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What is a Wind Up Petition?
A wind up petition (WUP) is the first step of the winding up process. Creditors can send a WUP once a debt of over £75 has gone without pay for over 21 days. This could come from HMRC but it can come from any creditor. A company has 7 days to mount a serious challenge, sort out a CVA, go into administration, or pay the amount that it owes, once a company receives a WUP. If the company does not act on this, the creditor can advertise the petition in The Gazette.
This will allow creditors to see the petition and gives them the opportunity to support the petition in the hope of reclaiming their debt. From this moment, other people can then take over the petition – even if the company manages to pay off its original creditor.
Banks will usually freeze the business’ account, preventing that business from being and to trade.
After this, the court will look at the case and make a decision. If it agrees with the WUP then a winding up order (WUO) will be formed.
Worried about a Winding Up Petition or a Winding Up Order?
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What is a Winding Up Order?
A winding up order is a declaration from the court to close a company down and liquidate its assets. It follows a winding up petition (WUP) that has been made by a creditor, following unsuccessful attempts to regain their money.
If you have been sent a winding up order, it means that the company will be liquidated and closed down for good. Directors will also be put under the spotlight through investigation from the Insolvency Service.
If you have received a winding up order, it means the company will be liquidated and permanently closed down. The ramifications for yourself as a director are also serious, as directors must undergo investigation by the Insolvency Service.
How do I stop a Winding Up Petition becoming a Winding Up Order?
You must consider three options:
▪️ Pay the full debt
▪️ Find an agreement with your creditor, such as a payment plan
▪️ Start dispute with the creditor if you feel that the debts are questionable
The best way of finding a resolution to this problem is to act quickly and negotiate with your creditors, as we have noted in our step-by-step guide.
How do I stop a Winding Up Order?
You must make claims for director redundancy through the Redundancy Payments Service (RPS). You will be paid with money from the National Insurance Fund if you are eligible for redundancy.
You can apply to cancel this wind up order if your company can now pay its debts you could not attend the initial hearing. You must apply to the court within 5 working days of when the WUO is put forward. Fill out the IAA form, which can be found on the GOV website. Many courts will want it submitted to them personally but these courts will accept an online version of the document:
▪️ Admiralty and Commercial Court
▪️ Chancery Division
▪️ Companies Court
▪️ High Court (including Bankruptcy Court)
▪️ London Mercantile Court
▪️ Rolls Building
What is the timeline of a Winding Up Petition and when does this become a Winding Up Order?
A winding up petition (WUP) results in the verification of a winding up order (WUO) that will push an insolvent company into liquidation, if it is approved by the court the first instance. This is ordinarily the last step that a creditor will take in a bid to reclaim debts.
If you want to issue a WUP, the petitioning order must pay issuing fees of between £400 and £800, alongside court fees of £280 and a court deposit of £1,600. It is a costly setup, meaning that any creditor that takes this action is most probably determined to wind up your company. A WUP is a real statement of intent against your business.
What is the step-by-step guide from a Wind Up Petition to a Wind Up Order?
1) Creditor of HMRC accepts the WUP
Creditors will ordinarily attempt to recover a debt by issuing a formal claim for payment. If the money isn’t fully repaid within three weeks – or 21 days – and the amount owed is more than £750 then the creditor can ask a solicitor to intervene in issuing a WUP.
This amount has increased to £10,000, in line with the Government’s temporary measures which will apply for the period 1 October 2021 to 31 March 2022. Because of the cost that it takes to set up, the debt will most likely be higher than this amount for a creditor to go about taking up this option.
The court decides if the petition is to be accepted and it will be forwarded on to the company in debt.
2) 7 days to act
Following the petition being issued, you will have a number of options to consider
but you must decide quickly. Once the court has given allowance for the WUO, it will be too late to act. You have one week – or 7 days – to follow one of three routes. You can:
● Pay the full debt
● Find an agreement with your creditor, such as a payment plan
● Start dispute with the creditor if you feel that the debts are questionable
You can only pursue a Creditors’ Voluntary Liquidation (CVL) with the permission of the creditor, once a WUP has been issued, and you cannot sell the company or any of the company’s assets. Any such sales could be reversed by the court.
Although, there could be enough time remaining to suggest a Company Voluntary Arrangement (CVA) or if the debt is being disputed, you could find a lawyer to defend your company from the petition.
If you can demonstrate sufficient evidence to show that your company is viable and has the possibility for a successful future, you might be able to defend against the petition through the process of administration.
However, once the petition has been granted, you will need to go through a costly court procedure to get an Administration Order issued. This is because the courts will have to consider the interests of all applicable creditors before making a decision.
All legal actions against your company, such as the WUP, will remain while a licensed insolvency practitioner will act as an administrator for your business, taking over the running of the company. It should be remembered that the total cost of the debt will have increased as a result of the court costs, and these costs will have to be added to the amount owed.
3) Petition Advertisement is Published
Following the issuing of the WUP, the next step involves a periditpon advertisement being placed in the Gazette. This makes the situation viewable to the public. Any creditor must wait at least 7 days after the petition is issued to the company before putting up a petition advertisement that can be publicly viewed, highlighting the date and the basic details of the petition hearing.
If the petition has not been advertised, it could be possible to stop the advertisement by using an injunction or through negotiating with the creditor. The petition has to be advertised at least 7 days before the court of hearing. At this point, if the advertisement has already been placed, it could still be possible to seek an adjournment. However, you would need to justify this with legitimate reasoning.
