What is a winding up petition?

Royal_courts_of_justiceA winding up petition is simply the last resort that a creditor has against a company that owes it money. In essence it is the “nuclear option” in that it is making a request to the court to rule that the company is unable to pay its debts, it is insolvent and therefore should stop trading.

It should not be used as a “macho debt collection tool” and should not be used to settle disputes, often creditors threaten petitions to frighten the debtor (customers) to pay.

Normally this is quite an expensive option and is only used if all other attempts to extract money have failed. Most importantly though the amount must not be in dispute in any way. Tax debts by default are generally not disputed so HMRC use this method quite frequently and as such usually account for some 60% of all petitions issued.

Process of issuing a winding up petition

Typically a creditor asks a solicitor to “wind the debtor company up” to recover debts, or to stop the company making its debts worse. This can be any creditor with debts over £750, (remember it must not be a disputed debt).
An application is made to the high court ( this is called the winding up PETITION) to ask the court to wind the company up at some point in the future. This can cost over £1500 including court fees and deposits.

The Court will grant a hearing date to “hear” the petition. Usually there is a period of 30-75 days between the petition and the court hearing.
The process is a very legal and technical one but the main thing to remember is you must act as directors when this threat or petition is received. YOU MUST ACT quickly. Or you could lose control of the company. For example, after a petition is issued, you cannot put the company into voluntary liquidation, you cannot use a pre-pack administration. You cannot dispose of company assets and the company cannot be sold. So you lose control.

If the winding up petition is issued, seven days after serving it on the company, (usually at its registered office) the petitioner who is the creditor that issued the petition can advertise it. This advert is in the London Gazette. Because banks monitor this publication the advert will mean that your company’s bank account is FROZEN.

If the company does not respond, or if no defence is mounted, then it is usually a matter of the judge issuing a WINDING UP ORDER.

So what does a winding up petition look like?

Click on the image below

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Options to avoid or stop a winding up petition?

• Pay the debt
• Agree a repayment plan
Propose a company voluntary arrangement
Place the company into creditors voluntary liquidation
Put the company into administration