How to Deal With a Winding Up Petition

Often, a winding up petition is a company’s worst nightmare. If your company receives a winding up petition we have created some useful guidance for you to consider.

First, what is a winding up petition?

A winding up petition is often the first step towards the liquidation of a company and is a procedure through which the assets of a company are realised and distributed to its creditors in payment of debts owed. The procedure is governed by the Insolvency Act 1986.

What to do if your company receives a winding up petition

The consequences of a winding up petition can be extremely serious. Not only could harm be caused to your company’s reputation, but; any transfer of company property made after the date of the petition is void and your company will incur the time and costs in dealing with the winding up proceedings.

Shortly after receiving the winding up petition, you will receive a hearing date for the court to consider whether the company should be wound up.

Option 1 – Do Nothing

If you do not take any action upon receipt of the petition, the winding up proceedings will continue. There will be a hearing and the court will decide whether to make a winding up order.

If you are a director of a company that has received a winding up petition, you could face some personal liability as a result of the proceedings, e.g. if you have given personal guarantees. You should therefore take legal advice as soon as possible.

Option 2 – Be Proactive

You should notify your company legal department or your solicitor of the winding up petition immediately.

You have 7 business days from the day the petition is served on your company to deal with it. If not dealt with, notice of the petition will be advertised in the London Gazette at least 7 business days before the hearing and will come to the attention of your bank and any other creditors. It is therefore important that you act as quickly as possible to investigate the petition and contact the creditor.

The advertisement of the petition will also notify other creditors of the proceedings and will likely result in them joining the petition to recover the sums your company owes them. You can try to prevent this by obtaining an injunction. For more advice on injunctions, please contact us on 0121 355 0011.

If you recognise your company owes the debt and are willing to pay, you could admit the debt. You should immediately take steps to pay the debt or reach an agreement with the creditor to get it paid. This will bring an end to the matter provided the petition is withdrawn or dismissed by the court. 

Alternatively, if you dispute the debt, your solicitor should contact the creditor immediately to explain why it is disputed. At least 5 business days before the hearing, you should file a witness statement at court explaining why you oppose the petition. If you fail to file a witness statement in time, the court may not consider your evidence at the hearing.

At the hearing, the court could order any of the following:

1. The hearing be adjourned until another date as more evidence is required to consider the matter.
2. The winding up petition is dismissed
3. A winding up order should be made.

If a winding up order is made there will be severe automatic consequences including:

1. The Official Receiver will become the liquidator of the company
2. The powers of the company’s directors stop
3. The liquidator takes control of the company’s assets and will distribute them to the creditors in order of priority
4. All the company’s papers must confirm the company is in liquidation
5. All employment contracts of the company’s employees are terminated
6. No other proceedings can be commenced/continued against the company.

If your company has received a winding up petition, or wants to serve a winding up petition, please contact our Commercial Dispute Resolution team on 0121 355 0011 for more information on how we can help.