Has Your Company Received a Winding-Up Petition?

October 28, 2023 / Winding Up Petition

If your company has received a Winding-up Petition, and you want to sort your debt problems, once and for all – then give us a call.

This advice will not cost you anything, but it will help you to avoid making costly mistakes.

We have been helping directors deal with their company’s debt problems since 1994, and we are regulated by the ICAEW. So, you can feel assured that we can help you.

If you would like to read more about Winding-up Petitions and the effects they can have on you and your company, we have a range of articles for you here on our website.

However, if you would rather deal with things straight away, just give us a call on 0161 907 4044

Why would a company receive a winding-up petition?

Winding-up petitions are primarily used as a means of debt recovery. Creditors of insolvent companies, that is, companies that cannot pay their liabilities once they come due, may use a winding-up petition to recover their debts. While serious, creditors will typically use a winding-up petition as a last resort, once they are convinced that no other action will bear fruit. In other words, a winding-up petition is the last step in an escalating line of debt collection methods, and can usually be seen coming.

Although they do not always spell the end for a company, winding-up petitions are a deathly serious affair. A company being served with a winding-up petition may be closed by court order, with little room for negotiation. As such, you must act swiftly and carefully to gain control over the situation if you suspect your creditors to be considering a winding-up petition.

Who can serve a winding-up petition?

Creditors of any kind can serve a winding-up petition, including banks, suppliers, private lenders and HMRC. Winding-up petitions are expensive and time-consuming, with court fees and legal representation being two significant expenses. As such, even the most aggressive of creditors will leave this option until they believe no others can work.

When might creditors consider a winding-up petition?

As we mentioned, winding-up petitions tend to be considered at the end of many fruitless attempts to recover debt. This tends to have a fairly unobtrusive start, involving no more than letters and phone calls. Assuming creditors cannot contact their debtor, they may escalate to in-person visits, bailiffs, and other forms of action. Should these fail to recover the debt, then creditors may turn to a winding-up petition.

Creditors can consider a winding-up petition if the outstanding debt is over £750, the debt has existed for less than six years, and they have tried other recovery methods first. If these criteria are met, then creditors must be able to prove the debt to the courts. This is most often done using a statutory demand, which essentially demands the debt to be repaid in full, or that an agreement with creditors is reached, within 21 days. If this is not accomplished, then the debt will be recognised in the eyes of the law, and shows that the company is insolvent. This allows creditors to serve a winding-up petition if they so choose.

What is a Winding-Up Petition & How Does The Process Work?

When a company owes a creditor money, and their payment demands have gone unfulfilled for more than 21 days, they are entitled to issue a winding-up petition to the court.

The winding-up notice asks the court to liquidate the company as it is believed that it is insolvent. Once liquidated, the proceeds and funds are used to pay back creditors what they are owed.

Unlike voluntary liquidation, which is initiated by the company director and is a completely voluntary process, those who are issued a winding-up petition will be forced to go into Compulsory Liquidation. This is the most serious form of action that can be taken against a company.

Read More >>> What Is a Winding-Up Petition & How Does It Work

How Does the Winding-Up Petition Procedure Work for Limited Companies

The winding-up procedure begins when all other forms of debt collection fail. After attempting to recover a debt through other means, creditors may use the winding-up procedure as a last resort. This is usually preceded by a statutory demand, which is a requirement in order to prove the existence of a debt, and prove that the company in question cannot or will not repay. Once this evidence is obtained, the creditor can approach the courts and submit a winding-up petition.

Depending on the size of the debt, petitioners must approach one of two courts. Smaller debts will be heard in a local court near the debtor company’s headquarters, while larger debts in excess of £120,000 will be heard in the High Court. Assuming the court accepts the winding-up petition, a hearing will be scheduled in which both parties can make their case. This will result in one of three outcomes, depending on who the court sides with.

If the court rules in favour of the company, then the winding-up petition will simply be thrown out. The company will be able to continue operating as normal, and can pursue insolvency procedures if need be. However, if the court rules in favour of the petitioners, then the company in question will be ordered to repay the debt in full. Typically, the court would serve the company with a winding-up order, which effectively forces the company into compulsory liquidation. An Official Receiver will be appointed as liquidator, and director-control over the company will be overridden. The company will then be liquidated and closed, with the proceeds going to repay outstanding creditors. Additionally, it is possible for directors to be investigated for mismanagement, which could result in legal and financial penalties depending on the outcome.

Read More >>> Winding-Up Petition Procedure For Limited Companies

Can a Winding-Up Petition Be Served For My Company’s Bounce Back Loan?

