Winding Up Petition

Time is of the essence once you have been served with a Winding Up Petition. If you do not promptly answer the petition, your business will be forced to close and cease to exist as a legal entity.

A Winding Up Petition is a formal notification served on your company that indicates the petitioning creditors’ desire to dissolve your company and strike it off the Companies House register. Presenting Winding Up Petitions is usually done on just and equitable grounds.

Read on to learn more about Winding Up Petitions and how they might affect your company’s assets.

We will also discuss what actions your business should take when receiving a WUP

Continue reading to get all of the information you need to know!

What is a winding-up petition?

A winding-up petition (WUP) is a formal insolvency procedure that declares the petitioning creditors’ intention to have your company closed down.

The WUP is a legal notice that the creditors file with the courts requesting that they have a hearing to establish whether the debtor company is insolvent.

Once a WUP is issued your business only has a very short amount of time to respond to it and if the appropriate response is not issued your company will be forcibly shut down.

It is a very serious statement and it is the strongest action a creditor can take against your business. If a Winding Up Petition is served on your company because of debt owed, you should seek legal advice about the debts incurred.

If nothing is done about it, it can lead to your business not having the ability to trade which ultimately means the end for your business.

WUP on ‘just and equitable grounds’

A WUP on just and equitable grounds is a different type of petition and it is only presented by creditors claiming insolvency.

If there is a shareholder dispute and a shareholder believes that the company isn’t being run properly they can use this type of petition to take action.

Why Have I Been Served a Winding Up Petition?

A creditor’s Winding Up Petition is a legal notice filed with the court. If a creditor is owed more than £10,000 and has not been paid for more than 21 days, they can file a court petition.

The motion asks the court to liquidate the corporation because they feel it is insolvent. The proceeds from the compulsory liquidation process might be utilised to repay creditors.

HMRC is responsible for over 60% of all Winding Up Petitions. The Corporate Insolvency and Governance Act 2020 increased from £750 to £10,000.

Frequently, the corporation has betrayed the creditor’s faith; payment agreements have fallen through, bank transfers have failed, and directors have not maintained their word to pay.

Your clients have been sluggish to pay, or sales have been fewer than expected, despite your company’s best efforts to fulfil payment deadlines.

As a result, the creditor chooses the “nuclear” option. Of fact, things aren’t always as straightforward; in some situations, creditors have used malicious petitions to resolve disputes.

When a creditor wants to wind up your business, they are usually serious about recouping the money owed or forcing it to close its doors.

According to recent case law, any payments made by the corporation after the petition has been filed may be nullified in the event of a liquidation.

Legal counsel, accounting advice, and even wages cannot be paid without a validation order. The company will be unable to trade as a result of this.

Therefore, it is critical to act as quickly as feasible. If you work promptly, there may still be time for a Company Voluntary Arrangement (CVA), saving your company.

A Winding Up Petition typically costs between £400 and £800 to file, plus a £1,600 court deposit and a $302 filing charge, so it’s a significant investment. Use the contact form to ask our experts for an example of a Winding Up Petition.

When Would a Creditor Issue a Winding Up Petition?

If one of your creditors owes you £10,000 or more and has tried unsuccessfully to collect the debt through traditional procedures, and the debt is not in dispute, they can file a Winding Up Petition to close down your business.

They must demonstrate that the debt exists, usually accomplished by issuing a 21-day statutory demand for payment before filing the Winding Up Petition.

Failure to pay the statutory demand establishes the debt in law, allowing the creditor to push for the company’s Winding Up proceedings.

If your creditor has an unpaid County Court Judgment (CCJ) against your company, they won’t need to make a statutory demand because the unpaid CCJ effectively proves the debt’s existence.

Who is Likely to Take this Form of Action?

Trade suppliers, HMRC, widely use this process, and banks, with HMRC in particular, is known for using petitions to recover debt rapidly.

Your creditor may suspect you of avoiding payment on purpose or that you have a poor repayment history and are unlikely to comply with their demands.

