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How Do Winding-Up Petitions Work?

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When you run a business, your company may get credit from other parties, making you a debtor. It is important that debtors pay their debts when they are due. Otherwise, creditors can take further action for the outstanding debt, such as issuing a winding-up order. This may give rise to the liquidation process, where you pay off your owed debt via your company’s assets. This article will explain how winding-up petitions work and their implications.

What is a Winding-Up Petition? 

A winding-up petition is where a creditor of your company files a legal notice to a court to close down your business such that it no longer carries out business. This is called ‘winding up’. A creditor can do this where the company owes them more than £750 over a period of more than 21 days. 

A winding-up petition specifically requests that a court liquidates the company concerned. This is compulsory liquidation. Liquidation means that company assets are collected and distributed to creditors to allow them to recover the debt owed. A liquidator, who is a court officer, will carry out this role to make a company insolvent. You may hear people refer to them as the Official Receiver (OR).  

What is the Winding-Up Petition Process?

A petitioner will have to adhere to specific pre-action steps before beginning the winding-up process. Thus, if you find yourself facing a winding-up petition for your business, it is essential to get legal assistance, where the solicitor can check if these procedures have been adhered to.

Court Hearing

The process for a winding-up petition begins with sending the petition to the court. If a winding-up petition is presented in London, it is through the High Court of Justice. There are several parties who may be present at a winding-up hearing, including: 

  • the petitioner;
  • creditors of the business concerned; 
  • the company concerned;
  • the company’s shareholders. 

Timing

Issuing a winding-up petition on a debtor is not a lengthy process. It may take around 28 days for a petition to be ready to present to your business. Timing is a crucial factor if your company is in receipt of a winding-up petition. Upon receipt, you have seven days to act on the petition to try to prevent compulsory liquidation.

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What Are the Implications of a Winding-Up Petition?

Ultimately, the implication of a winding-up petition is that your company is liquidated, and the creditor receives payment for their debt where assets are available for creditors. It also means that your company directors’ actions will be examined.

However, the implications of a winding-up petition can vary as your company takes action within the seven-day timeframe to oppose it. You may do so by:

  • paying the creditor all money due;
  • raising a genuine and substantial dispute, such as disputing the amount of the petition or an incorrectly served petition;
  • requesting a Company Voluntary Arrangement (CVA), which allows you a further five years to pay the debt; or 
  • putting your company into administration and halting legal action, which involves applying to the court. 

After the seven-day period, the winding-up petition is advertised in the local Gazette. This may have negative consequences for your business, as it notifies the public about your situation.

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Key Takeaways

Your company may be subject to a winding-up petition if you have not paid off your debt owed to another party. If successful, the petition will prompt your business to cease operation, and likely go into compulsory liquidation. A company can apply for a winding-up petition if you owe it more than £750 and have not paid the debt for more than seven days. 

The petition process involves a court hearing, after which your company can respond by:

  • paying off the debt
  • raising a substantial dispute
  • requesting a Company Voluntary Arrangement (CVA) ; or
  • putting your company into administration

If you need help understanding winding-up petitions in the UK, LegalVision’s experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions

What is liquidation?

Liquidation occurs after a winding-up petition, where your company’s assets are collected by a liquidator and re-distributed to your creditors to pay off outstanding debt.

How long do I have to respond to a winding-up petition?

If you have received a winding-up petition, you have seven days to act on it by, for instance, paying off the debt.

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Clare Farmer

Clare Farmer

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