Winding Up Petition Advice: What to Do If Your Company Receives a Petition

Receiving a winding up petition is one of the most serious situations a company can face. A creditor is effectively asking the court to place the business into compulsory liquidation because it says the company is unable to pay its debts.

If your company has received a petition, the most important thing is not to ignore it. There may be options available to oppose the petition, resolve the underlying debt or prevent a winding up order being made, but the time available to act can be limited.

You can instruct a solicitor to deal with the matter, seek winding up petition advice directly from an appropriately authorised barrister, or attempt to deal with the proceedings yourself. Given the potential consequences for the company, however, seeking professional advice at an early stage is usually sensible. Our guide to insolvency barristers explains how counsel can help with urgent company and director issues.

What is a Winding Up Petition?

A winding up petition is an application to the court seeking an order that a company is wound up because it cannot pay its debts.

A creditor may consider presenting a petition where a company has failed to pay a debt that is due. In some cases, this follows service of a statutory demand. If a company fails to deal with certain statutory demands within 21 days, this may be relied upon as evidence that the company is unable to pay its debts.

However, a statutory demand is not required in every case before a creditor can present a winding up petition.

The creditor that presents the petition is known as the petitioning creditor. Once the creditor issues a winding up petition, the proceedings move beyond ordinary debt recovery and become a formal insolvency process.

This is why a petition should not be treated simply as another demand for payment.

What Happens When a Company Receives a Winding Up Petition?

The petition will set out the debt relied upon and the date of the court hearing at which the creditor will ask the court to make a winding up order.

What happens next will depend on the circumstances. The company might accept the debt and seek to pay it, negotiate with the creditor, seek additional time, or challenge the petition.

If you dispute the debt, it is particularly important to obtain advice quickly. Winding up proceedings should not ordinarily be used as a substitute for conventional debt proceedings where there is a genuine and substantial dispute about whether money is actually owed.

The court will ultimately determine what should happen to the petition.

Can You Challenge a Winding Up Petition?

Yes. There are circumstances in which a company may be able to challenge the petition.

For example, the company may argue that the debt is genuinely disputed on substantial grounds, that the company has a genuine cross-claim or set-off, that the debt has already been paid, or that there is another reason why the petition should not result in a winding up order.

Simply saying that you dispute the debt is unlikely to be enough. The company will normally need evidence supporting its position.

This is one area where early winding up petition advice from a solicitor or barrister can be particularly valuable. A lawyer can review the petition, the underlying agreement, invoices, correspondence and other evidence to assess whether there are proper grounds for opposing it.

Depending on the circumstances and stage reached, urgent legal action may also be necessary.

Why Does Advertising the Petition Matter?

One of the most important stages in winding up proceedings is when the petition is advertised.

Subject to the applicable rules and requirements, a winding up petition is generally advertised in The Gazette before the hearing. Once this happens, the existence of the petition becomes much more visible.

This can have immediate commercial consequences.

Banks and other organisations may become aware of the proceedings. In practice, this can create serious problems with the company’s bank accounts, including the possibility of accounts being frozen or restricted.

That can make an already difficult situation significantly worse. A company that may have been capable of trading through a temporary cash-flow problem can suddenly find it difficult to pay employees, suppliers and other essential expenses.

There can also be important legal consequences for transactions involving the company’s assets once a petition has been presented.

This is one of the reasons why waiting until shortly before the hearing to seek advice can significantly reduce the options available.

Can You Stop a Winding Up Petition by Paying the Debt?

If the debt is genuinely owed and the company has the funds available, paying the petitioning creditor may be one possible way of resolving the immediate problem.

However, it is important not to assume that simply paying the original creditor automatically brings the matter to an end.

Other creditors may become involved in the proceedings and, depending on the stage reached, another creditor may seek to support or take over the petition.

There may also be costs associated with the petition that need to be addressed.

If the company cannot immediately pay its debts, professional insolvency advice may be required alongside legal advice about the petition itself.

The appropriate strategy will depend upon the company’s financial position, the amount claimed, whether the debt is disputed and whether the business is otherwise viable.

What Happens at the Winding Up Petition Hearing?

