Dealing with a winding up petition

Dealing with a Winding Up Petition

Dealing with a Winding Up Petition. Written by John A Waller, Director. Reviewed January 31st,2023.

Whenever dealing with a winding-up petition, it remains essential to act FAST!

What is a wWinding Up Petition

A winding-up petition is a legal method employed by a business creditor to apply to the court to wind up a company for non-payment of debt through compulsory liquidation.

A winding-up order once received, focuses the debtor on dealing with a winding-up petition, as it is time-sensitive. It remains an insolvency tool used by creditors to force a company to pay the outstanding debt. It remains the most decisive action a creditor can take.

This process remains the last opportunity for the company to petition the court to have the company liquidated.

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What happens when HMRC wind up a company?

What happens when a winding-up a company?

As soon as the court rules, the appointment of the Official Receiver then begins liquidating the company’s assets so that they can repay HMRC along with the company’s creditors. The company’s directors may face a ban for up to fifteen years.

How to stop a winding up petition?

You can apply to cancel (‘rescind’) a petion to wind up your company if you can: –

  • Pay the companies debts or
  • you could not attend the hearing.

You must apply to the court within 5 working days of the original order. To do so you must fill in Form IAA enclosing a written statement providing details of your assets and debts<

Dealing With A Winding Up Petition – Winding up Petition Process

  1. Dealing with a winding-up petition stands not like any other legal action. Time is of the essence.
  2. Creditor issues a 21-day Statutory Demand for payment.
  3. If unpaid and no viable hope of an agreed repayment plan, the petitioner arranges to engage a solicitor to execute the application for winding up your company.
  4. The High Court then receives the petition, as does your company at its registered address. A process server delivers the petition.
  5. The date for the court hearing stands set for 8-10 weeks following the petition issue.
  6. Speed then remains the priority; otherwise, your company does not avoid Compulsory Liquidation. Seven days after the serving of the petition  a hearing date remains advertised in the London Gazette. Therefore, your company position remains out, in the public domain, and with open public knowledge of your company’s predicament.
  7. Your bank then views the advert in the London Gazette, then freezes your account, preventing further trade without the expressed permission of the courts.
  8. You may still seek an adjournment by applying for an injunction. However, the chances of success remain limited.
  9. Failure by your company to take action results in a Winding-Up Order granted by the court. Therefore, you lose control of the situation.
  10. An appointed Liquidator commences investigations into the director’s conduct and accusations, wrongful trading, and any other allegations regarding the company’s running.

Dealing With A Winding Up Order – Cancel a winding-up order

You can apply to cancel a winding-up order if you do not think you need to pay your creditors. However, you have only 5 working days of receiving the order to do so.

Do you have to Serve a Statutory Demand Before a Winding-up Petition?

Though not obligatory to serve a statutory demand when filing a winding-up petition.

Usually, the court requires proof that formal demand for payment ignored or unpaid. The wording appears in the Insolvency Act 1986, Section 123.
A demand letter posted by registered mail remains therefore evidence.

Dealing with a Winding Up Petition and Compulsory Liquidation 

Compulsory Liquidation & Winding Up Petion remain usually combined. It is the winding up of a company via the courts by a winding-up petition. Upon successful application, the company Compulsory Liquidated. The Official Receiver is then appointed liquidator.

What is Compulsory Liquidation?

To place a company into “Compulsory Liquidation”, one or more of the company’s creditors must apply to the courts for a Winding Up Order. Once in “Compulsory Liquidation”, assetse then sold. The proceeds are then used to repay outstanding debts the company owes.

A company can only receive a “Winding-Up order” from a creditor if they owe more than £750 and have failed to pay. Failure to pay can be either an unpaid County Court Judgement or a unique formal demand.

If advertised, then

The conclusion of “Compulsory Liquidation” the dissolution of the business. The company ceases to exist and struck off Companies House register within three months of the conclusion of the “Liquidation”.

Can I Stop A Winding Up Petition?

