What Is a Winding Up Order or Petition by Creditors and HMRC?

What Is a Winding Up Order by Creditors or HMRC?

A winding up order is a court order that forces an insolvent company into compulsory liquidation – a process in which the court appoints an Official Receiver (OR) to liquidate all of the company’s assets in order to repay creditors. It results when HM Revenue & Customs or another creditor sends a winding up petition (WUP) to the court after the insolvent company fails to repay a debt of more than £750 which has gone unpaid for at least 21 days.  

Upon a Winding Up Petition being advertised, a company’s bank account will typically be frozen meaning business is immediately halted. While a WUP does not necessarily mean the end of your company, you will have to move fast if you want to save it and stop it being wound up.

Can a Winding Up Order Be Stopped?

Once the court has issued a winding up order there is nothing that can be done to stop the company from being completely liquidated. However, there is a short period of time during which you can take action to prevent the order from being issued in the first place.

It is important here to note the distinction between a Winding Up Order and a Winding Up Petition.

A Winding Up Petition (WUP) is the first stage of the process, and it is here where you can challenge the petition before it goes any further. You have a relatively short window of just seven days to mount a challenge or else pay the amount owed. A Winding Up Order occurs once the WUP is accepted by the court. This sets the wheels in motion for the court to wind up your company and it is extremely difficult to save the business once things reach this stage. Once you have been served with a WUP moving quickly is vital; you should contact a licensed insolvency practitioner without delay as every day that passes limits the options available.

Options after a Winding Up Petition

When HMRC or another creditor issues a winding up petition to the court it is reviewed, and once approved, issued to the insolvent company. After receiving a WUP options are severely limited. You cannot sell the company or any of its assets, nor can you issue a Notice of Intention (NOI) to appoint an administrator. The company cannot be placed into pre-pack administration, and the likelihood of putting the company into Creditors’ Voluntary Liquidation (CVL) is extremely slim.

Upon receiving a WUP, the insolvent company has 7 days to do one of four things:

1. Pay all debts owed to the petitioner (whoever is petitioning to liquidate your company, whether it be HMRC or another creditor).
    
2. Arrange and propose a Company Voluntary Arrangement (CVA) to come to an agreement with the petitioner. Such an arrangement could allow you to repay the debt gradually over a period of up to 5 years, while also letting your company escape liquidation.
    
3. Obtain an Administration Order to have the company put into administration, which would involve a licensed Insolvency practitioner being appointed as an administrator to evaluate and sell some of the company’s assets. During a court ordered administration all legal actions are stayed, which means the court will not issue the winding up order against your company.
    
4. Dispute the debt. In order for this to be an option there has to be substantial proof that the debt claim is unfair or inaccurate. This is a serious allegation against the creditor known as “abuse of court process.”