A winding up petition is a way by which an unpaid creditor can petition the courts to force an insolvent company into compulsory liquidation.
Any creditor can present a winding up petition to the courts, provided the debt is not genuinely disputed and the company cannot pay its debts.
After you have received a winding up petition, the courts will hold a hearing to establish if the company is truly insolvent and cannot pay its debts. If the court is satisfied that the company cannot pay its debts, it will usually make a winding up order, although it can adjourn the hearing or dismiss the petition. On the order, the Official Receiver becomes liquidator.
What is a Winding up Petition?
A winding up petition is a formal legal tool used by creditors against a company that owes them money and is unable to pay its debts. It’s a crucial step in the process of compulsory liquidation, where a company is forced to stop its operations and liquidate its assets to pay off debts.
When a creditor presents a winding up petition, they are essentially requesting the court to forcibly close the company. A creditor who relies on a statutory demand must be owed more than £750. A creditor can also petition on other proof that the company cannot pay its debts.
Upon receiving a winding up petition, the court sets a hearing to determine the company’s solvency. If the court finds the company cannot pay its debts, it will usually make a winding up order, but it can adjourn the hearing or dismiss the petition. On this order the Official Receiver becomes liquidator automatically, by virtue of the office. The court appoints someone else only in limited cases, such as an outgoing administrator or voluntary arrangement supervisor. The liquidator’s role is to realise the company’s assets and distribute the proceeds to creditors.
How do I Stop a Winding up Petition?
The answer to this question very much depends on how long has elapsed since the winding up petition was presented.
The rule of thumb is that the faster you take action, the better chance you will have of stopping the petition from being advertised in The Gazette and/or proceeding to the court hearing. You should seek professional advice as soon as you receive a winding up petition to help you work out your next steps.
- Consult a Professional: Immediately seek advice from an insolvency practitioner or solicitor.
- Review the Debt: Confirm the accuracy and legitimacy of the debt.
- Negotiate with the Creditor: Attempt to reach an agreement for debt repayment or settlement.
- Pay the Debt: If possible, pay the owed amount, with the petitioner’s costs, promptly. This will usually lead the petitioner to seek to withdraw the petition, or the court to dismiss it. Payment alone does not end the petition.
- Apply to the Court: If there are disputes or grounds, apply to the court to dismiss or stay the petition.
- Act Quickly: The sooner you act, the better your chances of preventing the petition’s advertisement and court hearing.
Consequences
In short, a winding up petition starts the process that will end with the termination of the company if left unchallenged. It’s the first step in a compulsory liquidation of the company, where a liquidator will realise the company’s assets and distribute the proceeds to the company’s creditors.
Bank Accounts are Likely to be Frozen
In addition to the serious consequences, compulsory liquidation is a very public process – it will be a matter of public knowledge that the company’s creditors have forced it into liquidation. Additionally, once the petition has been advertised, the banks are likely to freeze the company’s bank accounts, effectively stopping it from trading from that date.
Who can Issue a Winding Up Petition or Order?
Any creditor can present a winding up petition, provided the debt is not genuinely disputed. A petition is often preceded by a Statutory Demand or a court judgment, but it does not have to be. A creditor can petition on other evidence that the company cannot pay its debts, so a petition can arrive without warning. Where the creditor relies on a Statutory Demand, the debt must be more than £750, and the creditor can present a petition only once 21 days have passed since the demand was served on the company and the debt has not been paid, secured or compounded.
HMRC is one of the most significant petitioning creditors in company winding-up proceedings in England and Wales. On a creditor’s petition, the court will normally make an order only if it is satisfied that the company cannot pay its debts.
Only a judge can rule the petition become a Winding up Order.
How Long Does a Winding up Petition Take?
Act immediately. There is no universal seven-day deadline created by receiving a petition, but the timetable is short and largely outside your control. The petitioner may advertise in the Gazette from seven business days after service, and that advertisement usually leads to the company’s bank accounts being frozen. Work to the dates on the petition and the court papers, and take advice the day it arrives.
If you have received one of these you need to act immediately, or risk your company being forced into liquidation. Call us now, or use the live chat at the bottom of the site, to receive immediate advice about your situation.
What Happens if a Winding up Petition is Granted?
The winding up petition is the legal notice that the creditors file with the courts requesting that they have a hearing to establish whether the debtor company is insolvent. The winding up petition can be said to start the compulsory liquidation process. As discussed above, it is still possible to halt the compulsory liquidation process once a winding up petition has been presented.
The Petition Becomes a Winding up Order
By contrast, the winding up order is the order made by the courts after the court hearing. The order puts the company into compulsory liquidation, and the Official Receiver normally becomes liquidator when the order is made, although the winding up is normally treated as having started when the petition was presented. Winding up orders can’t be reversed except in very, very limited circumstances – once the order has been made, the company will almost certainly be wound up.
How Long Does it Take to Issue a Winding up Petition?
Filing a winding up petition is usually done with the assistance of a solicitor. The actual filing is relatively swift and will depend on the efficiency of your legal team. Waiting for the actual hearing will take a little longer.
Once the correct paperwork has been submitted to the Court, both parties will receive notification of the Winding up Petition court hearing date. Rule 7.10 of the Insolvency (England and Wales) Rules 2016 requires the petition to be advertised in the Gazette not less than seven business days after it is served on the company, and not less than seven business days before the hearing. Business days exclude Saturdays, Sundays, Christmas Day, Good Friday and any bank holiday in England and Wales or in Scotland, so in practice the gap is longer than the plain seven-day reading suggests.
Who can File a Petition for Winding Up?
The following can petition for the compulsory winding up of a company. Some of them can do so only in limited circumstances, and the list is not exhaustive:
- the company,
- the directors,
- any creditor or creditors,
- a contributory or contributories, the designated officer for a magistrates’ court in the exercise of the power conferred by section 87A of the Magistrates’ Courts Act 1980 (enforcement of fines imposed on companies),
- the official receiver (only where the company is already in voluntary winding up and the court is satisfied that the voluntary winding up cannot continue with due regard to the interests of creditors or contributories),
- the Secretary of State (in the cases the Insolvency Act 1986 allows),
- an administrator or administrative receiver (under their statutory powers rather than section 124),
- the supervisor of a composition or arrangement
- the Attorney General (in the case of a charitable company),
- the Financial Conduct Authority and, for community interest companies, the Regulator of Community Interest Companies.
What is the Winding up Process?
The Petition is presented, served, advertised in the Gazette, then heard at Court. If the Judge is satisfied that the company cannot pay its debts, the court will usually make a Winding up Order, although it can adjourn the hearing or dismiss the Petition.
What Happens After a Winding up Order is Granted?
The Winding up Order puts the company into liquidation, but the winding up is normally treated as having started when the petition was presented. Any payment or transfer of company property after presentation is void unless the court validates it. The Official Receiver normally becomes liquidator when the order is made. Where the company was in administration or a voluntary arrangement, the court can instead appoint the administrator or the supervisor as liquidator. The company and its directors cannot simply choose a replacement. A different liquidator can be appointed in the Official Receiver’s place, but that happens through the statutory routes: the Official Receiver may seek a creditors’ decision on the appointment, creditors representing the required threshold may requisition one, or the Secretary of State may make an appointment. The company and its directors do not choose the liquidator.
We Can Help
If you’ve received a winding up petition or are facing creditors threatening to present a winding up petition, we can help. Call us on 0208 444 3400 to discuss or email sr@aabrs.com.