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  What is a Winding Up Petition?  

When to use a Winding Up Petition

Knowing when to use a winding up petition to recover your debts is important, since it is an extreme action that should be used only when all other options have been taken without success.  It is extremely unlikely that a court will agree to a winding up petition until other procedures to recover a debt have been taken unsuccessfully.

Requesting that a company be liquidated is a serious action to take, and courts take such a petition very seriously indeed. You should first have issued a Statutory Demand with proof of service, and only if this was not adhered to for 21 days should you consider a winding up petition to a court.  The court will also be likely to expect that a County Court judgment (CCJ) had been issued against the company.

Such a petition can be placed before a High Court or a District Registry of a High Court. In cases where the paid up or credited share capital is less than £120,000, the petition can be made to a County Court if it normally deals with such cases. 

When All Else Has Failed
When all else has failed, a winding up petition can be requested by any creditor owed more than £750, but bear in mind that, if your debt is unsecured, it is unlikely that you will recover your debt in full. Once a company has gone into liquidation its realizable assets will be used first to pay the liquidator, and then secured creditors. Only then will what is left be shared among unsecured creditors according to the amount owed. It is very common for unsecured creditors to receive nothing.

HM Revenue and Customs Policy
HM Revenue and Customs may very well decide to use a winding up petition to stop a company trading, even though they may not be able to recover unpaid taxes.  Their policy is generally to do this in order to prevent the tax bill becoming even higher, so a business that owes a lot of money in unpaid taxes is liable to be closed at any time so any unsecured creditors should try all they can to have their unpaid bills paid before that happens.

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Enforcing Debt Collection
What some creditors do when they want to put pressure on companies to pay is to threaten them with a winding up petition, and sometimes the threat of liquidation is sufficient for the business to pay the bill, or at least a sizeable proportion of it. It is very expensive to defend such a petition, and most directors are well aware of its effect.  Then when the hammer does eventually fall, at least the creditor will have received more than if that action had not been taken. Often the Statutory Demand is enough to prompt payment, but only if the company has the funds to do so.

Keep in mind that, if the debt owed to a particular supplier of goods or services is relatively low in comparison others, the sum paid to unsecured creditors is made in proportion to the sum owed. Thus, a business not owed much in comparison to the total debt is liable to receive very little back if anything - as stated earlier, unsecured creditors will frequently receive nothing and a petition will made only to prevent bills getting larger. 

Actions of Directors
A winding up petition can also be made if a creditor believes that a director has been acting improperly, such as wrongful trading. Once involuntary liquidation is ordered, an investigation of the directors will be carried out, and if any are found guilty of acting illegally either prior to or after the petition was made, action will be taken against them. For example, wrongful trading once the winding up petition procedures has commenced could result in them being barred from holding a director's post again for a specific period of time, and may even be held personally financially responsible for some of the debts.  

A creditor believing that a company may be in an insolvent situation because of the actions of directors may institute a winding up petition in order that the directors are investigated and a report issued.

Voluntary Liquidation
Directors or shareholders wanting to wind up a company voluntarily will not use a winding up petition to do so. The route they must take is by means of either a Creditors Voluntary Liquidation if the company is insolvent, or a Members Voluntary Liquidation of a solvent company.

These are the common situations that would initiate a winding up petition, but always keep in mind that it is a serious and terminal event for a company, and that the initiator of the petition is given no preference in the distribution of assets, possibly ending up with nothing.

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