What is a winding-up petition?
Any person or company can apply for a winding-up petition to close a business whose debts have become too big and/or unmanageable.
If you’ve been issued with a winding-up petition or you are thinking about issuing one against a company which owes you money, the Maple Accounting team have put together this 2-minute guide covering the most essential points that you need to know. Please note that the information given in this article covers England and Wales – Scotland and Northern Ireland have separate procedures.
What is a winding-up petition?
A winding up petition is usually issued against a company by a creditor (or group of creditors) which is owed money.
If a winding up petition is not successfully dealt with, it will lead to a winding-up order which can not be stopped once started.
Under what circumstances can a winding-up petition be issued against your company?
Before the issuance of the winding up petition, a company will usually have been served with a Statutory Demand.
Creditors use a Statutory Demand when all other attempts to collect money (or any other asset) owing to them have failed. Statutory Demands can be used on any business debts of £750 or more.
Companies served with a Statutory Demand have 18 days to “set aside” the demand (i.e. have the demand cancelled by a court) or 21 days in which to pay the outstanding money.
If a Statutory Demand is not set aside or settled, creditors then usually issue a winding-up petition. This petition is used in court to wind up your company with the reason given by the creditors that the Statutory Demand has not been dealt with adequately.
Will anyone else find out about a winding-up petition?
Yes. The winding-up petition is advertised in the London Gazette (or one of its regional variations) after a grace period during which you can challenge the petition in court. If your petition is unsuccessful, the entry in the Gazette will appear on the 9th day.
Upon publication in the Gazette, it is almost certain that your business bank accounts will be frozen. If any other creditors become aware of the winding up petition, they may join the ongoing legal action against your company to recover owed monies or assets.
How soon does a winding-up order follow a winding-up petition?
A winding up order can be issued by the court after seven days. This will lead to the liquidation of your company at which point its cash and assets will be distributed to creditors (with HMRC usually being first in line).
At this point, your company will cease to exist. The Official Receiver then investigates the circumstances leading to the liquidation looking for evidence of wrongful trading. Wrongful trading means allowing a company to continue to trade when the directors “knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation…(and) they did not take every step to minimise the potential loss to the company’s creditors”. (Insolvency Act 1986: Section 214)
If you are found guilty of illegal trading, you could be made personally liable for some or all of your old company’s debts. A court may also ban you from becoming a company director for a period of up to 15 years.
Can a winding-up petition be stopped?
Yes, but as we mentioned before, the process becomes unstoppable once a winding up petition is followed by a winding-up order.
When you receive the winding up petition, there are four options open to you:
- if the debt is legitimate, pay it off without delay
- appoint an administrator through an Administration Order (AO). During an AO, all legal action against the company is halted, and an administrator is appointed to evaluate the assets within a business and to sell any assets that can be sold to raise cash to pay creditors
- challenge the debt if you have substantial evidence showing errors in how the debt the creditor alleges your company owes has been calculated
- propose and enter into a Company Voluntary Arrangement which can be used to pay debt back over a period of up to 5 years in monthly increments.
Winding up petition – professional advice
To find out more on how to defend against a winding-up petition or to use one to pursue a persistent debt owed to your company, email email@example.com or call 01332 207 336