Receiving a winding-up petition does not necessarily mean that it is too late to place your company into a Creditors' Voluntary Liquidation. However, the position is urgent and significantly more complicated than it would have been before the petition was presented.

A CVL may still be possible if the court has not yet made a winding-up order. However, instructing an Insolvency Practitioner or beginning the CVL paperwork does not automatically stop the petition. The petition remains a live court proceeding and must be formally dealt with, usually through an adjournment, dismissal or withdrawal approved by the court.

The chances of completing a CVL will depend on how far the petition has progressed, whether it has been advertised, whether other creditors support it, how close the hearing is and whether the petitioning creditor is prepared to cooperate.

Once the court has made a winding-up order, the company enters compulsory liquidation. At that stage, the directors cannot simply replace the compulsory liquidation with a CVL.

Molly Monks F.I.P.A of Parker Walsh, a licensed Insolvency Practitioner, regularly advises directors who have received a winding-up petition and need to determine whether a CVL remains available.

This article principally considers the position in England and Wales.

What Is a Winding-Up Petition?

A winding-up petition is a formal application asking the court to place a company into compulsory liquidation.

It is usually presented by a creditor who believes the company cannot pay its debts. The petition will identify the company, the debt relied upon and the date and location of the court hearing.

If the court makes a winding-up order, the Official Receiver will initially take control of the company. The company's assets will be secured and realised, employees will usually be dismissed and the directors will be required to cooperate with the Official Receiver. (GOV.UK)

A petition is therefore considerably more serious than an ordinary debt collection letter. It is court action seeking the liquidation of the whole company, rather than simply a claim for payment by one creditor.

A Statutory Demand Is Not the Same as a Petition

Directors sometimes say they have received a winding-up petition when they have actually received a statutory demand or a letter threatening a petition.

A statutory demand ordinarily gives the company 21 days to pay the debt or reach an acceptable arrangement with the creditor. Government guidance specifically identifies placing the company into its own liquidation as one of the options that may be considered during this period. (GOV.UK)

If only a statutory demand has been received, there may still be enough time to commence a CVL through the normal procedure before a petition is presented.

Once the creditor has presented a petition to the court, the position changes. The company is then subject to live winding-up proceedings, transactions become more difficult and the available time is usually much shorter.

Directors should provide the proposed Insolvency Practitioner with the complete sealed petition so that the date of presentation, service details and hearing date can be checked immediately.

Can a Company Still Enter CVL After a Petition Has Been Presented?

Potentially, yes.

The Insolvency Act allows a company to be wound up voluntarily following the required shareholder resolution. In a CVL, the company can nominate a liquidator, although the creditors are also entitled to nominate a liquidator and their choice takes priority where a different nomination is made. (Legislation.gov.uk)

There is no general rule stating that the shareholders lose the ability to pass a voluntary winding-up resolution merely because a petition has been presented.

However, commencing a CVL does not automatically bring the petition to an end. Unless the petition is properly withdrawn, dismissed or otherwise dealt with by the court, the court can still make a compulsory winding-up order.

A CVL commenced after presentation of a petition should therefore be approached as part of a coordinated legal and insolvency strategy. It is not enough simply to arrange a shareholders' meeting and assume the court proceedings will disappear.

Why Is the Date of Presentation Important?

The most important date is normally the date on which the petition was presented to the court, rather than the date on which the director received it.

Where the court subsequently makes a winding-up order, the compulsory winding up is generally treated as having commenced when the petition was presented. Section 127 of the Insolvency Act 1986 provides that dispositions of company property made after the commencement of the winding up are void unless the court orders otherwise. (Legislation.gov.uk)

This means a payment or transfer made after presentation of the petition can be retrospectively affected if the court later makes a winding-up order.

The legislation provides protection where a voluntary winding-up resolution was passed before the petition was presented. It does not provide the same express protection where the voluntary winding up begins after presentation. (Legislation.gov.uk)

This is one reason why a company should not simply commence a CVL while leaving the petition unresolved. There must be a clear plan for dealing with the court proceedings and protecting any necessary transactions.

The Stage Reached by the Petition Is Critical

The prospects of completing a CVL will depend heavily on what has happened since the petition was presented.

A petition that has only recently been served and has not yet been advertised may be more manageable. There may be time to approach the petitioning creditor, prepare the CVL and seek an appropriate court order.

Once the petition has been advertised in The Gazette, other creditors may become aware of the proceedings and decide to support them. The company's bank may also freeze its accounts.

Where the hearing is only a few days away, it may be impossible to complete the full CVL procedure without obtaining an adjournment.

A director should therefore seek advice immediately. Even a delay of several days can materially change the available options.

What If the Petition Has Not Yet Been Advertised?

This is usually the best opportunity to explore a CVL.

