A winding up petition is the most severe action that can be taken against a company that owes money to creditors that it is unable to pay.
The effect of the winding up petition, if unchallenged, is to force the company into liquidation and its assets will be sold for the benefit of its creditors. The most common creditor to take this type action of against UK companies is HMRC.
HMRC will only seek to close down a business when it has already made a number of unsuccessful attempts to agree on the repayment of unpaid tax liabilities by other means.
However, there comes a time when HMRC, in a bid to prevent a company from continuing to trade and incurring further tax liabilities, will petition the court to shut the company down.
What Does a Winding up Petition Mean for your Business?
A winding up petition will never be the first you know of an unpaid tax liability. HMRC does not need to issue a county court judgement (CCJ) or statutory demand before petitioning the court, but there will have been other failed attempts, such as ‘Time to Pay’ arrangements and Distraint Notices, to recover the debt.
Once the court receives the winding up petition from HMRC, it will set a date for the winding up hearing and the petition will be ‘served’ on your company. As soon as the winding up petition has been served, you will not be able to:
- Dispose or sell off any of its assets or the company itself. Any transactions entered into during this time can be reversed;
- Issue a Notice of Intention (NOI) to appoint an administrator. This prevents the company from entering into administration voluntarily without the approval of the court.
The Role of Personal Liability Notices (PLN)?
As if the winding up petition wasn’t bad enough, HMRC is also increasingly using personal liability notices in support of the petition. A PLN has the effect of lifting the corporate veil to make company directors and officers personally liable for debts owing to HMRC. This is particularly the case with debts arising from VAT and PAYE.
What Happens if an HMRC Winding up Order is Made?
The date for the winding up petition hearing is usually set between 8 and 10 weeks after the petition was made. If the debt is not repaid during that time and no defence against the petition is lodged, the judge will issue a winding up order to force the company into compulsory liquidation.
Once the winding up order has been made by the court, an official receiver will be appointed. Their role is to liquidate the company’s assets to repay HMRC and other creditors, although in many cases, HMRC, as an unsecured creditor, will not receive all the money it is owed.
Another essential role of the official receiver is to investigate all the actions taken by the company directors in the 3 years leading up to the liquidation. If there is any evidence of misconduct or wrongdoing in the running of the business during that time, then as well as having their company liquidated, they could also be banned from acting as a company director for a period of between 2 and 15 years.
Issuing a winding up petition is a serious step to take and you should receive professional advice before doing so. Simply call senior insolvency practitioner Simon Renshaw on 0208 444 2000 for a free, no-obligation discussion.