What is a winding up petition?

 A Winding Up Petition is the most serious action a creditor can take against your company. A winding up petition involves asking - or petitioning - the court to force your company into compulsory liquidation due to its inability to meet its liabilities and pay its debts as and when they fall due.

If a creditor has served you with a Winding Up Petition you should take this action extremely seriously. Failure to deal with the petition will see your company being forced into liquidation and wound up by order of the court.

“Receiving a winding-up petition is one of the most stressful things a director can experience. When directors call us about a winding up petition they have received, they’re almost always in panic mode. The first thing we do is slow the situation down and assess what’s actually possible. In many cases, the petition can be dealt with if you act quickly enough. The directors who get the worst outcomes are those who freeze and do nothing.”
— Julie Palmer, Partner, BTG Begbies Traynor

 

 

 

What happens when a winding up petition has been served?

Once a winding up petition has been served on a company, the petitioning creditor – which could be a trade creditor, lender, or HMRC – can proceed to advertise the petition after a period of 7 days has elapsed. This advertisement will alert other creditors to its existence and stir them into action too. When your bank becomes aware of the petition, they will take steps to freeze the company’s bank accounts meaning no further transactions will be possible.

It is imperative that you speak to a licensed insolvency practitioner as soon as the petition has been received rather than attempt to ‘trade out’ of the problem, as once your bank account is frozen the options available for your company are dramatically reduced.

How do I know if a creditor is going to serve me with a winding up petition?

It is unlikely for a Winding Up Petition to have been served out of the blue. In most cases, it is the final action following a lengthy process on behalf of the creditor to get your company to pay what it owes. It is likely that you will have identified the potential onset of formal insolvency before the petition was served.

Creditors will often issue a Statutory Demand before opting for a winding up petition; if you have received a Statutory Demand, you should take this as a warning sign that your creditor is serious about recovering the money you owe.

HMRC and winding up petitions

HMRC is by far the most common issuer of winding up petitions in the UK. Since the end of the post-pandemic forbearance period, HMRC has resumed aggressive enforcement of unpaid tax debts.

HMRC’s process differs from trade creditors in several important ways. While a trade creditor will typically issue a statutory demand first (giving you 21 days to pay), HMRC does not always follow this step. They may issue a winding up petition directly if they believe the company is unable to pay its tax debts, particularly where previous Time to Pay arrangements have failed or been rejected.

“HMRC petitions account for a significant proportion of the winding up cases we deal with, and the vast majority of these have been issued by HMRC. The pattern we typically see is a company that fell behind on VAT or PAYE during a difficult period, attempted a Time to Pay arrangement that either failed or was rejected, and then received a petition without much additional warning. If you’re already in dispute with HMRC or behind on tax payments, a winding up petition is a real possibility.”
- Julie Palmer, Partner, BTG Begbies Traynor

What happens after a winding up petition has been issued?

While receiving a winding up petition is extremely serious, there is still be a chance to rescue the company if you act soon after receiving the petition.

From the date of the petition a seven-day countdown begins. After the seven days are up, an advertisement will be placed in the Gazette which notifies all interested parties of the active winding up petition against your company. Once advertised, your bank will freeze the company’s accounts, other creditors will become aware of the petition, and trading becomes extremely difficult. Acting within this window is critical to prevent advertisement.

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What can be done in those seven days?

• Your appointed insolvency practitioner could propose and negotiate a Company Voluntary Arrangement (CVA). If the business appears to be viable, this offers the creditor a proportion of the debt over a longer period of time, and allows the company breathing space to turn the business around.

• Apply for an adjournment of proceedings so that the Administration route can be considered.

• You can voluntarily have the company placed into Administration and this would prevent a Winding Up Order being issued by the courts. Company assets would be valued and sold by an appointed administrator to cover some or all of the debt.

• You can pay all monies due to the creditor, including their petitioning costs.

• Disputing the debt is an option but this is a serious step, however, and should not be taken lightly. This type of accusation against the creditor is called ‘abuse of court process’ and is one that needs solid evidence to back it up.

