Winding up Petitions and Orders: Process and Procedure

What is the timeline of a Winding Up Petition?

A Winding Up Petition (WUP) is a legal application made to the court by a creditor in order to force an insolvent company into liquidation due to non-payment of monies owed. This is usually the final step a creditor will take in an effort to recover debts after all other attempts have failed. you can be sure that any creditor taking this action has every intention to liquidate your company; a winding up petition is much more than just a hollow threat and should be taken seriously.

Winding Up Petition: A step-by-step guide:

Winding Up Petitions are a court-driven procedure, and as such, they must follow a strict process as detailed below:

1) Creditor applies for a Winding Up Petition

Creditors will usually attempt to recover a debt initially by issuing a formal claim for payment known as a statutory demand. If this doesn’t result in the debt being paid within 21 days, the creditor can petition the courts for the compulsory liquidation of the company by way of a Winding Up Petition. The creditor will send the court the petition, as well as serving a copy of the petition on the insolvent company.

Any creditor, including HMRC, can petition for the winding up of a company so long as they are owed at least £750. However, issuing a Winding Up Petition is a costly exercise, with court fees of £302, plus a court deposit of £2,600 needing to be paid by the creditor making the petition.

Once a winding up petition has been served on your company, you are not permitted to sell any of the company's assets from the date of the petition; any transactions would be regarded as post-petition dispositions and voidable under s127 of the Insolvency Act 1986.

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2) Company has seven days to act

After the winding up petition is issued, time is of the essence. If you want to challenge the petition, or have it rescinded by the petitioning creditor, you have seven days to do one of the following:

• Pay the debt in full
• Negotiate an agreeable alternative arrangement with the creditor such as a payment plan
• Raise a challenge if you dispute the debt or dispute the amount owed

If none of the above options are viable, you should make it a priority to seek the advice of a licensed insolvency practitioner as a matter of urgency. 

While you can only pursue a Creditors’ Voluntary Liquidation (CVL) with the permission of the creditor, there may be enough time left to propose a Company Voluntary Arrangement (CVA), if you can prove that your company is viable going forwards.

3) Petition advertised in the Gazette

Once the seven days has expired, notice of the winding up petition will be advertised in the Gazette, making the situation a public matter.

Companies served with a winding up petition can find the situation begins to escalate after this point. Once other creditors become aware of the petition, continuing to trade can be extremely difficult if not impossible at this stage. 

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4) Company bank accounts frozen

Once the petition is advertised the insolvent company’s bank will become aware of the situation and will usually freeze the company’s account to prevent the directors from selling assets illegally or otherwise worsening the position of outstanding creditors, including themselves.

A frozen business bank account typically forces operations to grind to a halt. Access to the bank account may be able to be reinstated by obtaining a validation order, although this can be a difficult and often costly process.

5) Winding Up Order Granted

If the court grants the Winding Up Order, this begins the compulsory liquidation of the company. An Official Receiver (OR) will be appointed immediately to act as the liquidator of the insolvent company. At this point there is nothing that can be done to stop the company from being liquidated, which essentially means the end of your business.

The Official Receiver will investigate the actions of the directors in the time leading up to it becoming insolvent to see if any wrongful trading occurred or any antecedent transactions were entered into. It is rare, but if the directors are found guilty of this activity, they face being disqualified from acting as the director of any company for a period of 15 years and/or being held personally liable for some of the company debts.

What are a directors’ duties after a Winding Up Order has been made?

Once a Winding Up Order has been granted, you’re legally obliged to cooperate with the Official Receiver and assist them in the company liquidtaion process. If you do not fulfil your duties, it will be reflected in the Official Receiver’s report. You must:

• Give the OR information about the company’s affairs as requested
• Hand over the company’s records, paperwork and assets
• Attend an interview with the Official Receiver

During the interview, the OR will ask for information about the company’s accounts, assets and liabilities. They will ask about the reasons for the company’s failure and your role in it. They may also ask you about dividend payments, payments made on behalf of the company, director’s loan accounts and your general business practices. 

In most cases, the liquidation investigation is nothing to worry about. However, if the OR finds that you have not acted in accordance with insolvency law, for example, by transferring assets away from the business, making preferential payments to creditors or continuing to trade while insolvent and worsening your creditor’s position, you could face serious consequences.

How Real Business Rescue can help

If your company has been issued a winding up petition, or if you believe your creditors may soon take this action against your company, contact the experts at Real Business Rescue today to arrange a free consultation to help you understand your current position and what a winding up petition could mean for your business.