However, there is a hefty expense to the petitioner. Your creditor may believe that this is the only option available to them.

The filing of a Winding Up Petition is a very technical procedure, and if done incorrectly, the document’s legitimacy may be questioned.

It’s crucial to remember that even if you pay the petitioning creditor in full, the court hearing will still occur once the petition has been served. If other creditors are aware of the situation, they might intervene and utilise the petition to collect their debts.

The expense of issuing a Winding Up Petition is one of the disadvantages for creditors. Court fees are expensive, and when combined with the cost of employing legal counsel, the petitioning party’s costs are high — typically between £1,500 and £2,000.

Keep in mind that, even though the consequences are dire and you have little time to act, we may be able to assist you. Our specialists have a lot of experience dealing with situations like these, and we’ll most likely be able to get the petition adjourned or dismissed from court.

What Can I Do About a Winding Up Petition?

A company can overturn a Winding Up Petition or even a Winding Up Order and resume normal operations.

On the other hand, people will only continue to do business with a firm that has been served with a Winding Up Petition if it can provide strong assurances about its ability to continue operating.

What Options Do I Have if My Business Receives a Winding Up Petition?

When your company receives a petition, your options become limited. Putting the company into creditors’ voluntary liquidation is nearly impossible.

• You can’t sell the business or company assets since the court could overturn the sale.
• You can’t nominate an administrator with a Notice of Intention (NOI).
• You are unable to create new securities or charges.
• You are unable to place the company under pre-pack administration.

There are only a few other options except paying up. There may still be time to request a CVA if you respond quickly.

Another alternative is to seek legal guidance on responding to the petition. For example, if the debt is not settled.

However, keep in mind that the company’s lawyers may refuse to authorise the payment because any payments made during the liquidation process may be nullified.

If your company is viable and has a bright future, the administration is a very effective way to defend it against the petition.

However, now that your business is about to close, you’ll have to undergo an expensive legal process. Before granting an Administration Order, the court must examine the needs of all creditors and the petitioner.

If the court grants an Administration Order, it will stay or stop the Winding Up Petition and prevent a Winding Up Order from being issued and any further legal action unless the court gives permission.

The administrator who proposes a CVA must be a licensed insolvency practitioner to protect the firm and facilitate debt repayment for up to 5 years. It could also be sold to a new firm or buyers, with you as a director.

If the company pays the debt, keep in mind that the amount owed has grown due to the plaintiff’s legal fees. The petitioner will expect to be reimbursed for those expenses as well.

What is the Winding Up Petition Process?

Typically, a creditor retains the services of a solicitor to wind up the debtor company to recover unpaid debts or prevent the corporation from worsening its debts.

An application is filed with the high court, requesting that the firm be wound up. The procedure is legal and complex, but the most important thing to remember is that you must act as a director if a petition threat is received.

You must act swiftly or risk being held personally liable for the bills. The creditors will need to set forth before the petition is issued.

Winding Up Petition Timeline

1. After repeated unsuccessful attempts to collect the debt, your creditor sends a 21-day statutory demand for payment, unless they already hold a CCJ against you.
2. They will need to employ a solicitor to complete the application for winding up your firm if this remains unpaid and there is no possibility of reaching an agreement on a repayment plan.
3. A process server at your company’s registered office sends the petition to the High Court.
4. The court schedules the hearing, usually 8-10 weeks after they file the petition.
5. Seven days after they deliver the petition, they will announce the hearing in the London Gazette, and your condition will become public information.
6. The bank will freeze your company’s accounts after reading the advertisement in the Gazette, thus barring any further trade without express approval from the courts.
7. You could still be able to get an adjournment at this stage, but your odds are minimal.
8. If your company does nothing, the court will issue a Winding Up Order, and the case will be taken away from you.
9. The liquidator will investigate the director’s behaviour, potentially exposing you to personal culpability and charges of misconduct, unlawful trading, or other serious issues related to the company’s operations.

What if I Disagree with the Debt Claimed?

