Does a Winding Up Petition Require a Deposit?

September 25, 2023 / Winding Up Petition

Creditors with outstanding loans to insolvent companies may be tempted to make use of a winding up petition. This petition offers a means of recovering a debt that would otherwise be difficult, if at all possible, to collect. Winding up petitions allow creditors to take the matter to the courts, make their case, and potentially force the company into compulsory liquidation. This liquidation can then free up any value stored within the company and its assets, which would then be distributed amongst the petitioning creditors. However, while this can be useful to creditors that don’t believe repayment is possible, it isn’t cheap. Moreover, a winding up petition isn’t likely to raise enough funds for all of a company’s creditors to receive repayment.

With that said, how much does a winding up petition cost? Does a winding up petition require a deposit? More importantly, how does it affect a company and its directors? 

In this article, Clarke Bell will answer these questions, detail the winding up procedure, and what you can do about it as a director.

What is a winding up petition?

A winding up petition is available to creditors of companies with which they have an outstanding debt that is going unpaid. It is a legal procedure, one that involves the courts assessing whether a company should be liquidated to fulfil its obligations to creditors. If the courts approve of the petitioners’ case, then the company can be served a winding up order. This begins the process of compulsory liquidation, for the purposes of repaying outstanding creditors.

Given the totality of the winding up procedure, and the amount of effort required on behalf of creditors, it is not a first port of call. Submitting a winding up petition will cost creditors both time and money, making other options more appealing, should any be available. As such, a company’s creditors will likely prefer attempting communications, negotiations, or even using bailiffs, before turning to the winding up procedure.

Does a winding up petition require a deposit?

In order to submit a winding up petition to the courts, the petitioners must first pay a deposit. This deposit must be made to the Department of the Economy, and is used to secure the services of an Official Receiver. They will be responsible for the liquidation of the company in question, and the procedure cannot get underway without payment for their services and a receipt detailing the payment’s particulars. Once the petitioners have the receipt, they can submit the winding up petition with the courts, along with the receipt and the appropriate court fee. 

All in all, petitioners can expect this process to cost around £3,000.

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What is an Official Receiver?

An Official Receiver is a court-appointed liquidator responsible for carrying out the winding up procedure. They will take control of the company that creditors have petitioned to be closed, and work similarly to a liquidator in a voluntary liquidation procedure. The Official Receiver will identify company assets, sell them for a high value, and distribute the proceeds amongst the petitioners. After this point, the company will be closed and removed from the Companies House register.

In addition to the company’s liquidation, the Official Receiver will open an investigation into the company’s finances and the conduct of its directors. This is to ascertain whether the company’s financial issues were the product of mismanagement or even outright misconduct. To be specific, this investigation will focus on a company’s financial records, financial activity, and director activity after the company became insolvent. Should evidence of misconduct be found, directors can face serious consequences, ranging from financial penalties and director disqualification to a prison sentence.

Can a winding up petition be stopped?

Winding up petitions typically precede the compulsory liquidation of a company, regardless of whether it is terminally insolvent or has a path to recovery. This has several negative implications for both the company and its directors. Naturally, the closing of the company is the foremost consequence, but loss of control and legal implications are not to be overlooked either. To avoid these consequences, directors must avoid being served a winding up petition in the first place. 

While it is possible to challenge a winding up petition, doing so is difficult, and preventing one from being lodged at all is usually the better option. But how can directors ensure their creditors don’t submit a winding up petition?

Also Read: How Does the Winding Up Petition Procedure Work for Limited Companies?

Creditors’ Voluntary Liquidation

While negotiation in the form of a Company Voluntary Arrangement (CVA) can delay a winding up petition in some cases, it cannot remove the possibility on its own. For companies that cannot reach a new agreement with their creditors, or cannot find a viable business model, a Creditors’ Voluntary Liquidation (CVL) is likely to be the best option.

The CVL process offers directors of insolvent companies several key benefits. Firstly, it provides an exceptional framework for closing an insolvent company, acting essentially as the positive counterpart of compulsory liquidation. Where compulsory liquidation removes director control, a CVL affords it, allowing directors to choose when to act, and who should enact the procedure. Unlike compulsory liquidation, directors are entitled to appoint an insolvency practitioner of their choosing as liquidator. This liquidator will work in a similar fashion to an Official Receiver; namely, they will liquidate the company’s assets, empty its accounts, and distribute any proceeds amongst creditors. Once all funds are distributed, the company will be closed and stricken from the Companies House register. If any debt remains at this point, it will be written off, with the exception of loans secured by personal guarantees.

The CVL procedure is voluntary, which demonstrates the willingness of the directors to act in the interests of creditors. This reduces the likelihood that accusations of misconduct are made, and acts as a strong defence should any be alleged in court. While these benefits make CVLs a standout option, there are other strong reasons to place your insolvent company into the procedure. 

For more information about CVLs, read our complete guide to the process.

Clarke Bell can help you

A winding up petition does cost a creditor, including paying a deposit. However, it is often the only option that is available to the creditor to try and recover the money they are owed. 

If your company is struggling with financial problems, and you are worried that your creditors might be considering a winding up petition, give us a call.

You can speak to one of our experts who will advise you on what to do. This advice is free.

With more than 29 years of experience in helping directors of struggling companies to find a solution to their problems, we can do the same for you. 

Contact us now and deal with your company’s debt problems once and for all.