What Is A Winding Up Petition? Our GuideAugust 30, 2021
If you’re wondering ‘what is a winding up petition?’, then this short guide will help.
A winding up petition is a real threat to a business’ survival, so if your company has received one, or if you believe it’s at risk of this, you need to think about the next steps without delay.
In this guide we’ll run through a typical winding up petition procedure, as well as the options available for, potentially, how to stop a winding up petition as soon as possible.
Before we get into specifics about the consequences of a winding up petition, it’s vital to understand - what is a winding up petition in the first place?
What is a winding up petition?
Creditors issue a winding up petition in an attempt to force a company into closing down for good, to recover debt owed to them.
They can do this once they are owed £750 or more, under the terms of the Insolvency Act 1986.
Creditors apply for a winding up petition via the court, usually once they have already tried some other options to reclaim their money and are now able to prove that the company cannot pay them back.
They may have already sent a statutory demand requesting repayment within 21 days, but to no avail.
So in short, a winding up petition is a means of forcing compulsory liquidation on a company - so now let’s look into the winding up petition procedure.
Winding up petition procedure
Creditors pay a £1,600 winding up petition deposit and £280 in court fees to start the process - these costs are set by the government.
They may be able to reclaim these costs, if the company can afford to repay them at a later date.
After the winding up petition has been issued, neither the company nor its assets can be sold on.
The court sets up the hearing and the creditor has the winding up petition issue listed in the Gazette, an official public record.
At the hearing, if the creditor wins then the company goes into compulsory liquidation and is later struck off the register.
Consequences of a winding up petition
The costs can become higher for a compulsory liquidation in comparison to a voluntary one.
This also means that there could be lower realisations for creditors from the liquidation of company assets.
Once the bank knows that the winding up petition has been issued, it will typically freeze the company bank account immediately. Any payments made from a company account following the petition are void unless a validation order is provided (see below)
With the company bank account frozen, employees and suppliers will all go unpaid.
Out of all the consequences of a winding up petition, compulsory liquidation is the crucial one - ultimately this results in all staff members being made redundant.
How to stop a winding up petition
If you want to know how to stop a winding up petition, in theory there’s a range of possible options. For example, these could include:
- A company voluntary arrangement (CVA)
- Defending the petition in court
- Company administration
If agreed with creditors, then a CVA prevents the issuing of a winding up petition.
Alternatively a company can oppose via the court if its directors are certain that they have strong grounds for opposition (legal advice should be sought).
To dispute the winding up petition, the defence would need to be accompanied by evidence explaining the reasons.
Separately, a validation order may be applied for to validly pay amounts from the company bank account post petition (otherwise these are void).
A company can also enter into administration, as an attempt to buy time and make a plan for resolving unpaid debts. A pre pack administration could also be an option for a company threatened with a winding up petition.
A creditors’ voluntary liquidation (CVL) would also be a less stressful, pre-emptive alternative to compulsory liquidation.
What is a winding up petition? Summary
A winding up petition is action taken by creditors to reclaim debts owed to them by forcing a company into compulsory liquidation.
Hopefully this guide answered several questions you may have, including ‘what is a winding up petition?’ and ‘what is the process?’ - as well as addressing how to stop a winding up petition.
If your company has received a winding up petition, or has been threatened with one, it’s very important to seek professional advice immediately from an experienced insolvency practitioner.
Therefore if this is your situation, or if you would just like more information about a winding up petition procedure, then please get in touch with us.