Winding up a Company: Process and Time-frame
A creditor such as HMRC, the bank or a supplier can petition the court to wind up a company if it believes the company is unable to pay its debts.
Creditors will only usually use this as a method of last resort after they have repeatedly tried to recover the debt with no success. In the vast majority of cases, it is HMRC that petitions to have a company wound up to recover tax liabilities and ensure further debts are not accumulated in the future.
If the winding up petition is approved by the court, a winding up order will be made that forces a company into a compulsory liquidation. The assets of the company will then be sold for the benefit of its creditors, the company will be closed and the directors’ conduct in the management of the company will be investigated.
What is the Process of Winding up a Company?
‘Winding up’ is really a synonym for liquidation, which is the process of legally closing a company via the sale of it’s assets and their distribution. While it is possible to wind up a solvent company, the terminology is less commonly used in reference to solvent companies.
For the purposes of this article, we’ll refer to insolvent liquidations. By that reckoning, winding up an insolvent company begins with contacting an insolvency practitioner, such as ourselves.
Following on from that, the directors powers will cease, the company stops trading, and the IP is now responsible for liaising with creditors, and taking an inventory of assets prior to their sale.
IP’s in insolvent liquidations have a primary duty to company creditors and, as part of their work, will have to investigate the actions of company directors in the period preceding insolvency.
Winding up is a synonym for closing, but usually meaning closing as the result of insolvency. So to ‘wind up’ a company means to follow legal due process for shutting it down, usually via liquidation.
A creditor, company director, shareholder or the Secretary of State can apply to have a company wound up.
Usually 2-3 months to enter liquidation, then a year on average to liquidate assets and complete the process.
Liquidation must always be undertaken by a licensed insolvency practitioner. If the company is simply being closed and struck off the register at Companies House, this can be done by an individual.
What is the Time frame Involved in Winding up a Company?
A winding up petition is issued
The first step in the process is for a creditor like a supplier or HMRC to issue a winding up petition. Before that, the creditor will usually have taken less severe action, such as issuing a statutory demand to recover the debt. If, after 21 days, the statutory demand has not been paid, the creditor can then issue a winding up petition. This will cost around £2,000 in court fees, a liquidator’s deposit and the cost of advertising the petition in the London Gazette. For this reason, this process is typically used for debts in excess of £5,000. The court will then review the petition, and, if accepted, it will be served on the company in question.
The company has seven days to act
Once the petition has been issued, the company then has seven days to either pay the debt in full, try to make a payment arrangement with the creditor, or dispute the debt. Failure to respond to the petition within seven days will lead to the advertisement of the petition in the London Gazette and the company’s bank account will be frozen. This will make it much more difficult to reach a favourable resolution.
The petition is advertised
The winding up petition must be advertised at least seven days before the date of the winding up hearing, and seven days after the winding up petition has been served. That means the company effectively has 14 days to save itself. The advertisement in the London Gazette will include the following details:
- The name and registered address of the company;
- The name of the petitioner;
- The venue where the petition will be heard;
- The date when the hearing will take place;
- The details of those attending the hearing to support or oppose the petition.
Bank accounts and assets are frozen
Once the petition has been advertised, the company’s bank will become aware of the petition and will usually freeze the company’s bank account to prevent the sale of assets or cash being removed by directors. In some cases, banks will even search the court registers so to see when a winding up petition has been issued before it has been advertised. They may then take the preventative measure of freezing the accounts.
The next step is for the winding up petition to be heard. At this point, the court may accept the petition and make a winding up order to force the company into a compulsory liquidation. Alternatively, the petition hearing could be adjourned to allow the company to reach an agreement with its creditors, or the petition could be dismissed.
A winding up order is made
If the court decides to make a winding up order, an official receiver will be appointed to act as the liquidator of the insolvent company. At this point, there is nothing the company’s directors can do to prevent the closure of their business. The assets of the business will be sold, the company will be closed and the conduct of the company’s directors will be investigated. The consequences if any misconduct is revealed could be a director disqualification of up to 15 years, or company directors being held personally liable for a proportion of the company’s debts.
Is Liquidation and Winding up the Same?
Winding up is a synonym for closing a company and may include doing so voluntarily when your company is insolvent, closing down a solvent company with assets, as well as the most commonly used version: compulsory liquidation.
Liquidation is the process of actually realising the assets of a company, before it is struck off the register.
What are the Grounds for Compulsory Winding up of a Company?
Any company creditor may apply to have a company wound up. In addition, directors have this right, as do receivers and someone who has been assigned a debt (for example, a debt collector).
Want to Talk?
If a winding up petition has been served on your company, the company is a very serious position and time is of the essence. We are happy to help you with this process, or to advise in situations where a validation order may be an appropriate option – simply call Simon Renshaw on 020 8444 2000 or email firstname.lastname@example.org.