If you find that you are owed money by a company for at least £750 in undisputed debt, but they repeatedly ignore requests for payment, you have the option of issuing a petition to wind up that company in court, bringing about an end to that company. At this point an Official Receiver will be put into the company to collect up all assets, and repay its creditors as far as possible.
In this guide, Insolvency Solicitor, Eleanor Stephens discusses on what grounds can someone issue a winding up petition, who can issue a winding up petition and how to issue a winding up petition.
- What is a winding up petition?
- What are the grounds for presenting a winding up petition?
- Who can present a winding up petition?
- How to wind up a company
- How much does it cost to do a winding up petition?
- How long does a winding up petition take?
- Defending a winding up petition
- On what grounds can you defend a winding up petition?
- What are the consequences of winding up petition?
- Consequences for the directors
- How can we help?
What is a winding up petition?
A winding up petition, also known as a compulsory liquidation petition, is the legal document that kicks off the formal court-led process that can be taken by anyone who is owed money by a company. It is an application to the court setting out what you are owed, and why, and confirming that you remain unpaid despite requests for payment. It should not be used as a method of enforcement generally, but as a last resort if all other methods of obtaining your money fail. This is for two reasons: firstly, the winding up court does not encourage this as a debt collection method, and secondly because once the company is wound up, its creditors are paid out of money/assets of the company. If you are an unsecured creditor, then you sit towards the bottom of the list of priority order for payments, and you are unlikely to be repaid in full, if at all, even if you brought the petition.
What are the grounds for presenting a winding up petition?
You will need to show that you have been unable to recover your debt using the usual debt recovery methods. That you have asked for payment, payment has not been forthcoming, and there is no legitimate defence to the money being owed.
In essence, you must be able to prove to the court that the company is unable to pay its debts as and when they fall due – by requesting payment which isn’t forthcoming - or that the company is balance sheet insolvent.
To prove this, a creditor may, for example, have an unsatisfied enforcement or execution process following a judgment, or they may have served a statutory demand and the 21-day period for response has expired without payment or a legitimate defence. Note that unlike in personal bankruptcy, it is not essential to send a statutory demand before issuing a winding up petition when it comes to a company, although many do so, as this is a good way to prove to the court that the company is unable to pay its debts as and when they fall due.
You shouldn’t file a petition if other winding-up petitions are pending. A second winding-up petition should only be presented in exceptional circumstances, and to do so puts you at risk of losing your costs.
Who can present a winding up petition?
A winding up petition can be brought by anyone owed money by the company who fulfils the above grounds.
Sometimes others, such as the company itself, or shareholders can also use this process, although this is less common as there are other alternatives available to the company.
How to wind up a company
There is a strict process that has to be followed under the insolvency legislation. This involves drafting and filing a winding up petition in court, serving the required people within the required time limits, ensuring statutory notices are in place, and attending a winding up hearing before the court in due course. It is recommended that you speak legal advice from an insolvency solicitor to avoid falling foul of any of the required processes.
How much does it cost to do a winding up petition?
The petition itself must be filed with the court, a fee paid, and an Official Receiver’s deposit paid. Currently the fee is £302 and the deposit is £2,600. These are recoverable from the company in priority if it goes into liquidation in due course, and it has the money to repay these sums.
It is advisable to personally serve the petition on the company, which can be approximately £150 plus VAT.
It is approximately £80 plus VAT to advertise the petition in the London Gazette.
In addition, you will need to pay legal fees, both of preparation of the petition and for attendance in court. Solicitor fees, depends on how complex the matter is, but you can expect to pay around 10 hours of solicitors’ hourly rates in a matter such as this.
You should be able to recover your reasonable costs, but you can expect in some cases not to, either as these are reduced by a judge, or the company doesn’t have the money to pay them.
How long does a winding up petition take?
From the date you issue your petition, to the date of the final hearing depends on the court you use, but very roughly it is likely to be around 2 months’ minimum from issuing the petition in court, to the date of the winding up hearing.
Defending a winding up petition
It is of course possible for the debtor to defend the petition on valid grounds, which will stop a winding up order being made against the company and may lead to costs being claimed against a petitioner who did not properly think through the process.
On what grounds can you defend a winding up petition?
The courts are very clear that a winding-up petition should not be issued where the petition debt is genuinely disputed on substantial grounds. If there is a clear and genuine dispute, the court will order that the matter must be decided by an alternative court before a petition can be issued. The winding up court will not hear arguments as to dispute, and consider the same an abuse of process, and as such they are likely to penalise any petitioning creditor in costs who uses a winding up petition as a debt collection method for a disputed debt. Having said that, if at least £750 is not disputed, it may be possible to continue based on that amount not in dispute only.
What are the consequences of winding up petition?
The company immediately ceases to trade once wound up. The winding up is considered to have been effective from the date of the presentation of the petition. This means that all transactions that took place from that date may have to be reversed if not approved by the court.
An official receiver takes over the business from the directors, and deals with all assets and debts of the business.
Consequences for the directors
The winding-up order does not cause the directors to cease to hold office as directors, and they continue as directors until they formally resign. However, their powers to act on behalf of the company cease immediately, and the Official Receiver, or Liquidator, takes over and makes all decisions for the company.
The Liquidator is under a duty to investigate actions of the company taken before liquidation and may bring a claim against the directors to recoup money that left the company incorrectly. They are also under a duty to report to the Insolvency Service within 3 months setting out any matters that might require further investigation, which may lead to a disqualification of one or more of the directors for between 2-15 years if wrongdoing is found in due course.
How can we help?
At Harper James our insolvency solicitors have many years’ experience working with businesses who are owed money and must file a formal petition for a debtor’s liquidation as a last resort. We can help you to assess your options, and where liquidation is the best option for you to recover a debt, we will work for you to move your claim through the full process. Speak to one of our advisors today for more information.