Creditors wishing to close your company down

Dealing with a Winding Up Petition

Dealing with a Winding Up Petition. Written by John A Waller, Consultant. Reviewed July 14th, 2024.

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

What is a Winding Up Petition (WUP)

A winding-up petition is a legal method by which a creditor owed money applies to the court to force the closure of the debtor company.

Once received, a winding-up order focuses the debtor on dealing with a WUP, which is time-sensitive. It remains an insolvency tool creditors use 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 winding up a company?

As soon as the court rules, the Official Receiver is appointed and begins liquidating the company’s assets so that they can repay HMRC and the company’s creditors. When dealing with a Winding Up petition, the company’s directors may face a ban for up to fifteen years.

How do you stop a Winding Up Petition?

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

  • Pay the company’s debts, or
  • you could not attend the hearing.

You must apply to the court within five 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 does not stand like any other legal action. Time is of the essence.
  2. The creditor issues a 21-day Statutory Demand for payment.
  3. If unpaid and there is 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 court hearing date is 8-10 weeks following the petition issue.
  6. Speed remains the priority; otherwise, your company does not avoid Compulsory Liquidation.” Seven days after serving the petition, a hearing date remains advertised in the London Gazette. Therefore, your company’s position remains in the public domain, with open public knowledge of its predicament.
  7. Your bank then views the advert in the London Gazette and 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 other allegations regarding the company’s running.

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

You can apply to cancel winding up order if you do not need to pay your creditors. However, you have only five working days to receive the order.

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.

The court usually requires proof that a formal demand for payment is 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 Petition remain usually combined. It is the winding up of a company via the courts by a winding up petition. Upon successful application, the company shall be Compulsory Liquidated. The Official Receiver is then appointed liquidator.

What is Compulsory Liquidation?

To place a company into “Compulsory Liquidation,” one or more creditors must apply to the courts for a Winding Up Petition. Once in “Compulsory Liquidation,” assets are sold, and the proceeds are used to repay outstanding debts the company owes.

A company can only receive a “Winding Up order” from a creditor if it owes more than £750 and has failed to pay. Failure to pay can be an unpaid County Court Judgment or a unique formal demand.

If advertised, then

The conclusion of “Compulsory Liquidation” is the dissolution of the business. The company ceases to exist and is struck off the 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 you are 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” is 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 a Company Administration.

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

Yes. The creditor submitting the petition must apply to the Court for permission and demonstrate that it is 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.
The freezing of your company’s bank account endures a terrible outcome for your company if it is allowed to do so.
It would help to consider the time lag between issuing the winding-up petition and freezing your company’s bank account. 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 after their company has been liquidated.

When you get a winding-up order-

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

Purchasing 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?

When faced with a winding up petition, you have several options to stop it from turning into a winding up order:

1. Pay in Full: Pay the total owed to the creditors.
2. Dispute the Debt: If you believe the amount of debt is incorrect, you can dispute it in court.
3. Go into Administration: Consider company administration as a possible solution.

4. Negotiate a CVA: Negotiate with creditors to repay the debt over a longer period.
5. Seek Withdrawal: Attempt to get the petition withdrawn from the court records.
6. Apply for Adjournment: Apply to adjourn the case or cancel the hearing to buy time for the company.

Compulsory liquidation

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

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 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 company’s assets for the benefit of the company’s creditors.
  • Report to creditors on 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 was appointed.

Costs & Fees of Winding up a Company

  • Court & Petition Fee – £332 
  • Serving Proceedings – Fees range between £75 and £100
  • Advertising in the Gazette –  £87.30 plus VAT in each Gazette 
  • Petition Deposit – £2600
  • Company House Search – £2

If the company is found insolvent, the creditor/s may be eligible for a deposit refund. The company’s costs will only be related to the debts owed.

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.

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

This can often 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.

You must respond to a winding up petition as swiftly as you can to protect your business and your career. Even if a winding-up petition procedure has already been granted, options remain available to directors.

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