Winding up petition

When would a company need this service?

The winding up of a company is a complex minefield.  Many companies are uncertain as to what course of action to take when faced with the undesirable prospect of being served with a winding up petition.

Service of a winding up petition is the start of a process whereby the petitioner is attempting to have the company put into compulsory liquidation by the court.

There are many reasons why a petitioner may seek to have a company wound up, however the most common reason is that the company has become unable to pay debts owing to its creditors, i.e. the petitioner is claiming that the company is insolvent.

The most common petitioner is HMRC, in instances where the company has not paid its taxes. However, alongside HMRC there are other individuals/organisations that can bring winding up proceedings against a Company which include:

  1. Suppliers of a company who are owed more than £750.00;
  2. Employees in exceptional circumstances;
  3. Shareholders where it is “just and equitable” to do so;
  4. Any creditors of the company;
  5. Any person/organisation who holds a judgement debt against the company; and
  6. The Secretary of State where it is in the public interest to do so.

How does the process work?

Many companies don’t always realise the severity of a winding up petition being presented against them. Once a winding up petition has been presented and advertised in the London Gazette it is likely to have dire consequences for a company which include:

  1. Difficulty in the company obtaining credit;
  2. The company’s bank accounts being frozen, which is likely to impact on day to day trading (see below);
  3. Any dispositions that the company has made could potentially be void (see below);
  4. Damage to the company’s reputation; and
  5. Legal costs in defending and/or responding to the winding up petition;

In order to deal with the difficulties of the company’s bank accounts being frozen, or the risk of a disposition becoming void, there is the possibility of the company applying for a validation order. Our lawyers will be able to assist you with this process.

How to oppose a winding up petition

There are a number of ways in which a winding up petition can be opposed. Some examples of ways to defend a winding up petition include:

  1. The alleged debt owed is genuinely disputed on substantial grounds by the company;
  2. The company has a right to set-off against the creditor which exceeds the amount claimed;
  3. The petitioner has failed to comply with the relevant procedure, or there is a technical error which should lead to the winding up petition being dismissed.

How to seek an adjournment

When the winding up petition is presented at court, the court will list a hearing in the Companies Court where the petition is heard by a Registrar. At the hearing the Registrar will determine whether the company should be wound up or not.

There may be instances where the company requires a short adjournment before the Registrar makes a determination, for example when the company needs a short period of time to pay the debt, or it wishes to enter into a company Voluntary Arrangement (CVA).

In the first instance it would be advisable to write to the creditor/HMRC asking for their consent to the company’s winding up to be adjourned. Whilst the petition hearing would still go ahead at least both parties can attend having agreed the adjournment. It is advisable to instruct solicitors to attempt to agree the adjournment (especially if the petitioner is HMRC) so that the request for an adjournment can be made in a persuasive manner.

If the Petitioner refuses the adjournment, then there is still the possibility of going to court and asking for an adjournment at the hearing. The court may be persuaded to grant a short adjournment, especially if there is documentary evidence in support of the reasons given for the adjournment.

If the debt is established and there is no reasonable prospect of paying the debt within a short periodof time, then the company may wish to consider a CVA . A CVA will enable the company, with the assistance of insolvency experts, to write off a proportion of its debts.

How long does it take?

Normally the court will list a hearing for the petition to be heard between 2-3 months after it has been presented. 

If the matter is adjourned, the court will not usually grant an adjournment for more than 18 weeks, unless there are exceptional circumstances. However, it is possible for a company to request more than one adjournment. Depending on how many adjournments a company is permitted  and the period of time between each of those adjournments, it could take up to 18 months before a winding up petition is either dismissed or results in the company being wound up by the court.

What should companies do before calling

It would be helpful if as much relevant documentation as possible could be to hand prior to contacting us. Such documentation may typically include the winding up petition and any other documents relating to the debt sought.

Is it expensive? What are the likely costs?

In most cases we are able to agree a fixed fee to represent a company at the Companies Court. 

Our solicitors have higher rights of audience and can attend the Companies Court on your behalf instead of having to instruct external counsel, thereby ensuring that you have one advisor who deals with your case throughout the process, which can also be cost effective.

Meet our Insolvency team 

Bimal Kotecha