What is a winding up petition?
A winding-up petition is a legal mechanism that creditors can use to shut down a business that is unable to pay its debts. This is known as ‘winding up a business’ or ‘compulsory liquidation’.
The term ‘winding-up petition’ refers to the application that a creditor makes to a court to start the process of closing down (‘winding-up’) a company. If the petition is successful, the court will issue a ‘winding-up order’ and appoint a liquidator who will take control of the company and its assets, and then handle the insolvency process.
A winding-up petition can only be used in certain circumstances and there are steps a company owner may be able to take to stop the process. It is therefore important to fully understand what is involved before starting or responding to a petition.
In this blog, we will cover:
- When might a winding-up petition be used?
- Who can apply for a winding-up petition?
- How to apply for a winding-up petition
- How to stop a winding-up petition
The information contained in this blog is intended to provide a useful starting point for anyone who is facing the winding-up of a company they own or manage, or who is considering using a winding-up petition against a debtor. It is not intended as specific legal advice and we recommend contacting any of our offices in London, Portsmouth and Norwich for advice tailored to your circumstances.
When might a winding-up petition be used?
A winding-up petition might be used where a company owes money and a creditor or creditors of the business believe that it cannot pay what it owes. They can be used by all types of creditors, including HMRC, in which case it may be referred to as a ‘HMRC winding-up petition.’
Who can apply for a winding-up petition?
A creditor can apply for a winding-up petition where they are owed at least £750 by a company and they can prove that the business is unable to pay them. The creditor will need to show that it has made reasonable efforts to secure payment of the debt, which might include offering a payment plan where appropriate.
How to apply for a winding-up petition
To apply for a winding-up petition, a creditor will need to fill in forms and submit these to the relevant court. This is usually done with the help of a specialist solicitor to ensure all of the correct details are included and that the debt is one that is suitable for a petition.
As part of the application, the creditor will need to include proof of the money owed and evidence that the debtor company is unable to pay. This might include things like a statutory demand and a court judgement detailing the amount owed and the date the judgment was issued.
Depending on how much ‘paid-up share capital’ the company has, the application will need to be sent either to the court nearest to the company’s registered office (if the paid-up share capital is under £120,000) or to the High Court (if the paid-up share capital is £120,000 or more).
The creditor will need to pay court fees and a petition deposit. Once this is done, the court will send the creditor a copy of the petition which lists the hearing date. The creditor must then deliver a copy to the company. They must provide proof that this has been done to the court in the form of a ‘certificate of service’. A solicitor or process server will normally take care of this process on the creditor’s behalf.
Once a court has accepted the petition, they will arrange a hearing date. The creditor must advertise the hearing in The Gazette at least seven working days before the hearing date. A copy of the advert must be sent to the court at least five working days before the hearing and a list of everyone who will be attending the hearing must be provided to the court no later than 4:30pm on the day before the hearing.
How to stop a winding-up petition
There are various options to stop a winding-up petition, including:
- Paying the debt owed
- Agreeing a payment plan with the creditor or creditors
If a company has evidence that it does not owe the alleged debt to the creditor, or creditors who started the petition, then it can provide this at the hearing. If the court accepts the company’s position, then it will not make a winding-up order and the petition will be dismissed.
If a winding-up order is granted, a company can apply to cancel/rescind it if it can prove that there was a reason why the order should not have been made. . The application must be made within five working days of the order being issued.
There are also other options to consider, such as administration or a company voluntary arrangement.
If you wish to challenge a winding-up petition or seek to cancel a winding-up order, then it is strongly recommended to get expert legal advice as early as possible, which our team will be happy to provide.
Speak to our experts about a winding-up petition
If you are a business that has been served with a winding-up petition (including a HMRC winding-up petition) or you are a creditor of a business that is considering a winding-up petition, we can offer expert help. We offer tailored insolvency and restructuring services for businesses as well as a full range of lender and creditor services.