Winding Up Petitions

A winding up petition is HMRC’s final resort. Prior to petitioning the court, it will send a statutory demand and numerous communications to your business requesting payment. You may also have received a visit from one of its enforcement officers. If it has no success, it will ask the courts to intervene.

The courts will notify you of the petition and its impending hearing (usually you are given between four-eight weeks notice). If you do nothing, a winding up order will be issued at this hearing to place your company into liquidation.

Once the liquidation is in process, the liquidators will use the company’s assets firstly, to pay the costs of liquidation and secondly, to pay as many of the company’s creditors as possible.

When you receive the petition, you have seven days to respond before it will be advertised in the London Gazette.

Once the petition is advertised, your bank and other creditors will see what is happening and they will react.

Usually,

• Your bank account will be frozen
• Creditors may refuse further credit and if they are concerned about money owing to them they can apply to attach to the petition any money that they are owed
• Rumours will start to circulate within your industry, and depending on your type of business, you may find competitors using the information to take your customers

In order to deal with the petition with minimum cost impact therefore, it’s crucial that you act fast.

Realistically, you have six potential options when should your business face a winding up petition:

Pay in full: if you can pay the debts within seven days, including the costs of the petition, the process can be stopped. This will prevent the petition from being advertised in the London Gazette and any other creditors being alerted to it.

However for most businesses, given that non payment of taxes has escalated to this point, this might be unrealistic, especially if other creditors have attached to the petition

Apply to adjourn the winding-up petition: this buys you a period of time to decide on how you want to proceed, or to put a CVA in place, or raise finance.

Arrange a Time to Pay (TTP) or a Company Voluntary Arrangement (CVA): if your business will be able to pay the debt but not immediately, it may be possible to come to a formal agreement with HMRC which might be either a TTP for HMRC debts only, or a CVA if you have other outstanding debts.  Either option will enable you to repay the debt over an agreed longer timescale, in predefined instalments.

However, this has the potential to be tricky for two reasons.

Firstly, it requires HMRC to have faith that you will be able to honour the agreement, and if you have already had a TTP agreement it is likely to look unfavourably on this.

Secondly, it does need to be proposed and agreed within the seven-day window, which can be difficult though not impossible.

Make an application to put the company into administration: whereby the company is legally protected, giving you some valuable breathing space to determine the best way forward (either sale of the businesses assets, or proposing a CVA).

Obtain alternative finance: through other means such as invoice factoring, asset finance or peer to peer lending.

Initiate a voluntary liquidation: you can take control of the process by placing the company into creditors voluntary liquidation, (as opposed to compulsory liquidation).

Repay the debt: The process can be stopped if you can pay all the debts owed to the petitioner within seven days, including costs.

Some helpful pointers – if you settle the debt, the petition must be withdrawn from the courts by the creditor before it gets to the hearing date. If it isn’t, you will still have to attend the hearing and provide formal evidence to the court that the debt has been settled.

Verbal agreements won’t constitute formal evidence of the debt being settled, however, so you’ll need to be properly prepared if it does go to hearing. It’s worth knowing that if the debt is paid before the petition is heard in court, but it does get advertised in the London Gazette, and another creditor has grounds for issuing a petition against your company, they can adopt or take-over the petition, even though the original debt has been settled.

It’s called a ‘change of carriage’ and can have major cash-flow implications.  It means you’ll be subject to proceedings concerning a new debt regardless of the one that you have paid.

Make an informal agreement – If you can pay the debt, but not immediately, it may be possible to come to an informal agreement with the creditor. Be aware though, that the winding-up process will cost your creditor in the region of £1450 – £4500 to initiate.

It’s therefore not something that they do lightly. In most cases, a creditor will expect full payment quickly and you to pay their costs on top.  This means that payment terms can sometimes be difficult to agree outside of formal processes within this restricted timeframe.

Learn more about informal agreements here.

Request an adjournment: The most popular grounds for an adjournment are: 1) to allow time for repayment in full via third party funds or an asset sale and 2) to allow time to put a CVA in place.

Make a formal agreement with the creditor using a Company Voluntary Arrangement (CVA) – Although it is sometimes possible to have a CVA agreed prior to a winding-up hearing, usually an adjournment of the petition is sought to give time for a CVA to be properly prepared and agreed.

