What is a Winding Up Petition?

Winding Up Petition: A complete guide for company directors

A winding up petition is issued against a company by a creditor and represents the first stage in a court-ordered compulsory liquidation process.

A winding up petition is the most serious legal action a creditor can take against your company. If you do not respond to the winding up petition, this will start a series of events that disables your ability to trade, and ultimately means your company will be wound up by the courts.

It is imperative that you act quickly, as once the petition has been served you only have seven days before the petition is advertised in the Gazette and becomes public knowledge. The court sets a hearing date to decide whether a winding up order should be granted, and if so, the liquidation process will start..

Seeking advice and guidance from a licensed insolvency practitioner immediately upon receiving a winding up petition will ensure you understand all your options available to you at this time.

 

 

 

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Can a creditor put my company into liquidation?

A creditor can put your limited company into liquidation if you fail to repay them debt that you owe them. A winding up petition is the first step in a compulsory liquidation process that can be forced upon a limited company due to unpaid debts.

If you want to save your company from being placed into liquidation by its creditors, you must take swift action upon being presented with a winding up petition before this is converted into a winding up order.

Why have you received a winding up petition?

Being issued with a winding up petition by a creditor is effectively their last attempt in trying to get paid. This form of action usually follows a series of unsuccessful attempts to recoup money using the standard methods of collection.

Many creditors will first issue a statutory demand against your company before opting to serve a WUP, although they do not have to do this. In order to petition for the winding up of your company, a creditor must be owed a debt of £750 or more and have waited at least 21 days for the debt to have been paid. 

What happens if you receive a winding up petition?

When a creditor issues a petition for winding up, this will be advertised in the Gazette following a period of 7 days.

Following the advertisement, the outstanding winding up petition against your company becomes public knowledge, and your bank and other creditors are likely to become aware of the situation immediately. In order to protect their own interests, the bank will often freeze your company bank accounts to ensure no further losses are incurred; this act renders continued trade impossible.

“Spoke with Chris who put me at ease straight away. He was very knowledgeable and listened intently to all my worries and concerns. Will definitely be using Real Business Rescue and advise anyone with business issues to give them a call.”

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Chris Bristow
Business Debt Expert

When would a creditor issue a winding up petition?

If one of your creditors is owed £750 or more, the debt is not in dispute, and they have unsuccessfully tried to recover the debt via standard channels, they can issue a winding up petition against your business with a view to closing down your company.

In order for a creditor to successfully petition for the winding up of your company, they must be able to prove that the debt exists, and this is usually done via a 21-day statutory demand for payment issued prior to the winding up petition. Failing to pay the statutory demand makes the debt exist in law, and also can be used as evidence that your company is in fact insolvent and unable to meet its financial obligations.

Who can issue a winding up petition?

Trade suppliers, HMRC and the banks commonly issue winding up petitions, with HMRC in particular being known to use this method as a way to recover tax debt which has gone unpaid. 

The cost to the petitioner is significant, however, and so a creditor typically regards this as the only course of action left open to them. Court fees are high, and when added to the cost of hiring legal assistance, the process is expensive for the petitioning party – usually costing them between £1,500 and £2,000. Due to this, it is rarely done unless all other efforts to collect the money owed have been exhausted. 

If a petitioning creditor is successful in having your company wound up, they will be able to recoup their costs from the liquidated company as part of the process.

What happens after a winding up petition has been issued: Understanding winding up orders

Once a petition has been issued and served on your company the court sets a date for a hearing, and a decision is made on whether to grant a winding-up order.

If a winding up order is granted, the Official Receiver (OR) or another liquidator will be appointed to wind up the company, place it into compulsory liquidation, and sell its assets for the benefit of your creditors. They will also investigate the conduct of directors in the time leading up to the company becoming insolvent.

All company assets will be professionally valued with a view to selling them at a liquidation auction, and the proceeds distributed equitably between creditor groups. The company is then removed from the register held at Companies House, and will cease to exist as a legal entity.

Winding up petition: A timeline

Why advertise the winding up petition in the Gazette?

It is a statutory requirement that, in order to obtain a winding up order, all winding up petitions must be advertised in the Gazette, which serves to alert the public and other creditors to your situation. The banks scan these adverts regularly to protect their own interests, and it generally doesn’t take long for news to spread about a company at risk of compulsory liquidation.

The advert is usually placed in the Gazette seven days after the petition has been served. This quickly escalates the seriousness of your position, and considerably reduces your ability to save the company.

Can I continue to trade with a winding up petition?

As far as the courts are concerned the company’s potential winding up begins when the petition is presented, making any movement of company assets after this time reversable by the liquidator if a winding up order is later granted under Section 127 of the Insolvency Act 1986.

Following the advertisement of the winding up petition against your company in the Gazette, your company's bank accounts are likely to be frozen immediately, meaning continuing to trade will not be possible.

Once a winding up petition has been served against your company, it is strongly advisable that you seek the services of a licensed insolvency practitioner. This will help ensure you avoid partaking in any unlawful transactions or movement of assets that could result in you incurring personal liability for company debts and creditor losses at a later stage.

A winding up petition on ‘just and equitable grounds’

You may have heard of a winding up petition being presented on ‘just and equitable grounds,’ but this refers to a different type of petition than those presented by creditors claiming insolvency.

If there is a shareholder dispute – for example, a deadlock on decisions in the boardroom or a shareholder who believes the company is being mismanaged - they may be able to take action using this type of petition. A company may also be wound up on 'just and equitable' grounds in the matter of public interest.

Obtaining a validation order after your bank accounts have been frozen

Can you stop a winding up petition?

Dismissing or defending the winding up petition in court