If the conduct is unjust or abuse of the legal system, you should seek legal help.

Remember that issuing a Winding Up Petition by HMRC is unlikely to be an abuse of procedure. They are savvy debtors, and most tax bills are unassailable.

On the other hand, unregulated debt collectors may utilise the petition process to extort money without fully comprehending the process.

The following are some examples of the wrong process:

• Allowing the debtor insufficient time to pay the payments required
• Failure to provide adequate notice of legal action
• Threatening to publish the petition in a way that isn’t legal, such as sending a copy to your bank
• Adding arbitrary changes to the application to increase the pressure

If the petition is deemed an abuse, you may be able to legally prohibit it from being published and perhaps have it withdrawn. Otherwise, the petition hearing will be posted in the London Gazette and held at the High Court of Justice in due course (Companies Court).

If the petition has already been published, the company may request a postponement of the hearing. However, you will need a compelling cause to do so.

Can This be Dismissed in Court?

After your company has paid the debt, you may think you’re in the clear from any further action concerning the WUP.

This is not the case since any other creditors could come forward to take control of the petition and recover their debt by winding up your company which is called substitution.

This is why it is important to withdraw the petition from the court if possible as soon as the debts are paid.

Will this cost the business money?

Going to court to defend your company’s position may cost the company quite a lot of money.

With the legal fees for a solicitor or a licensed insolvency practitioner to represent you, you may also need to cover the costs of the petitioning party.

If you are successful in the argument their fees may be added to the original debt amount before the petition is completely dismissed.

But it will be worth it once your company gets back on track again.

When is the Winding Up Petition Advertised?

The Winding Up Petition notice must be published seven days before the scheduled petition hearing. The petition will be public once it is published, and banks that check The Gazette daily may decide to freeze the company’s bank accounts.

The petition is primarily published so that other creditors can notice that the company is bankrupt. They can then ‘piggyback’ on the same petition and file a claim for their debt, serving the original petitioner with a notice of support.

If you respond quickly, you may be able to halt the advertisement. Keep in mind that even if your business pays the debt and the advertisement stops, the case can still be tried in court and made public. It is critical to act before a Winding Up Petition is filed.

Why Does The Petition Have To Be Advertised?

All petitions advertised in the London Gazette are a statutory requirement to be able to obtain a winding-up order.

The advert is usually placed in the Gazette 7 days after it has been served this allows the public and banks to be notified and in turn reduces the ability for your company to be saved.

Under these circumstances, your company should act only on the guidance of an insolvency practitioner to avoid any unlawful transactions.

What Happens After the Winding Up Petition is Advertised?

If the WUP has already been advertised in the London Gazette and your bank accounts are still frozen your company is in a very bad position. However, at this point you still may be able to seek adjournment but if any more delays appear then this will eliminate the chances of recovery.

Your company assets such as funds in the bank may be able to be accessed by obtaining a validation order.

Realistically as soon as you receive the petition your company should start to take action straight away to avoid going through the liquidation process. At this stage, if the hearing has not taken place yet you can still contact an insolvency practitioner immediately. This is to see what can be done in the later stage of the winding-up process.

Other creditors may support the petition after it has been publicised, and if the original petitioner gets paid or withdraws, they may take over the petition.

The Winding Up Order is issued if the petition is approved. The order will be served on the company, and the official receiver will take over as a liquidator.

Freezing of Bank Accounts and Assets

The bank will be notified at this point. The company’s bank account will be frozen to prevent any “disposition” or undervalued asset sales and other unlawful conduct by the directors. This may cause the company to become paralysed and cease operations.

Although it is not required by law for a bank to freeze a customer’s account, most institutions do so. So, why do banks put their accounts on hold?

Under section 127(1) of the Insolvency Act 1986, the precise answer is that any sale of the company’s property or any transfer of shares after the commencement of the winding-up is void unless otherwise ordered by the court.

This means that a company’s ability to continue trading after a Winding Up Petition is published. As a result, banks presume that they must freeze the accounts to prevent assets from being disbursed. In their opinion, it is a safe step.

