Compulsory Winding Up Petitions: What Directors Need to Know

A compulsory winding up petition is a creditor’s application to the court to have a company forcibly liquidated because it can’t pay its debts. It’s the most serious form of creditor action a company can face, and understanding how the process works is the first step in deciding what to do about it.

What Is a Compulsory Winding Up Petition

A compulsory winding up petition can only be presented when certain legal requirements have been met. These requirements include the nature of the debt, the notice given to the company, and the amount outstanding.

What is the Threshold for a Winding Up Petition? 

A creditor may be able to present a compulsory winding up petition against a company where certain legal conditions are met. These conditions relate to the nature of the debt, the notice provided to the debtor, and the amount outstanding. These stem from the total amount owed, a time frame allocated for debtors to pay off the debt, the origin of the debt, and more. 

A creditor will need to meet the following conditions in order to present a winding up petition:

1. The debt owed must be for a liquidated sum of money, and can under no circumstances be rent or another payment that will be owed under a business’s tenancy agreement. 
2. Creditors must provide written notice affording the company 21 days before any presentation of a petition. This time is intended for the company presented with the proposal to formulate a plan on how they intend to repay the debt. 
3. The 21 days period has passed since notice was given and the company has not made a proposal deemed satisfactory to creditors.
4. The outstanding debt must be at least £750. Combined creditor debts can be raised under one petition, and this total sum may exceed this figure. 

How a Petition Leads to a Winding Up Order

Winding Up Petition Consequences 

There are a variety of possible consequences of a winding up petition that can leave a lasting impact on a business. The most severe consequences can be the significant losses to company finances or reputation, or compulsory liquidation of the business. 

A selection of some the core consequences of a winding up petition are as follows: 

• Limited Time: A business handed a winding up petition is likely to only have between 4-8 weeks before its fate is decided in court. This means that time is of the essence when it comes to saving the business, putting everybody under immense pressure. 
• Assets frozen: When a winding-up petition is advertised in The Gazette, banks may freeze company accounts because of the potential consequences of Section 127 of the Insolvency Act 1986. However, the advertisement does not automatically create a legal requirement for banks to freeze accounts.
• Change of Carriage: A change of carriage is a scenario where another party with a legitimate grievance against the business joins in the petition, leading to the business being forced to pay back two or more debtors at the same time. 
• Reputational Damage: Clients and consumers can see a winding up petition as a sign that a business is insecure or even untrustworthy and can opt to avoid them. 
• Financial Damage: In addition to paying back creditors, businesses can accrue significant financial hits as a result of legal expenses. 

For more information about the consequences of a compulsory winding up petition, please read our blog on the subject. 

Liquidation of your business represents a disaster for any director or owner, it is the loss of everything that they have worked towards building. 

 If you do not act quickly against a compulsory winding up petition with a clear, concise plan to turn the tide in your favour and secure a more sustainable future, it could spell the end. Seeking specialist advice on what you can do to aid you in protecting the future of your business. 

What You Can Do Before It Gets That Far

If your company has received a petition, acting quickly can significantly increase the options available to you. Depending on the circumstances, it may be possible to negotiate with creditors, arrange a repayment proposal, seek court relief, or pursue other rescue measures before a winding up order is made. For a detailed guide on the options available, read our How To Stop a Winding Up Petition guide.

Do You Need Winding Up Petition Help?

TaxDebts boast a world class team with decades of experience in supporting businesses in compulsory winding up petition cases. We know the process inside and out and can guarantee you the support and knowledge you need to help guide you through what can be a testing time for the company, and for everybody involved in its running and operation. 

Receiving a winding up petition can spell disaster for the prolonged future of a business, particularly if not dealt with appropriately and efficiently. 

With the brief pause to winding up petitions coming to an end post-pandemic, it is key that all businesses get their affairs in order so they can make sure that they are totally protected against any eventuality. 

For further advice on how you can stop a winding up petition, and to discover more about what TaxDebts can do to help, contact a member of our team today by simply dialing 0333 898 0409.