The petition will normally be considered at a court hearing.

Depending on the circumstances, the court may make a winding up order, dismiss the petition, adjourn the hearing or make another appropriate order.

If the company intends to oppose the petition, evidence will usually need to be prepared and filed in accordance with the relevant procedural requirements.

Turning up on the day and simply telling the judge that the debt is disputed is unlikely to be an effective strategy.

A barrister can advise on the merits of the company’s position, help prepare the case for the hearing and provide advocacy before the court.

What Happens if a Winding Up Order is Made?

If the court makes a winding up order, the company enters compulsory liquidation.

The Official Receiver will initially become involved in the liquidation process, although an insolvency practitioner may subsequently be appointed as liquidator.

The liquidator’s role will include identifying and realising the company’s assets and dealing with claims from creditors in accordance with insolvency law.

The company’s directors will generally lose control over the business and its assets.

This is a fundamentally different position from an ordinary debt dispute. Once a winding up order has been made, saving the underlying company becomes considerably more difficult.

Can Directors Become Personally Liable?

A limited company is a separate legal entity, so directors are not automatically responsible for the company’s debts simply because the business becomes insolvent.

However, there are circumstances in which issues of personal liability can arise.

For example, questions may arise concerning personal guarantees, wrongful trading, fraudulent trading, misfeasance or transactions entered into before insolvency.

The conduct of directors may also be examined during the insolvency process, and serious misconduct can potentially lead to director disqualification proceedings.

Receiving a winding up petition does not itself mean that a director will become personally liable or face disqualification. Nevertheless, directors should be particularly careful about decisions involving payments, assets and creditors once insolvency becomes a genuine possibility.

Specialist advice should be obtained where there are concerns about the position of individual directors.

Should I Use a Solicitor or a Direct Access Barrister?

There are several ways a company can obtain assistance after receiving a winding up petition.

A solicitor can take responsibility for the ongoing conduct of the matter, correspond with the creditor and its solicitors, prepare documents and instruct counsel where necessary. This may be appropriate where substantial litigation or ongoing procedural work is required.

Businesses can also instruct certain barristers directly through the Public Access scheme.

A Direct Access barrister can be particularly useful where the company is capable of dealing with some of the administration itself but needs specialist advice about the petition or representation at the hearing.

Depending on the barrister’s authorisation and the requirements of the particular case, they may be able to review the petition and supporting documents, advise whether there are grounds to challenge the petition, assess a disputed debt, advise on evidence and represent the company at the winding up hearing.

Some cases will require a solicitor, an insolvency practitioner or both. A barrister can advise if the matter is not suitable to proceed on a Direct Access basis. You can read more about the direct access scheme and how it works for companies as well as individuals.

How Can a Clerk&Counsel Barrister Help?

Clerk&Counsel works with barristers across England and Wales, including counsel experienced in commercial disputes, insolvency and company matters.

If your business has received a winding up petition, our clerking team can identify an appropriately experienced barrister to consider the circumstances and provide urgent advice.

Depending on your case, a barrister may be able to:

• review the winding up petition and supporting evidence;
• advise on whether the debt can properly be disputed;
• assess the prospects of successfully opposing the petition;
• advise on the evidence required before the hearing;
• provide advice on the procedural options available;
• represent the company at the winding up petition hearing; and
• advise whether further assistance from a solicitor or insolvency practitioner is required.

Where time is particularly limited, tell our clerking team the hearing date and whether the petition is advertised or is due to be advertised when making your enquiry.

Received a Winding Up Petition? Act Quickly

A winding up petition should never be left until the hearing date to deal with.

There can be a relatively short period between receiving the petition, advertisement and the court considering whether to make a winding up order. The consequences can extend beyond the original debt and affect banking arrangements, trading relationships and the future of the company.

Whether you accept that the company owes the money or believe you have grounds to dispute the debt, obtaining winding up petition advice early gives you more time to understand your options.

Clerk&Counsel can connect businesses directly with barristers experienced in insolvency and winding up proceedings.

Contact our clerking team if your company has received a winding up petition and you need urgent advice or representation.