Petition for a Winding Up Order Court Hearing

The judge will hear the petition and issue a Winding Up Order if the company cannot pay and there is no proof or defence that it will be able to pay in the future.

When this occurs, the Official Receiver will begin liquidating the business. You must comply with the Official Receiver’s or an authorised liquidator’s demands for information and records. It is a criminal offence if you do not do so.

When a court orders a company to be wound up, the Official Receiver or appointed liquidator must investigate the conduct of the company directors to confirm that they performed lawfully and followed their legal and fiduciary responsibilities.

If the liquidator feels the directors have engaged in improper trading, the liquidator may recommend that they be barred from all current and future directorships for up to 15 years; however, this is uncommon.

What are the Main Areas of Concern for Directors?

Even if your personal liability as a director of the company is restricted, you and other directors may be held personally accountable for some or all of the company’s debts in certain circumstances.

When a corporation is insolvent, this is one of these situations. This is known as “lifting the veil of incorporation,” and it might put you in severe financial trouble if a liquidator decides to pursue you for repayment of funds borrowed from the firm.

The following are some of the most common areas of concern for directors:

• Personal guarantees are frequently demanded to decrease the lender’s risk, and they are likely to be invoked if the company goes bankrupt.
• Since the ‘debt’ is a company asset, the liquidator will demand repayment so that creditors receive maximum returns.
• According to insolvency law, a corporation must cease to trade as soon as its directors become aware that it is insolvent or is likely to become insolvent shortly.
• If you do not stop trading, you may be held personally accountable for any extra debt accumulated after insolvency.
• When you attempt to mislead a company’s creditors by evading debt payments.

The liquidator will also look for antecedent transactions or transactions that occurred before the company became insolvent or that caused it to become insolvent afterwards. The following are the two most typical forms of antecedent transactions:

• Preferential payments are those in which a creditor is in a better position due to the payment. For example, a lender may be paid ahead of other creditors because the director has given them a personal guarantee that they fear may be called upon.
• Undervalued transactions occur when an item is sold for far less than its genuine market value, such as when the property is gifted to a family member or another person.

What are the Potential Consequences for Directors?

You could face penalties under the Company Director Disqualification Act of 1986 for various director misbehaviour, including misfeasance, trading while insolvent, and fraudulent trading.

The repercussions of a liquidator’s inquiry revealing instances of improper or fraudulent trade or other forms of wrongdoing are severe and could include the following:

• Disqualification from holding the position of director for up to 15 years – this would also bar you from participating in the establishment, operation, or management of any other UK company
• Personal accountability for company obligations incurred while the firm was bankrupt
• Hefty penalties from trading fraud
• A prison sentence may be imposed for substantial fraud

You may be restricted from certain professions, such as working as an accountant or solicitor and being unable to hold the position of director for the period specified.

Additionally, serving as a school governor or a trustee of a nonprofit organisation may be impossible.

How Can I Protect Myself if the Company is Wound Up?

Suppose company directors are found guilty of continuing to enable an insolvent business to trade while knowing it was insolvent. In that case, they may be held personally accountable for the company’s debts when they realise it was insolvent.

Summary

Unpaid creditors can file a Winding Up Petition with the courts to bring an insolvent corporation into compulsory liquidation. A Winding Up Petition can be filed by any creditor who owes more than £10,000 to the court.

The courts will convene a hearing after you get a Winding Up Petition to determine if the corporation is insolvent and unable to pay its debts.

The court will issue a Winding Up Order and appoint an Official Receiver to liquidate the bankrupt company if the corporation is deemed insolvent.

You must respond immediately, as you only have seven days after the petition is served before the company’s financial state becomes public information.

The court schedules a hearing to determine whether or not a Winding Up Order should be issued, and if so, the liquidation process begins.

Seeking counsel and direction from a professional insolvency practitioner will ensure that you know all of your alternatives, with the ultimate goal of avoiding your company’s liquidation.

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