What is a winding up petition?
A winding up petition is a legal notice that a creditor can file with the court when a company owes them money and they have exhausted all efforts to recover this money. These creditors can include HMRC and the winding up order is the first step in getting the company liquidated in a compulsory liquidation so that the creditor can receive some of the money owed to them. The creditors can submit this winding up petition when the insolvent company doesn’t pay a debt of over £750 for more 21 days. On average HMRC issues most of the winding up petitions with approximately 60% coming from them.
This is an extreme option for creditors to take which is why it tends to be the last resort for them. This is because it is not a cheap option for the creditors as they are charged for filing a winding up petition. This could cost between £400 to £800 to issue the petition if you engage a solicitor to do this for you and there are court filing fees of £280 and a petition deposit of £1,600 as well as other discretionary costs. So, creditors are looking at a minimum cost for filing a winding up petition at £1,880. Therefore, it is often only an option taken by creditors with large amounts owed to them when the likelihood of receiving the money through any other route is low.
The creditor completes the winding up petition and submits it to the court. The company will be informed of the winding up petition before a decision is made by the court and before the winding up petition is potentially advertised. If the winding up petition is advertised the business’ bank account may be frozen to prevent them from moving money and this can result in the company being unable to operate effectively or at all. It may not necessarily be the end of the business but to save the business you would have to act quickly.
The court will make a decision based on the petition and if approved the court will issue a winding up order that will start compulsory liquidation.
What is a winding up order?
A winding up order is issued by the court after a creditor has submitted a winding up petition and the court has approved it. This winding up order forces the company into compulsory liquidation and the court will appoint an Official Receiver to manage the liquidation of the company.
The company will be forced to immediately close and the receiver will take over the business and handle all the business’ financial and legal affairs. They will sell all of the business’ assets to pay the creditors in order of importance.
What is the winding up petition procedure?
The process of a winding up procedure is as follows in most cases:
- The creditor fails to receive payment for their invoice or money owed in the case of HMRC for business VAT, PAYE and NI. The debt has to be over £750 to an individual creditor and must have been outstanding for more than 21 days before a winding up petition can be filed.
- You can complete the winding up forms yourself or you can engage a solicitor to do them on your behalf.
- The winding up petition form is called Comp 1 which is available on Gov.uk and you will need to ensure it is fully and accurately completed with the company’s details and you will need to provide evidence of the debt owed to you and show that notice was given for the payment to made.
- You will need to submit the form to the correct place based on the company’s share capital which is available on the Companies House register and the registered location of the business. You will also need to pay the court fees at this point. The petition deposit will be paid at a later date upon request.
- You then need to serve the winding up petition to the company and provide a certificate of service to the court confirming that it has been served to them. A process server can do this on your behalf.
- Once the winding petition has been served to the company, they have seven working days to pay the debt or file an objection to the petition.
- The petition can also be advertised if deemed appropriate. This may result in the company’s bank accounts being frozen and other creditors may act against the company and the company may be refused credit from other businesses having been made aware of the winding up petition.
- The winding up petition will then be heard in court usual a couple of weeks after the seven working days has elapsed from the company being notified of the winding up petition. The court will make a ruling on the information that has been provided to them including any objections and evidence from the company that is the subject of the winding up petition.
- If the winding up petition is approved, the company will be forced into compulsory liquidation. At this point, the court will appoint an Official Receiver to manage the liquidation.
- The receiver will then take control of the business’ financial and legal affairs and close the business and liquidate its assets to pay its creditors.
The above process can typically take four to eight weeks from filing the winding up petition to the court making a decision.
What are the winding up petition costs?
The creditors’ cost for filing for a winding up petition are made up of several factors which include:
- The fee for filing the petition with the court which is £280.
- The court also charges a petition deposit which is used to cover the cost of the court managing the liquidation to an Official Receiver, this is £1,600. This is called a deposit as it is refundable if the company is not wound up in cases where the debt is paid, or the company is found to not be insolvent.
