What does it mean when my company is facing a winding up petition?

If your company is facing a winding up petition (WUP), it means that one of your creditors is taking legal action for non-payment of debt. It’s likely that they’ve tried to collect the debt, which must exceed £750, without success over several months or more. This figure has increased to £10,000 as per the Government's temporary measures which will apply for the period 1 October 2021 to 31 March 2022.

Because the compulsory winding up of a company is a costly process for a creditor to initiate, a WUP represents an extremely serious threat to your business. If a winding up order is granted by the court, the company will be closed down with the loss of all jobs, and an investigation into the actions of directors begins.

Why are you facing a winding up petition?

There may be a number of reasons why you’ve been unable to pay your creditor(s). Poor cash flow is typically at the heart of the problem - maybe you’ve struggled to recover your own company’s debts, or the loss of a key customer has caused significant cash flow issues within the business.

Whatever the reason for your company’s decline, when a company cannot pay its bills as they fall due, or liabilities are greater than the company’s assets, it has fallen into insolvency.

Winding up petition procedure

• Before lodging a winding up petition at court, your creditor will typically send a 21-day statutory demand to prove that the debt exists, and is undisputed. Should you already have an unpaid County Court Judgment against you, however, this provides the proof needed.
• Once the petition is lodged at court, the creditor must wait seven days before placing a notice in the Gazette which advertises your company’s insolvency. This alerts your bank and other creditors, who may also decide to take action against you.
• Your bank is likely to freeze the company’s accounts, which means you won’t be able to carry out any further transactions without permission from the court.
• If you don’t pay your creditor and the petition isn’t challenged, a winding up order will be granted by the court, and your business liquidated

Compulsory liquidation

During compulsory liquidation, all business assets are realised by the appointed liquidator, to repay your creditors as far as possible. The company is then removed from the register at Companies House, and ceases to exist.

Personal liability for directors

The ‘veil of incorporation’ is removed when a winding up order is granted, and as a director you’re at risk of personal liability for some or all of the company’s debts. If your actions are found to have contributed to the company’s decline, or have compromised creditor returns in any way, you face fines and potential disqualification from the office of director for 2-15 years.

So how can you stop a winding up petition?

It’s crucial to seek specialist professional assistance if a creditor has issued a winding up petition against your company. You should initially seek assistance from your accountant, who will be able to outline the potential avenues.

They’re also likely to refer you to a licensed insolvency practitioner (IP) who has the specialist expertise and technical knowledge you need in these circumstances. It’s possible to have a winding up petition dismissed if the debt is genuinely in dispute, but you’ll need to act quickly, and present solid evidence at court – you may believe the petition is a vindictive attempt by your creditor to have the business closed down, for example.

Alternatively, a formal insolvency procedure such as a Company Voluntary Arrangement (CVA) or company administration could save the business, or securing alternative funding such as invoice finance might provide the cash you need to carry on.

A special note about HMRC winding up petitions

Tax arrears automatically increase the longer an insolvent company is in existence, so HMRC tend to act quickly to recover their money. They don’t need to prove the existence of a debt in the same way as other creditors, so a winding up petition from HMRC can arrive with very little warning.

If you act quickly once a winding up petition has been issued your company will stand the best chance of survival, and your accountant will be able to help in this respect. They may also refer you to a licensed insolvency practitioner for more specialised assistance.

If you don’t currently use professional accountancy services, or are looking for a new accountant, we can provide reliable referrals in your area. Handpicked Accountants work with accountancy practices around the UK, and make our recommendations based on established working relationships.