What is a winding-up petition?
Are you struggling to pay your debts when they fall due? Perhaps you have been struggling for a while and are expecting a winding-up petition. The good news is that there are usually other options before it gets to that. In this article, we’re answering the question – what is a winding-up petition?
There are many reasons a director may struggle to pay off company debt. Some of those reasons can be out of your control, such as waiting for your own customers to pay you. Regardless of your reasoning, being unable to pay debts can be extremely worrying.
If you’re sitting thinking about liquidation and company closure, then that certainly is an option. Another option would be to consider restructuring the business. To have all of these options available to you, you must act quickly and take action before you receive a winding-up petition.
What is a winding-up petition?
A winding-up petition is a legal notice and the first step in compulsory liquidation. Your creditors can order winding-up petitions when you have failed to repay debts over time. It is a petition to the courts to have your business liquidated.
Upon receiving a winding-up petition, you will be given a court date. During the hearing, the court decides whether your company can pay the debts incurred. Your company will be deemed insolvent if you cannot pay the debt. This will lead to you entering compulsory liquidation, and a winding-up order will be issued. An insolvent company cannot pay its debts when they fall due.
Once you have been issued with a winding-up order, you only have seven days to respond. After this time, the debtor company will be advertised in the Gazette.
A winding-up petition is a final demand for payment or to force the debtor to close. We recommend that you take appropriate action before you end up with a winding-up petition. We are always happy to offer honest and confidential advice on your situation.
Who can issue a winding-up petition?
Any creditor who is owed more than £750 from your company can issue you with a winding-up petition. The company debt must also be overdue by 21 days.
Before issuing the winding-up petition, creditors must provide information on the following:
- The nature of the debt and how it’s overdue
- A request of the debtor’s payment proposal
- An intention to file a petition if the debtor makes no acceptable payment proposal within 21 days
HMRC Winding up petition
HMRC is one of the biggest creditors in the UK. This is because they chase several debts, including Corporation Tax, VAT, PAYE and National Insurance. HMRC issues around 60% of all winding-up petitions.
HMRC are typically fair in their debt collection processes. As a director, if you inform them that you can’t pay your tax bill, they may offer you a time-to-pay arrangement. This involves paying a specific amount each month. Due to interest charges, you will pay slightly more over time, but a time to pay can help to relieve the pressure.
How to stop a winding up petition
Once your business has been issued with a winding-up petition, it is unlikely that you will be able to stop it. You would have to prove that the petition had been unfairly issued. Seek immediate advice on this.
If the petition has been rightly ordered, but you now have the money to pay the debt, you will have to act quickly. You will have to act before the petition goes to court. This involves contacting the creditor and organising to pay the money back as soon as possible. Bear in mind that the creditor may not accept this solution.
Other ways of stopping a winding-up petition include:
- Paying the outstanding debt (this may involve selling the company’s assets)
- Obtaining an administration order (to prevent further action)
- Negotiating a Company Voluntary Arrangement with the company’s creditors
- Considering a different formal insolvency procedure, such as voluntary liquidation
- Negotiating with creditors on advertising the petition and freezing the company’s bank accounts
- Requesting adjournment of the court hearing (must have supporting evidence)
- Checking the debt amount and disputing if necessary
If you have already received a statutory demand, this could impact the creditor’s ability to issue a winding-up order.
Restrictions on winding up petitions
During the pandemic, there were restrictions on winding up petitions, specifically who could issue them based on the amount of money owed to a creditor. These restrictions have now been lifted, and creditors can issue a petition for a company owing more than £750.
Winding up petition process and timeline
Failing to pay
The first step will be that you fail to pay your company debts. The outstanding debt must be more than £750 and be overdue by at least 21 days. The creditor must have tried to retrieve the money from you. At this point, they can issue a winding-up petition.
Issuing a winding-up petition
If you fail to respond to their requests for payment, either by paying or organising to, they will appoint a solicitor. The solicitor will apply to wind your business up after a few unsuccessful attempts at receiving the money. The petition is then sent and served to your business. You will also receive a hearing date to appear in court.
Advertising the petition
All winding-up petitions are advertised in the London Gazette. This is so that other creditors of your business can see the petition and respond if necessary. At this point, the banks will freeze your company accounts so that you cannot continue to trade.
Winding up the company
If matters aren’t resolved, your company will be wound up in court. This is when you will lose control over the company. The appointed liquidator will conduct a full investigation into your director’s conduct. This will involve looking for examples of wrongdoing, such as preference payments or wrongful trading. They will also look closely at your accounts, including the director’s loan accounts.
The insolvency practitioner must assess your company’s bank account to identify what caused the company’s problems. You might wonder, what is an insolvency practitioner? Find out here.
You may be held personally liable for some company debts, so seeking advice is crucial to avoid further issues. You have personal liability over loans secured by a personal guarantee and must not continue trading as an insolvent company. This could lead to accusations of fraudulent trading.
How long does a winding-up petition take?
Winding-up petitions are reasonably fast. Once the petition has been served, it will be advertised in the Gazette. The advertisement is printed to let other creditors know that the petition has been issued.
If you end up in compulsory liquidation, there is no way of knowing how long the process will take. One of the main disadvantages of compulsory liquidation is that you have no control over how long the process will take. This is frustrating for everyone involved.
You also have no say in who handles your company liquidation. A licensed insolvency practitioner will be allocated to your case. In a voluntary liquidation, you have the freedom to make these decisions.
What if I feel the winding-up petition is unfair or the procedure isn’t being followed correctly?
Sometimes company directors disagree with the outstanding debt amount or feel the winding-up process isn’t being followed correctly.
Here are some situations that may fall into the category of abuse of the court process:
- Insufficient time to pay the company’s debts
- Inadequate warning of legal action
- Unauthorised publicity of the winding-up petition, for example, sending a copy directly to your bank
- Unfair creditor action, such as applying further pressure by adding unreasonable costs to an application
Seek legal advice if you believe that your winding-up petition is not being followed correctly. It is your job to recognise the signs. The problem will not disappear if you decide to ignore it. Once your company has been wound up, it will be removed from Companies House and no longer exist.
What do I do if I receive a winding-up petition?
You need to act quickly if you receive a winding-up petition or are worried that you might soon. 1st Business Rescue can offer honest advice based on your circumstances. We’re here to support you as a director and give you access to the best solutions possible. The sooner you seek professional advice, the more options you will have. Please don’t ignore a winding-up petition.
Winding Up Petition FAQs
Can a winding-up petition be challenged?
A winding-up petition can be challenged if the amount owed is incorrect. You must be able to prove that this figure is incorrect and be prepared to present this.
How can a company avoid a winding-up petition?
A company can avoid a winding-up petition by paying business debts on time. If you are starting to struggle financially, you should consider talking to your creditors. If you are honest with them about your struggles, they may be more lenient than if you ignore their invoices.
Is it possible to stop a winding-up order once it has been issued?
The only way that you can stop a winding-up petition once it’s been issued is if you have been able to pay back the debts. Once the petition is ordered, you will be given a time frame and a court date to pay the money back. If you fail to pay the money by the specified date, you will be entered into compulsory liquidation.
How much time does a winding-up petition take?
Usually, the winding up petition process takes around 8 – 10 weeks. If there are any difficulties, the process can take longer.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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