the sooner you act, the more KSA Group can do to help your company and try to find some way of business rescue.
What are the costs of a winding up petition?
Generally a winding up petition(WUP) costs between £400 and £800 to issue, PLUS £2,600 court deposit (from November 2022) and a filing fee of £302, so it is a serious step to take.
To find out more about how KSA Group can stop a petition, please read our business rescue stories and our page on stopping a winding up petition