Winding up Petitions
By Michael Abraham and Anjali Doshi
What are Winding Up Petitions?
A Winding Up Petition is a type of proceedings submitted to the court, seeking the closure of a company due to its inability to settle their debts. Creditors who are owed money, may petition the court to wind up a company due to its inability to pay its debt as they fall due. A petition is a class action that is advertised thereby enabling other creditors to join into the proceedings and support the petition to wind up the company.
Conditions for presenting a Winding Up Petition to the court
At present, there are three conditions that must be fulfilled to be able to present a Winding Up Petition to court:
- The creditor must be owed £750 or more; and
- The creditor must be able to prove that the company is unable to pay its debts as they fall due; and
- The debt must not be disputed – the debt must be recognised as owed and requiring payment.
Outline of the UK Winding Up Petition
Step 1: Serve a Statutory Demand
Whilst a statutory demand is not strictly necessary, it is necessary for the debt to have been formally demanded. Serving a Statutory Demand is a warning to the company that if it does not pay the debt within 21 days, the creditor will issue a winding up petition.
Failure to pay after those 21 days is evidence of an inability of the debtor to pay its debts as they fall due.
To serve a Statutory Demand, the debt must be £750 or more and must not be disputed. A potential defence to a Statutory Demand would exist if there is a larger counterclaim which could be set off against the debt which is owed, or a substantive dispute in relation to the debt. In such circumstances, it would be best for the debtor to obtain a judgment prior to initiating insolvency proceedings.
If the debtor disputes the demand, it should let the creditor know why it is disputed. If the debt is bona fide disputed, the debtor can apply to the Court for an injunction preventing the issue of winding up proceedings.
Step 2: Filing the Winding Up Petition
If the debt remains unpaid either from the date that it demanded or after 21 days from serving a Statutory Demand on the company, a Winding Up Petition can be presented to the court by the creditors, the company itself or the company’s directors or shareholders. This Petition would be issued at the High Court and is served on the company.
The formalities for filing the Winding Up Petition are outlined by Rule 7.7 of the Insolvency Rules. The creditor must complete a petition verified by a statement of truth. This includes details about the debt owed, grounds for the petition and evidence of the company’s inability to pay their debts.
The petition must be filed with the court and after paying the Official Receiver’s deposit, the court will seal the petition and fix a date for the hearing.
The fees that need to be paid in order to issue the Winding Up Petition are:
- Court fee – currently £302
- Official Receiver deposit – currently £2,660
Step 3: Serving the Winding Up Petition on the company
The Winding Up Petition must be delivered to the registered office of the company or principal place of business and handed to an individual who:
- Is a director, other office or employee of the company;
- Is, to the best knowledge of the petitioner, a director, other office or employee of the company;
- Acknowledges their authorisation to accept service of the documents on behalf of the company.
If for whatever reason, it is not possible to personally serve the petition, it is possible to obtain an order for substituted service by another method.
Step 4: Advertising the Winding Up Petition
At least 7 days before the hearing, it is required to publish an advertisement in the London Gazette. This notice includes the company’s name, registered address, details of the creditor filing the petition and the date of the future Winding Up Petition Hearing. The purpose of the advertisement is so that other creditors can be aware of the petition and can join into the class action to support it.
This provision allows other creditors to assert their debt by giving notice of their intention to appear at the hearing to the petitioner. Additionally, upon the bank’s becoming aware of the petition, they typically freeze the debtor’s bank accounts.
A validation order can be issued by the court to unfreeze the company’s bank accounts. The court requires a substantial amount of evidence that the company is not insolvent and that unfreezing the company’s bank account would not prejudice creditors.
Step 5: Hearing
The Winding Up Petition served on the company includes a hearing date, usually within 6-10 weeks from the date the Winding Up Petition was issued.
During this hearing, the creditor can either;
- Ask for the company to be wound up; or
- May seek adjournment (a delay) of the Winding Up Petition; or
- May ask for the Winding Up Petition to be dismissed.
The court takes into consideration the company’s financial situation and the creditor’s wishes in deciding whether the company should be wound up.
There are several documents which must be prepared and filed at court in advance of the petition hearing.
Key documents include;
- Certificate of compliance
This is a document confirming to the court that a Winding Up Petition has been correctly served and advertised in the London Gazette.
- Certificate of service
This is a document confirming to the court that the petition has been formally delivered to the company.
- List of appearances
A list that the creditor provides to the court, identifying other creditors who have contacted them regarding the petition and confirmed that they will be attending the hearing in support of the petition. A petition is a class action meaning that other creditors can join in and possibly even apply to be substituted as petitioner.
Step 6: Winding Up Order
If the court is satisfied that the company should be wound up, a Winding Up Order is granted by the court and served upon the company. The Official Receiver automatically becomes liquidator, in charge of winding up the company, prior to the possible appointment of an Insolvency Practitioner.
Step 7: Compulsory Liquidation
‘Compulsory Liquidation’ is the legal process by which a company is forced to close and sell off their assets to pay the debts owed. The company will normally cease trading and the Official Receiver/ liquidator would take control of the company’s affairs.
The liquidator scrutinises the company and the directors for potential fraudulent trading, wrongful trading or wrongdoing on the director’s part. Any evidence of wrongdoing could be reported to the Insolvency Service and lead to;
- Director Disqualification: directors may be disqualified for acting as a director of a company from a period ranging between 3-15 years.
- Personal Liability of Directors: company directors can be held personally liable for the debts of the company in certain instances. For example, a transaction at an undervalue or misfeasance which have been caused by a director’s breach of their fiduciary duties.
The costs of the liquidation will be paid out of the assets of the company. These costs can be very significant, and liquidator’s costs are second in the order of priority after secured creditors.
Seeking advice
Once the court issues the Winding Up Petition, it is imperative that swift action is taken. The petition will become public knowledge, meaning that other creditors may also wish to join in and support it.
Seeking advice from an Insolvency solicitor is vital for understanding the options available to you, safeguarding your company’s interests, negotiating with creditors and representing the company at court. Their primary goal is to help achieve your desired outcome whilst navigating through quite a pressurising and complex situation.
As leading experts in Insolvency proceedings, our solicitors have many years of experience in this field. We have expertise in handling numerous Insolvency proceedings acting for both creditor and debtor.
If you are a Director (or other Company employee) who has been served a Winding up Petition or a Creditor who would like to issue one to pursue a debt please call us on 0208 446 6223 to speak to someone on our Insolvency team or email enquiries@sr-law.co.uk. We have offices in Finchley, Central London and Hatfield and are happy to arrange a virtual or in person fixed fee meeting to discuss your situation and how we can assist.
