What is a Winding Up Petition?

A Winding Up Petition is a serious legal action your creditors can use to force your company into liquidation if it cannot repay the money it owes. Any creditor you owe more than £750 can start the petitioning process to wind up your company.

There are steps you can take to defend a Winding Up Petition once it has been served against your company, but if you fail to act or don’t pay what you owe within the legal timeframe, the court can issue a Winding Up Order which will begin the process of forcibly closing your business. An Official Receiver or Insolvency Practitioner will be appointed to liquidate the company by way of a court-ordered Compulsory Liquidation.

Clearly, a Winding Up Petition is not something you can afford to ignore, particularly if you want to save your company from closure. Here we look at what the winding up petition process involves, the steps you can take to defend your company against a winding up petition, and what the consequence of ignoring a winding up petition could be. 

Why have I received a Winding Up Petition?

You have received a Winding Up Petition because a creditor believes you owe them more than £750 and they have not been able to recover the debt from your company despite various attempts to do so. A winding up petition can be served by any of your company's creditors, such as a trade supplier, the bank, or HMRC chasing unpaid tax bills.

Issuing a Winding Up Petition (WUP) is not something a creditor will do lightly, however. It is an expensive option for creditors and they will likely only go down this route as a last resort when they have exhausted all other avenues to recover the money they are owed.

It’s often the case that a creditor will issue a Statutory Demand against your company prior to a winding up petition. If you receive a statutory demand therefore, you are highly advised to be proactive and open a line of communication with the creditor to see if you can come to a mutually agreeable repayment plan before the situation escalates even further. Be warned that if you ignore the statutory demand, they can then serve you with a winding up petition.

What happens if I receive a Winding Up Petition?

A Winding Up Petition is served at your business’s registered office. It will include a hearing date when the court will convene to determine whether to issue a winding up order and consequently force your company into compulsory liquidation.

Once you receive the petition, you have seven days to act before it is advertised in the Gazette and becomes public knowledge. If you do not act in time, your bank and other creditors will become aware of the situation and will seek to protect their interests. For the bank, that often means freezing your company accounts, making it almost impossible to trade.

At the hearing, the court will make a Winding Up Order if it believes the company to be insolvent. That has the effect of forcing it into Compulsory Liquidation. Once a Winding Up Order has been made, there are very limited grounds to reverse it. That’s why, if you want to save your company, you must act as soon as the Winding Up Petition is issued. 

How can I stop a Winding Up Petition?

Once you have received a Winding Up Petition, you have seven days to save your business. Seeking advice from a licensed Insolvency Practitioner is highly advisable, as they will explain your options and guide you on the most appropriate route to take.

Generally speaking, there are five ways to challenge the winding up petition and prevent your company being placed into Compulsory Liquidation.

Pay what you owe

If you pay the debt in full plus the petitioner’s legal costs, the court will dismiss the outstanding winding up petition. If you cannot pay the debt in full, you may be able to reach an informal payment agreement with the petitioning creditor with the agreement that they will retrack the active winding up petition.

Dispute the debt

If you believe the debt the creditor is chasing you for either does not exist, or is a different amount than what they are claiming, you can lodge a formal dispute with the court. You should only do this if you have adequate proof to back up your reasons for disputing the debt. 

If you are successful, you can obtain an injunction to prevent the winding up petition from being advertised in the Gazette and ensure a Winding Up Order is not made.

Propose a Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is a formal insolvency procedure that allows your company to continue trading while repaying its creditors over time. A CVA is only an option for companies that are still viable and can return to profitability.

You must request a ‘stay of proceedings’ to pause the winding up process. That gives you time to appoint an Insolvency Practitioner (IP). The IP will create a realistic payment plan for your creditors, and if 75% of your creditors agree to the proposal, the court will ordinarily dismiss the winding up petition.    

Enter administration

Another option is to put the company into Administration. This formal insolvency process provides the company with legal protection from the Winding Up Petition while an Insolvency Practitioner is appointed to explore the viability of rescuing the company.

Liquidate the company voluntarily 

If the company is insolvent and no longer viable, putting it into liquidation yourself via a process called Creditors’ Voluntary Liquidation (CVL) is usually preferable to being wound up by the court. A CVL allows you to choose your own insolvency practitioner and demonstrates a desire from you to take responsibility for the company's position by placing it into liquidation voluntarily.

What happens if the court grants a Winding Up Order?

If you do not pay what you owe, or otherwise adequately defend the Winding Up Petition, a hearing will be held eight to 10 weeks later to determine whether to put the company into Compulsory Liquidation by way of a winding up order.

If the court decides to grant a Winding Up Order, an Official Receiver - the government’s version of an Insolvency Practitioner - will be appointed to administer the compulsory liquidation of the company.

At this point, the Official Receiver will take control of the company and begin to wind down its affairs. It will value and sell company assets and use the proceeds to repay outstanding creditors in a pre-determined order before striking the company off the official register at Companies House.

As part of the Compulsory Liquidation process, the liquidator must also investigate the conduct of the directors during the time leading up to the company becoming insolvent. If the liquidator uncovers examples of director misconduct or wrongful or fraudulent trading, you could be made personally liable for some or all of the company’s debts or be disqualified from acting as a director in the future.

I’ve received a Winding Up Petition - what should I do?

If you receive a winding up petition, the onus is on you to stop it. If you ignore it or do not act quickly enough, there’s very little you can do to prevent the liquidation of your company. 

As soon as you’re issued with a winding up petition, you should contact a licensed insolvency practitioner to better help you understanding your options. They will assess your business’s financial position and provide valuable guidance on the best route forward. They will also advise you on the steps you need to take to fulfil your duties as a company director.

How UK Liquidators can help with winding up petitions

At UK Liquidators, we offer free, same-day phone consultations and meetings at our offices throughout the UK so you can take swift action to defend your company. Contact our team for professional support in complete confidence.