Place the company into voluntary liquidation – Voluntary liquidation allows you time to implement a full strategy to deal with various liquidation ramifications, such as personal guarantees, redundancies, and lease terminations.

Dispute the debt – If you disagree with the debt, i.e. that you owe the money, you can apply to the courts for an injunction against the petition, and to prevent it from being advertised in the London Gazette.

This is relevant to cases where there is a debt already in dispute prior to winding-up proceedings being initiated. The courts have made it clear in their rulings that winding up proceedings should not be used as a tool by creditors to apply pressure to a company to force it to pay a debt that is legitimately in dispute.

If you have a valid, or bona fide dispute with your creditor that you owe the money, you can apply to the courts for an injunction against the petition.  This is in effect a legal allegation against the creditor known as ‘abuse of court process’. If any of the details of the debt are inaccurate, it is your responsibility to inform both the creditor that has petitioned the court and the court of any errors.

If having disputed the debt, the judge agrees with your evidence, you will be awarded costs, and the petition dismissed. If the court agrees with the petitioner, your company will be wound up.

If you have failed to pay your VAT, PAYE, national insurance contributions, corporation tax, and/or you have missed payments according to your time to pay arrangement, HMRC can apply to the courts to have your company wound up to recover the monies owing.

A winding up petition is one of the most serious actions HMRC can take against your company. If not properly managed, it will lead to the compulsory liquidation of your business, so we talk through the process in detail and what you should do if your business has received an HMRC winding up petition, or you are concerned that it might.

Stage 1 – Filing the petition in court

The petitioning creditor or their legal advisors file the winding-up petition in court.  They pay the winding up petition fee and deposit at the same time.  You won’t be officially informed of this until Stage 3.

Stage 2 – The court agrees on a hearing date

Timeline: approximately two weeks after Stage 1

If the petition is accepted by the court.  The court sets the hearing date and time, writing this into the petition before returning it to the petitioning creditors.  The hearing date is usually set four to eight weeks from when the court completes the details.

Stage 3 – The creditor serves the petition

Timeline: approximately a week after Stage 2

The winding up petition is served on your company either at its registered address, or by hand to an officer of the company, giving you the details including the outstanding debt and the time and date of the hearing.

Stage 4 – The winding up petition is advertised

Timeline: approximately two weeks prior to the hearing date

A public advert is placed in the London Gazette giving the hearing details.

Stage 5 – Stakeholders may take action

Timeline: between the London Gazette advert date and the hearing date

Once the advert is placed, your bank is likely to freeze your bank account, and other creditors can apply to attach their debt to the petition. This means that in order to avoid winding up, you’ll need to deal with their debt as well.

Stage 6 – The winding up petition hearing

Timeline: approximately four to eight weeks from the court accepting the petition

The court will consider creditors submissions and either dismiss the petition, adjourn the hearing to a later date or make a winding up order to place the company into compulsory liquidation.

Once the petition has been advertised in the London Gazette, your company is exposed to:

• Frozen bank accounts
• Reputational damage
• Potential staffing problems
• Additional creditors attaching themselves to the petition
• Potential lease terminations – under some lease agreements, these can be triggered automatically

Once a winding up petition is issued, you’re legally obliged not to allow the company’s assets to be diminished. If any of the following happens you could be held personally liable:

• Repaying creditors – preferential payments
• Paying yourself
• Selling company assets

You can find advice and strategies for dealing with a winding up petitions here.

Whilst a winding up petition against a business can certainly mean the end of some companies, it doesn’t necessarily have to.

Every business is different, and whilst the options above will give you an idea of common approaches or strategies for dealing with a petition, the best thing that we can do is look at your particular situation with you.

Winding up is a relatively costly process. If you need to stop the process once the petition has been accepted by the court, you will be liable for those costs on top of the debt you owe to your creditor.

This is nearly always several thousand pounds. If the petition does go to a hearing, you may also wish to instruct a solicitor or barrister to represent you in court, unless you are comfortable representing yourself.

You have options if served with a winding-up petition but you need to think carefully and act quickly.

The stakes are high – it can easily mean the end of your business and additional financial consequences for you personally.

The first action you should take is to contact us.

Use our online booking system to set up a meeting or contact one of our expert advisors directly.

They’ll be able to answer your questions and discuss your options but the sooner you act, the more leeway you have.