4) Company accounts and assets are frozen by the bank
After the petition has been advertised, the insolvent company’s bank will become aware of the situation. This will usually freeze the company’s accounts, preventing directors from illegally selling assets and potentially worsening the position of creditors.
Some banks have actually begun regularly searching through court registers to find out which companies have recently had
a WUO put against them.
A frozen business bank account forces operations to come to a stop. You may be able to reinstate a bank account if you can get a validation order, although this is a challenging and expensive manoeuvre.
5) The winding up order is allowed
An official receiver (OR) will be taken on board to act as liquidator for the insolvent company, if the court allows the WUO. There is nothing that can be done to stop the company from being liquidated at this point and that essentially means that your business will come to an end.
The OR will look into the former actions of the directors, seeing if they acted in wrongful trading while the insolvency is taking place. If a director is found guilty, they will be found guilty and could be banned from being the director of a company for 15 years. They may also be held personally liable for some of the debts.
What is the step-by-step guide from a Wind Up Petition to a Wind Up Order?
You can apply to the court if you want to wind up a company that cannot pay its debts. This is a compulsory liquidation. A company can be wound up if:
▪️ It owes £750 or more
▪️ If it is clear that the company cannot pay back its creditor(s)
If you want to push ahead with winding up a company, you will have to fill out a form and send them to the court. A successful application to the court is called a winding up petition (WUP). If you are successful:
▪️ Company assets are sold
▪️ Legal disputes are put to an end
▪️ The company can collect its debts
▪️ Funds are distributed out to you and other creditors
What is the step-by-step guide from a Wind Up Petition to a Wind Up Order?
When you are winding a company up, the fees are as follows:
▪️ £302 for court
▪️ £1,600 to manage the winding up (petition deposit)
You could be able to get fees back if the company can afford to pay them back.
What is the difference between Winding Up and Bankruptcy?
Winding up can lead to bankruptcy but it is not the same thing. Bankruptcy is a legal procedure that sees creditors attempting to gain access to company assets so that they can be liquidated off for debts. There are many times of bankruptcy, however, these proceedings can help a company to emerge in a new debt-free light.
On the other hand, the winding-up process stops businesses continuing to trade. The only action that they can perform is the option of completing their liquidation. Following the conclusion of the process, the company will be dissolved and will not exist.
What is the difference between liquidation and administration?
While they do have similarities but liquidation and administration are NOT the same thing; they are two separate and distinct insolvency processes. Liquidation through a Creditors Voluntary Liquidation creates the end of an insolvent company, however, the administration offers a chance of rescuing the business through restructuring and refinance.
Companies can be put into administration if there is a fair chance that the business – or sections of the business – can be rescued, or if an MVL looks like being a better solution for creditors than a CVL.
Administrations can provide a level of protection for a company that is distressed and faces the possibility of facing legal threats from frustrated creditors. A company is granted a moratorium when it enters administration, bringing any ongoing litigation to a halt while preventing any new legal action from being undertaken. At this moment, the appointed administrator should be a licensed insolvency practitioner, who will work to restructure the business in the best possible way – allowing it to continue trading.
It’s worth noting that administration is not a long-term position for a company to be in; it will have to exit administration at some stage. This could be through a sale, a continuation of trade, or through a different insolvency process. That process could be a CVL or a CVA if the business cannot be saved from its plight.
How long does it take to wind up a company through liquidation?
It usually takes between one and two weeks to go through the winding up process. The appointment of a liquidator will take control of the business and the business’ assets within this time frame, taking up the majority of that one-two week period. Nonetheless, if over 90% of shareholders agree to short notice then Liquidation can happen within the seven days. This would be the minimum statutory notice for creditors.
Irrespective of the liquidation type, the length of time will depend on the individual circumstances of the business.
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Winding Up FAQs
Companies can be legally forced to wind up by a court order. In these cases, the company is told to appoint a liquidator who can manage the sale of assets and the distribution of the proceeds to creditors.
Court orders are often triggered by a legal suit that is brought in by the company’s director. They are usually the first to realise that a company is insolvent because their bills have remained unpaid. Other cases show that winding-up is the final solution for a bankruptcy proceeding, with creditors trying to regain money owed from the company. However, a company may not have enough assets to satisfy all of its debtors completely, so creditors could face a financial loss.
An official receiver (OR) will be appointed at the court hearing. The OR will manage and administrate the initial stages of the process. A liquidator could also be appointed if it is deemed appropriate by the OR or enough of the relevant creditors.
The first priority will be the liquidator. After that, any secured or preferential creditors will be sorted out before moving to unsecured creditors. In a ranking list, with top being the most important and bottom being the least, it would look like this:
▪️ Secured creditors (bank departure) and preferential creditors (employee pay such as the Redundancy Payments Service)
▪️ Unsecured creditors (supplier to the insolvent company)
We can provide you with good, legal advice on your business options for whatever challenging situation that you find yourself in. If you come to us, we can help you to put your house in order and set you on the straight and narrow path to some level of stability. You can also find advice from your local Citizens Advice Bureau, solicitors, and qualified accountants.
If directors knowingly traded when their company was insolvent, they could become personally liable for the debts that have been taken up by the company from the time that they knew they were insolvent.
You must ensure that all board and management actions have been carefully followed and the assets of the business have not been eradicated. This must be done during the early stages of insolvency.
It is also vital to keep management accounts, company books and bank statements up-to-date, available and protected. Be efficient. Don’t delay in getting help. Get in touch with us if you feel like you need to get some help on your financial situation and what to do next.
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