Winding-up petitions: what they are and how to respond

A winding-up petition is a formal application to the court by someone the company owes money to, asking the court to close down (“wind up”) the company because it cannot pay its debts. If the court agrees, the result is compulsory liquidation.

GOV.UK says that if the petition succeeds, the company’s assets are sold, any legal disputes are settled, the company collects money it is owed, and funds are paid to the creditors. A winding-up petition applies to companies. It is not bankruptcy, which is the equivalent process for individuals.

A creditor can petition when it is owed more than £750 and the company cannot pay. In England and Wales the Insolvency Act 1986 treats a company as unable to pay its debts in several situations, and the Insolvency Service says a creditor must be owed more than £750 and be able to prove the company cannot pay.

A statutory demand gives the company 21 days to pay or reach an agreement to pay. The Insolvency Service notes that you cannot challenge a statutory demand made against a company, but a company can apply to court to stop a creditor applying to wind it up, and that has to be done within 21 days of getting the demand.

A petition can be presented by the company itself, its directors, any creditor, a contributory such as a shareholder, or in certain cases a public body. The Insolvency Act 1986 lists these, and the Insolvency Service adds the Secretary of State and an administrative receiver, administrator or supervisor.

In practice the petitioner is usually a creditor. HMRC, for example, says it only applies to the courts to make a company insolvent as a final course of action, and our guide to HMRC debt explains when that happens. If you are the creditor, GOV.UK lists the fees as £352 in court fees and a £2,600 petition deposit, which you might get back if the company can afford to repay them.

The creditor serves a sealed copy of the petition on the company, gives public notice of it and the court sets a hearing. The Insolvency (England and Wales) Rules 2016 set the sequence, and the dates matter.

The court may dismiss the petition if notice is not given as the rules require. Check every date on your copy of the petition and put the hearing date in the diary.

If a winding-up order is made, the winding up is treated as starting when the petition was presented, and any disposition of company property after that is void unless the court orders otherwise. This is in sections 127 and 129 of the Insolvency Act 1986.

That is why trading while a petition is pending is risky. If an order is later made, payments and asset sales made in that period can be void, unless the court has approved them. Ask your solicitor whether a court order is needed before the company makes or receives significant payments.

Directors also carry personal risk. If the company goes into insolvent liquidation, a court can order a director to contribute to its assets if they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation and did not take every step to minimise loss to creditors. That is wrongful trading under section 214.

A company can respond by paying the debt, agreeing terms with the creditor, disputing the debt in court or attending the hearing, and which is right depends on whether the debt is genuinely owed. A solicitor or licensed insolvency practitioner can tell you which fits.

• Pay the debt. If the debt is due and the money is available, settling it with the creditor, including costs, is the clearest way to resolve the petition.
• Agree terms. A creditor may withdraw if you agree a payment plan with it. Get any agreement confirmed in writing.
• Dispute the debt. If the debt is not owed, or is disputed in good faith, tell your solicitor at once. The court will hear the dispute.
• Attend the hearing. If you are not paying and the petition is going ahead, the company should be represented, since an order can be made in its absence.
• Formal rescue. An insolvency practitioner may advise on a company voluntary arrangement or another route.

Under rule 7.13, a petitioner can ask the court for permission to withdraw at least five business days before the first hearing, if notice of the petition has not yet been given, nobody has given notice to support or oppose it and the company consents. If a petition is dismissed, the petitioner must give notice of the dismissal as soon as reasonably practicable (rule 7.23).

Yes, but the window is short. GOV.UK says you can apply to cancel (“rescind”) a winding-up order, for example if the company can pay its debts or could not attend the hearing, and you must apply to the court within five working days of the order being made.

You complete Form IAA, write a witness statement giving details of the company’s assets and debts, and serve a copy on the person who made the petition and the official receiver. The fee is £155 at the Companies Court or a district registry, and county court fees vary. The Insolvency Service adds that once a company goes into liquidation, directors’ duties cease but they must cooperate fully with the liquidator.

Sometimes, but it is rarely a quick fix and it is not suitable for every company. Borrowing to clear a debt adds a new repayment, costs interest and fees, and lenders assess the business as it stands, including any petition, subject to status and their criteria.

If the company cannot pay its debts as they fall due, the decision whether to borrow, negotiate or enter a formal process belongs with you and your adviser. Our guide to company insolvency sets out the formal options, and our guide to cash flow problems covers how to spot trouble before it reaches this stage.

Capzy is a credit broker, not a lender, and is paid by the lender. We do not give legal or insolvency advice and cannot represent your company in court. A winding-up petition needs a solicitor or licensed insolvency practitioner first.

If you are looking at funding for a sound business after taking that advice, you can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.