• An injunction could potentially be taken out to either postpone or prohibit the petition being advertised in the Gazette. This would prevent other creditors becoming aware of the situation, an important point as the banks keep track of these adverts and would freeze all company accounts.

“In our experience, a substantial number of winding-up petitions are resolved before reaching a court hearing, either through payment, settlement, or an alternative insolvency procedure. A winding up petition does not automatically mean the end of the company.”
- Julie Palmer, Partner, BTG Begbies Traynor

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What happens after the seven days?

There is a period between the petition being filed and the court hearing, which is typically 6 to 8 weeks. Even if the petition has been advertised, options may still be available up until the hearing date, including paying the debt, reaching a settlement with the petitioner, or proposing an alternative insolvency procedure such as a CVA or administration.

“The 7-day window gets all the attention, and rightly so - preventing advertisement is the priority because once your bank accounts are frozen, everything becomes harder. But even after advertisement, the door isn’t completely closed. We’ve successfully negotiated settlements and proposed CVAs after the petition was advertised, right up to the hearing date. It’s always worth calling, regardless of where you are in the timeline.”
- Julie Palmer, Partner, BTG Begbies Traynor

Can your company continue to trade after a winding up petition?

Once a winding-up petition has been filed, any payments made by the company including paying suppliers, repaying loans, or transferring money between accounts can potentially be reversed by the court if a winding-up order is eventually made. This is known as a post-petition disposition under section 127 of the Insolvency Act 1986.

In practice, this means you should not make any payments out of the company’s accounts after receiving a petition without first taking professional advice. Payments made in the ordinary course of business may be validated by the court, but this requires a specific application, known as a validation order, and cannot be assumed.

“One of the biggest mistakes directors make after receiving a winding up petition is trying to pay off other creditors or move money to a different account. Every transaction after the petition date is potentially reversible, and it can also attract scrutiny of the director’s conduct. The advice is simple: don’t move any money until you’ve spoken to a professional.”
- Julie Palmer, Partner, BTG Begbies Traynor

Understanding compulsory liquidation after a winding up petition

Once the winding up order has been made, the compulsory liquidation process will begin. The court will appoint an Official Receiver (OR) who will investigate the company's affairs and the reasons for its failure. In some cases, the Official Receiver will ask an independent insolvency practitioner to take over the administering of the liquidation, although all matters relating to the directors' conduct will continue to be overseen by the Official Receiver.

It is advisable to make sure that all accounting records and other relevant company information is available, whether or not compulsory liquidation occurs. Clear and accurate record-keeping enables the work of the insolvency practitioner to be carried out quickly and efficiently, and in the case of a Winding Up Petition, speed is of the essence.

If company directors are found guilty of misconduct, the result can be fines and/or disqualification from being a limited company director in the UK - this ban can last for up to fifteen years. In serious cases of misconduct, directors could face imprisonment.

What to do if you have received a winding up petition?

1. Don’t ignore it. A winding up petition will not go away on its own. The timeline runs whether you engage or not, and the consequences of inaction are severe.
2. Do not make any payments out of the company’s accounts. Any transaction after the petition date can potentially be reversed by the court. Don’t pay suppliers, repay loans, or transfer money until you’ve taken advice from a licensed insolvency practitioner.
3. Contact a licensed insolvency practitioner immediately. The 7-day window before advertisement is critical. An insolvency practitioner can assess your options and, if appropriate, contact the petitioner on your behalf to negotiate.
4. Gather your financial records. Your appointed insolvency practitioner will need up-to-date accounts, cash flow forecasts, and a clear picture of the company’s debts and assets. Having this ready speeds up the assessment.
5. Check whether the debt is disputed. If you genuinely dispute the amount owed, this can be a valid defence but it needs solid evidence and should not be used as a delaying tactic.

How BTG Begbies Traynor can help

If you’ve received a winding up petition, time is critical. We deal with these situations every week, and the sooner you contact us, the more we can do.  Call your nearest BTG Begbies Traynor office now to arrange an urgent consultation. We can typically assess your position and advise on next steps within 24 hours.