- An optional process server service can be taken which costs between £75 and £100 in England and Wales and is where an independent body will serve the petition to the company on your behalf and provide evidence to the court that it has been served.
- If you use a solicitor to file the winding up petition the costs could be in the region of £400 to £800 depending on the solicitor used.
- There could also be some advertising costs if the petition needs to be advertised which could be in the region of £80.
Therefore, the total costs can range from £1,880 to £2,860, although £1,600 for the petition deposit could be refundable if the petition is not granted.
How do you issue a winding up petition?
There are certain necessary steps that you must take to ensure a winding up petition is correctly issued and accepted by the court. Firstly, you must ensure you use the correct form and complete it fully, a solicitor can help you to complete the winding up petition.
Secondly, you must submit the completed winding up petition to the correct court based on the company’s share capital and the company’s registered office location, help with this can be found here.
Thirdly, you must serve a copy of the winding up petition to the company and provide the court with a certificate of service confirming that the petition has been served to the company. You can serve the company yourself or you can engage a process server to do this on your behalf and a solicitor can help you find one.
Fourthly, you may be required to advertise the winding up petition and your solicitor will be able to advise you on whether this is necessary and where it needs to be placed.
What is an HMRC winding up petition?
An HMRC winding up petition is very much the same as a winding up petition brought by any other creditor. HMRC can file a winding up petition if a company fails to pay their VAT, PAYE, NI or corporation tax within reasonable timescales. As with any other winding up order, the value of the debt must be over £750 and be outstanding for more than 21 days.
HMRC will not take this step lightly and will only file a winding up petition as a last resort. Before filing the petition, they will have sent numerous communications to the business including statutory demands requesting payment. Once they have exhausted this, will they file a winding up petition.
How to stop a winding up petition?
There are only a few options to stop a winding up petition as it is a legal process, but there are ways to prevent your company from being put into compulsory liquidation which includes:
- If the winding up petition is unfair, or you dispute the debt then you should legal advice immediately to prevent reputational damage to the company that can occur from the winding up petition being advertised.
- If you can pay the debt to the creditor you should do so quickly within seven days to prevent the winding up petition being advertised. This will allow the creditor to withdraw the petition before the court date and prevent court proceedings and reduce their costs.
- If you can’t fully repay the debt, you could discuss with the creditor an informal repayment plan, although you should bear in mind that they have just entered a costly legal process to address this and therefore might not be willing to discuss it.
- Alternatively, you can request an adjournment to allow you to put a plan in place to release funds from your assets or put a Company Voluntary Arrangement in place with your creditors.
- You could also put the company into voluntary liquidation so that you have more control over what happens, but you should seek advice on this as it may be difficult to do at this point with a winding up petition in place.
- You can obtain an Administrative Order so that you can put the company into administration, and this will give the company breathing space and time for an insolvency practitioner to find the best solution for the creditors.
- You can also provide evidence to the court that the company is viable and that a rescue plan is a better alternative through administration or a Company Voluntary Arrangement.
Once the court has issued the winding up order, the compulsory liquidation can’t be stopped.
Is there a central registry of winding up petitions?
Yes, there is a Central Registry that holds winding up petitions as well as administration applications that is held on behalf of the courts in England and Wales, Scotland has its own system. This Central Registry holds information including all winding up petitions, winding up orders, company administration applications, orders or appointments filed in England and Wales. As such it should detail all insolvency processes that are started in the courts.
The Central Registry is dependent on the local courts filing the information in the registry.
The Central Registry can be searched before a winding up petition being issued to check there isn’t already an existing and unresolved winding up petition already in place for the company.
What are the capital distributions on winding up a company?
Capital distribution is the money that is paid from the company to its shareholders which is subject to capital gains tax rather than income tax. When a solvent company is wound up it is possible to distribute the retained profits and funds from the sale of assets as a capital distribution. However, in the case of a company that is subject to a winding up order and gings through liquidation, it is unlikely that there will be much if any funds left to pay the shareholders. Although if there is anything left the maximum amount that can be distributed as capital is £25,000.