Options available to a company facing “Compulsory Liquidation” and Winding-Up Petition vary depending on how far your in the process. If HMRC chases you, make every effort to arrange an HMRC time to pay for any taxes due, rather than be wound up. The only way to definitively stop “Compulsory Liquidation” or a “Winding-Up Petition” to satisfy the outstanding amount to the Creditor in full, coming to satisfactory payment terms for both parties, or by placing the company into a formal Insolvency process, like an “Administration“.

Dealing with a Winding Up Petition – Can a Winding Up Petition be Withdrawn?

Yes. The creditor putting forward the petition must apply to the Court for permission, demonstrating its resolved.

Why serve a Winding Up Petition when the company holds no assets it owns?

The directors often ask us why creditors serve a winding-up petition on companies with no assets. However, creditors wish to liquidate companies with no assets or liquid funds. When a company remains financially stressed with no assets or cash, why go through the expense and time to liquidate it? It costs money to petition to wind up a company.

So logically. Why does it?

The largest creditor in the UK to issue winding-up petitions remains the HMRC. When giving a petition, they do not consider assets unpaid debt.

HMRC carries out a public role in enforcing penalties against companies failing to pay their taxes due on time. Never assume, because your company retains no assets, that creditors do not petition.

May My Company’s Bank Account Be Frozen When A Winding Up Petition Is Issued against My Company?

The easy answer is yes.

The bank will likely move if your winding-up petition remains advertised in the Gazette.
Freezing your company’s bank account endures a terrible outcome for your company allowed to happen.
It would help if you considered a time lag from issuing the winding-up petition and your company’s bank account frozen. Therefore, if you plan to pay or dispute the debt associated with the petition, you must act immediately and seek advice now.

The court determines you cannot pay your debts

The court will issue a winding-up order, and then will put an officer of the court (‘official receiver’) in charge of winding up your company. Directors must cooperate with the official receiver.

When you get a winding-up order:

  • company’s bank account will usually be frozen
  • The official receiver will sell its assets or property

The purchase of any part of your company that intends to discontinue the business leads to job losses.

Dealing with a Winding Up Petition – What are My Options?

Dependent on how far along the process your company is, options exist to assist:

Once the winding-up petition process finalises and approved, the company is placed into “Compulsory Liquidation”. Usually, the “Official Receiver” remains appointed Liquidator of the company.

If the official receiver deems it necessary, creditors vote to appoint a third-party Liquidator. A “Licensed Insolvency Practitioner” replaces the Official Receiver as a liquidator. Upon appointment, they must comply with the Insolvency Act 1986 and comply with their duties as “liquidators”.

Liquidators Duties?

The Liquidator’s statutory duties are to abide by during a Liquidation. They include:-

  • Maximising the realisation of the assets in the company for the benefit of the company’s creditors.
  • Report to Creditors the progress of the Liquidation.
  • When appropriate, seek creditor approval for certain actions in the Liquidation.
  • The agreement of Creditor claims.
  • Distribution to Creditors of funds available realised by the Liquidation.
  • The investigation into the conduct of the directors before the Liquidator appointed.

Compulsory Liquidation & Winding Up Order during COVID-19?

HBG Advisory (insolvency practice) helping businesses in the UK have been impacted by the COVID-19 pandemic. Through the UK, we help with your “Compulsory Liquidation” & “Winding-Up Petition” with no obligation and expert advice from our many experienced partners and consultants. Please speak with someone at HBG Advisory TODAY.

For additional in-depth reading, please refer to the DLA piper web page.

Costs & Fees of Winding up a Company

Petition costs as of November 1st, 2022.

  • Court & Petition Fee – £2600 
  • Serving Proceedings – Fees range between £75 and £100
  • Advertising in the Gazette –  £79.40 plus VAT in each Gazette 

Bailiffs – Rights & Powers When Dealing With Debt Of A Limited Business

A limited company remains a separate legal entity to the company directors. Therefore, when a bailiff or enforcement officer attempts to remove goods on behalf of a creditor, goods belonging to the company may be removed, not those of an individual or officers of the company.

Bailiffs are appointed to collect a debt from your limited company. Creditors usually attend when you cannot agree with a creditor.

Often this can be a stressful event for company directors. Therefore, understand the Bailiff’s authority and power. HBG Advisory needs to be consulted for advice before bailiff action to protect all party interests.

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If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448..
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