The petitioning creditor may be willing to allow time for the company to enter voluntary liquidation, particularly where a licensed Insolvency Practitioner has been formally instructed, the CVL can be completed promptly and there is no attempt to continue trading at creditors' expense.

Under the Insolvency Rules, the court can permit the petitioner to withdraw a petition before the first hearing where the required conditions are met. These include that the petition has not been advertised, no notices supporting or opposing it have been received and the company consents. The application must normally be made at least five business days before the first hearing. (Legislation.gov.uk)

Those conditions will not apply in every case. The creditor may instead ask the court to adjourn the petition while the CVL is completed or seek dismissal at the hearing once the voluntary liquidation has commenced.

The petitioning creditor's legal costs will also need to be addressed. Agreement in principle to a CVL should not be treated as confirmation that the petition has been withdrawn. The position should be documented formally and the court must be notified through the correct procedure.

What If the Petition Has Already Been Advertised?

A CVL may still be possible, but the position is more difficult.

A creditor presenting a petition is ordinarily required to advertise the hearing in The Gazette at least seven working days before it takes place. The advertisement tells other creditors that the petition exists and explains how they can give notice of their intention to attend the hearing. (GOV.UK)

Once advertised, the petition becomes more clearly a collective insolvency process rather than a private dispute between the company and the original petitioner.

Another creditor may attend and support the petition. If the original petitioner no longer wishes to continue, the court can in appropriate circumstances substitute another creditor or contributory as petitioner. (Legislation.gov.uk)

Consequently, paying or reaching an agreement with the original petitioner may not be enough. The company must establish whether any supporting creditors have appeared and whether they intend to seek a winding-up order.

The court may still adjourn or dismiss the petition to allow a CVL to proceed, but it will consider the position of creditors as a whole. The original petitioner cannot guarantee the outcome once other creditors have become involved.

Will the Court Adjourn the Petition to Allow a CVL?

The court has a broad discretion when hearing a winding-up petition. It may dismiss the petition, adjourn it conditionally or unconditionally, make an interim order or make another order it considers appropriate. (Legislation.gov.uk)

This means the court can grant an adjournment to allow a properly proposed CVL to be completed. However, the company has no automatic right to an adjournment.

In practice, the court is likely to expect evidence that the CVL is genuine and can be completed within a realistic period. It may be relevant that an Insolvency Practitioner has completed the initial onboarding, the company's financial information is available, the statutory notices can be issued promptly and the liquidation costs have been funded.

The company should also be able to explain why a CVL is appropriate, what stage the process has reached and how the interests of creditors will be protected during the adjournment.

A vague statement that the directors intend to place the company into liquidation at some point is unlikely to carry the same weight as a fully prepared and funded proposal supported by documentary evidence.

The views of the petitioning creditor and any supporting creditors will also be important. Even where they consent, the final decision remains with the court.

When Might the Court Refuse an Adjournment?

An adjournment is not guaranteed simply because the directors would prefer a CVL.

The court may be reluctant to grant additional time where the request appears to be a delaying tactic, the directors have already had a substantial opportunity to act or there is no evidence that the CVL can actually be completed.

Difficulties may also arise where the petition has been adjourned previously, the company has breached payment promises, several creditors support an immediate order or there are concerns about the disappearance of assets and records.

A court may also question a proposed CVL where the funding is uncertain, the company's information is incomplete or the directors cannot explain what has happened to its money and assets.

This is why early action matters. A carefully prepared application made with supporting evidence will generally be more credible than an emergency request made on the morning of the hearing.

Does Instructing an Insolvency Practitioner Stop the Petition?

No.

An engagement letter, payment of a deposit or commencement of the CVL paperwork does not impose a moratorium and does not prevent the court from making a winding-up order.

The petitioning creditor must still be contacted, the court proceedings must still be addressed and the company should normally be represented at the hearing.

Government guidance states that a company facing a petition must attend the hearing. In practice, this will commonly involve an insolvency solicitor or barrister attending on the company's behalf where an adjournment or dismissal is being requested. (GOV.UK)

The Insolvency Practitioner can prepare the CVL and provide evidence about its status, but legal representation may still be required to deal with the petition itself.

Parker Walsh will work alongside the company's insolvency solicitor so that the court strategy and proposed CVL are properly coordinated.

Can the Petitioning Creditor Simply Withdraw the Petition?

The creditor may agree to seek withdrawal or dismissal, but it cannot always cancel the petition informally.

Once a petition has been presented, it is under the court's control. The creditor will ordinarily need the court's permission to withdraw it or an order dismissing it.

Government guidance confirms that a petitioning creditor may withdraw where the company pays the debt or reaches an arrangement. However, the procedural requirements and the interests of other creditors must still be considered. (GOV.UK)

If the petition has not been advertised and no other creditors have appeared, withdrawal may be relatively straightforward.

