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  What is a Winding Up Petition?  

How is a company wound up?

It is important to know how a Company is wound up, because there are specific steps that must be taken in the liquidation of a company.  The procedures for voluntary and involuntary liquidation are different, and it is on involuntary liquidation that we shall initially focus here.

The Winding Up Petition

The winding up petition starts the process. Although the winding up process can be instituted by any creditor owed more than £750, they must first have issued a Statutory Demand for payment, either personally or by registered post, and probably taken the matter through a County Court.  Only when a Statutory Demand with proof of service has been ignored for 21 days will a judge generally agree to a winding up petition, but even then it is also likely that a County Court judgment (CCJ) should have first been required.

Because liquidation is such a drastic step to take against any business, such a petition is taken very seriously by a court, and good reason for doing so must be provided. It is not the initial step in recovering money owed, but the final step.

Who Can Wind Up a Company?

As previously stated, the process can be initiated by any creditor owed over £750, and who has remained unpaid for 21 days after a Statutory Demand or County Court judgment has been awarded against the company. Creditors should be aware, however, that any unsecured debts may not be paid, even in part, because preference is given first to payment of the liquidator's fees, and secondly to the payment of secured loans in full.

Among the unsecured creditors will likely be HM Revenue and Customs who might initiate the process to make sure a company is wound up to prevent any tax debts from increasing further. They might be well aware that they are writing off a sizeable proportion of the debt, or even all of it, but it enables them to put the issue to bed rather than have it continue to use up resources in administration and reminders while unpaid tax continues to increase.

Another common group who can wind up a company is creditors who want the board investigated.  They may believe that one or more directors are acting illegally, such as unlawful trading, and so present a winding up petition to court in order that the directors are investigated.  This is another result of involuntary liquidation:  the investigation of the directors, and a directors report.

Individual directors personally found to have acted unlawfully and in so doing led in part to the insolvency of the company, may be found individually liable for part of the debt which they will personally have to pay. 

The creditor would generally have been expected to have had a County Court judgment given in their favour. If that is ignored they should then issue a Statutory Demand to a named person by personal service or registered letter, and have proof of service. If the outstanding debt remains unpaid 21 days after that, then the creditor can apply to the court for a winding up petition. Once a petition is granted the court will decide whether the company should be wound up or not at a formal hearing. The company has a right to appeal within 7 days of this hearing.

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Presentation of Winding Up Petition

The next part of the process is the presentation of the winding up petition to court.  This can cost up to £2500 and is paid by the creditor making the petition. The judge will issue the petition if it is believed that the request is justified and that all other steps possible have been taken to recover the debt.

The process will be deemed to have started once the petition has been published in the London Gazette, and the company has 7 days to either fight it or come to a payment arrangement with the creditor. At that time all bank accounts are frozen and share trading must stop. After that 7 day period the company will be wound up and a liquidator appointed to handle it. The process of physically closing the company and realizing its assets to pay the creditors will begin.

Voluntary Liquidation

A company can also be wound up by directors and shareholders by means of one of two voluntary routes.  A Creditors Voluntary Liquidation route will be taken by a company that is insolvent and wants to give up the struggle to survive. It will take the voluntary liquidation route which involves liquidation, the appointment of a liquidator and distribution of assets to creditors just as if the liquidation had been involuntary.

A Members Voluntary Liquidation will take place if a company is solvent and wants to cease business. The same things happen, only the company assets are distributed to shareholders.

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How to stop a Winding Up Petition
When to use one
How is a Company wound up?
What happens to the directors?
What happens to the Employees?
What is a Pre-Pack Asministration?
Corporate Insolvency




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