A winding-up petition (WUP) is by far the most extreme action that can be taken against your company.
In this article, we’ll explore what it is, the process that must be followed and some ways you can stop it from happening.
What is a winding-up petition?
A winding-up petition is a legal notice issued by a creditor to a company that owes money. It will often follow a statutory demand or county court judgement (CCJ) and is a final demand to force payment or force the debtor company to close.
It’s worth noting that HMRC is one of the biggest issuers for outstanding VAT, PAYE, NI or corporation tax, issuing around 60% of all winding-up petitions.
Understanding the process
Companies can find themselves in financial difficulty for many reasons, including unforeseen or increased costs, customers being slow to pay, or lower than expected sales.
Once trust between the creditor and debtor has been eroded, or payment deals have failed, the creditor may take the severe step of issuing a winding-up petition.
Before issuing a winding-up petition, the creditors will need to show:
- The nature of the debt and how it’s overdue
- A request for the debtor’s payment proposal
- An intention to file a petition if the debtor makes no acceptable payment proposal within 21 days
Previously, creditors could issue a winding-up petition if they were owed more than £750. However, due to the COVID-19 pandemic, this has been increased to £10,000 to help protect small businesses.
After seven days of serving the petition to your registered office, the winding-up petition can be advertised in the London Gazette to allow other creditors to see that a company is insolvent. By serving a notice of support, additional creditors can also claim their own debt.
The final step in the process is the winding-up petition being presented at court, where a judge will consider the evidence before making a ruling. Finally, if the debtor company cannot pay the outstanding debt, the company will be placed into liquidation.
Once the order has been issued, the Official Receiver will begin the process of winding up your company, and once completed, the company will cease to exist.
What do I do if my company receives a winding-up petition?
Don’t bury your head in the sand. It’s essential to act as soon as possible!
Once a winding-up petition has been issued, even if the debt is paid and the advertisement in the London Gazette halted, the court can still hear the case.
Your bank will also likely freeze your company’s bank account to avoid any illegal activity by the directors. Unfortunately, the freezing of a company’s account can prevent it from trading, worsening the situation. That’s why it’s essential to act quickly if threatened with a winding-up petition.
What if I feel the winding-up petition is unfair or the procedure isn’t being followed correctly?
If you feel the process of issuing a winding-up petition isn’t being followed correctly, or you disagree with the debt claimed in the first place, it’s understandable to feel that the petition is unfair.
Situations that may fall into the category of abuse of court process include:
- Insufficient time to pay any debts owed
- Inadequate warning of legal action
- Unauthorised publicity of the winding-up petition, for example, sending a copy directly to your bank
- Applying further pressure by adding unreasonable costs to an application
If you receive a winding-up petition and feel it’s unfair or has not followed the due process, you must seek legal action immediately. Please don’t hope the problem will somehow go away on its own.
How can I stop a winding-up petition?
Some actions can be taken during the first seven days of receiving a winding-up petition, and they may well save your business! These include:
- Paying the outstanding debts (including any costs of serving the petition)
- Obtaining an Administration Order. This will provide a legal ringfence around your company, preventing further action from your creditors
- Negotiating a Company Voluntary Arrangement (CVA) with the creditors
- Exploring Voluntary Liquidation
- Creditor negotiation, preventing advertisement of the WUP in the London Gazette and your bank account being frozen.
- If you have sufficient evidence, request an adjournment or cancellation of the court hearing
- If the debt is incorrect, you may be able to dispute it.
After the seven days has passed and the petition becomes an order, it will become increasingly difficult to save your company.
Need more advice?
At 1st Business Rescue, we’re here to help. If you’re facing a winding-up petition or are worried about receiving one, speak to one of our expert and friendly team today for free impartial advice.