Being served a winding-up petition is a real possibility for insolvent companies. This petition is the typical route to initiating a compulsory liquidation. A process that can be forced upon a company by any creditor owed at least £750. This will bring the issue of repayment to the courts, with a view to determining whether the company is truly insolvent. If it is determined to be so, the company will be forced into a compulsory liquidation, with the courts appointing an Official Receiver to execute the procedure.

Read More >>> Can a Winding-Up Petition Be Served For a Company’s Bounce Back Loan

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Can a Winding-Up Petition Be Stopped?

When a creditor is owed money by a company, it can often be frustrating to be met with no response. If the creditor has exhausted all the avenues available to them and the creditor has been unresponsive for 21 days or more, then they are entitled to issue a winding-up petition to a court as a way of getting back what they are owed.

However, it is possible for directors to stop a winding-up petition, both before the procedure even begins, and after a company has been served a petition. The way in which a winding-up petition can be stopped will depend on the specifics of the situation at hand. For some directors, contesting a winding-up petition in court is sufficient. For others, it will be best to ensure a winding-up petition cannot be served in the first place. This can be achieved through a Creditors’ Voluntary Liquidation (CVL), as it prevents a company’s creditors from taking legal action once the procedure begins.

What Are the Costs to Dismiss a Winding-Up Petition?

The costs of dismissing a winding-up petition are directly tied to the case at hand. Some can be pretty inexpensive, such as if an agreement is reached outside of court. However, if a winding-up petition is disputed in court, it can get quite costly. Legal representation is not cheap, and if a company’s directors wish to fight the petition to the end, costs can grow exponentially. It is difficult to place an estimate on how much this can cost, as the costs of legal representation and the time required for a case vary wildly. That said, it is certainly expensive enough that contesting a winding-up petition should not be a decision made lightly.

Winding-up petition: What’s Next?

A winding-up petition begins the process of the compulsory liquidation of a company. This is a procedure initiated by creditors who are owed money as a means of retrieving payment.

If your company receives a winding-up petition, you will need to act quickly if you wish to stop it.

Read More >>> What Happens After Receiving a Winding-Up Petition

Can A Winding-Up Order Be Reversed?

If your company is struggling to repay its debts, you may be pressured into closing it down. Often, this pressure will come in the form of a winding-up order, which can feel incredibly intimidating, particularly if you’re unsure what to do next.

A winding-up order can be used by creditors to force a company to repay its debt, often after numerous failed attempts to recover money that is owed.

Read More >>> https://clarkebell.com/blog/can-a-winding-up-order-be-reversed/

How to Create and Issue a Winding-Up Petition After a Statutory Demand

Winding-up petitions generally require a statutory demand to be issued first. Once a statutory demand has been issued, and its 21-day time frame has elapsed, then creditors can issue a winding-up petition.

Submitting a winding-up petition can be done using a Form 4.2, which can be completed either in paper format, or downloaded from the UK government website. This document will require information regarding the company in question, the reasoning behind the winding-up petition, and a few other information points. With the form completed, it can be submitted to the appropriate court, and served to the debtor directly.

What is the Difference Between a Statutory Demand and a Winding-Up Petition

Although the two are linked, there is a great deal of difference between a statutory demand and a winding-up petition. Statutory demands give a debtor an ultimatum: either pay the outstanding debt in full, reach an agreement to do so over time, or the situation will escalate. Winding-up petitions, on the other hand, are the escalation.

Rather than make a demand to pay an outstanding debt, winding-up petitions bring the issue to the courts. There, the debtor will be forced down a path of the court’s ruling, without much say in the matter. This is in stark contrast to a statutory demand, which affords some control, albeit very limited, to the debtor.

How To Stop a Winding-Up Petition From HMRC

Stopping a winding-up petition from HMRC is a difficult task. That said, HMRC isn’t likely to launch a winding-up petition that isn’t certain to stand up in court. This makes contesting a winding-up petition from HMRC quite difficult, but not impossible. Mistakes can still be made, and you may be able to find flaws in the winding-up petition. This can help you dispute the details of the petition in court, and possibly result in the court ruling in favour of your company.

Does a Winding-Up Petition Require a Deposit

A winding-up petition does require a deposit before the submission of the form. This deposit will be used to secure the services of the Official Receiver, or court-appointed liquidator, in order to carry out the winding-up of the company. Once the deposit has been paid, petitioners will receive a receipt that can be used as proof. This will be required upon the submission of the winding-up petition, and the procedure cannot begin without evidence of payment.