If it has been advertised, another creditor may seek to continue the petition. The petitioning creditor's agreement is therefore very helpful but may not be decisive.

Directors should obtain confirmation from the petitioner's solicitors and should not rely on an informal telephone conversation or an assumption that the hearing will be cancelled.

Can I Just Pay the Petitioning Creditor?

Paying the petition debt can sometimes lead to the petition being withdrawn or dismissed. However, this should not be done without considering the company's full financial position.

If the company is unable to pay all its creditors, using its remaining funds to pay the creditor who presented the petition may leave less available for everyone else. A subsequent liquidator may need to review whether the payment placed that creditor in a better position and amounted to a preference.

Not every payment to a petitioning creditor will automatically be recoverable. The statutory requirements for a preference must be satisfied, including the requirement concerning the company's desire to produce the preferential effect. Nevertheless, the transaction will need to be examined. (Legislation.gov.uk)

There is also a separate section 127 risk. If the payment is made after presentation of the petition and the court later makes a winding-up order, the payment may be void unless validated by the court. (Legislation.gov.uk)

Directors should not therefore empty the company's bank account to pay the petitioning creditor merely because a hearing is approaching.

Where payment or settlement is being considered, advice should be obtained on the source of the funds, the company's other liabilities, any supporting creditors and the effect on the proposed CVL.

What Happens to the Company's Bank Account?

A company's bank account will usually be frozen once the bank becomes aware that a winding-up petition has been presented.

Government guidance states that a validation order is required to access the company's account after a petition has been filed. (GOV.UK)

A validation order is a court order confirming that specified payments or transactions will not be void under section 127 if a winding-up order is subsequently made.

It is not a general permission for the directors to continue using the account as normal. The application should identify the particular transactions that need to take place and explain why they are necessary.

The Insolvency Practice Direction states that the court will normally require detailed evidence of the company's assets and liabilities, its cash flow, the payments proposed and the effect on creditors. The court must be satisfied that the transaction will benefit, or at least not prejudice, unsecured creditors as a class. (GOV.UK Justice)

A validation order does not dismiss the petition and does not itself place the company into CVL. It only addresses the transactions covered by the order.

Can Company Money Be Used to Pay for the CVL?

Company funds can often be used to pay the proper costs of placing an insolvent company into CVL. However, the existence of a winding-up petition makes the position more complicated.

If the bank account has been frozen, the bank will not ordinarily release the funds without a validation order or confirmation that the petition has been dismissed.

If the company pays the proposed liquidator after the petition has been presented and a compulsory winding-up order is later made, the payment may fall within section 127 unless the court validates it.

It may therefore be necessary for the CVL costs to be funded temporarily by a director, shareholder or other third party. Any such funding should be transparent and properly documented.

The person providing the money should not assume that they will automatically be repaid from the company's assets. Any reimbursement must be considered by the appointed liquidator and must comply with the proper order of priority.

Directors should never transfer the company's money to themselves or a connected company and then describe the funds as personal payment of the liquidation costs.

What If the Petition Debt Is Disputed?

A winding-up petition should not ordinarily be used to determine a genuinely disputed debt.

Where the company disputes the debt on substantial grounds, urgent legal advice should be obtained about opposing the petition, seeking an injunction preventing advertisement or applying for its dismissal.

Placing the company into CVL may be inappropriate if it is actually solvent and the petition is based on a disputed claim.

However, the fact that one debt is disputed does not necessarily mean that the company is solvent. A company may dispute the petitioning creditor's claim while still being unable to pay its other creditors.

In that situation, a CVL may remain appropriate, but the disputed debt should be explained fully to the proposed liquidator and should not be admitted merely to obtain an adjournment.

The company's solicitor and Insolvency Practitioner should coordinate their advice so that the defence to the petition and the company's wider insolvency position are both addressed.

What If HMRC Presented the Petition?

HMRC is one of the most frequent petitioning creditors where a company has accumulated VAT, PAYE or Corporation Tax arrears.

The legal principles are the same whether the petitioner is HMRC, a supplier, a landlord or another creditor.

The company may still ask HMRC to consent to an adjournment or dismissal while a CVL is completed, but HMRC is not obliged to agree. Its response will depend on the circumstances, the stage reached by the proceedings and whether the proposed liquidation is credible and properly funded.

Directors should not assume that submitting another Time to Pay proposal will stop the petition. Unless HMRC formally agrees to the arrangement and the court proceedings are dealt with, the hearing will continue.

Where HMRC has already presented a petition, communications should be treated as urgent and the company should ensure that the relevant HMRC office, petition team or instructed solicitor is contacted using the details on the petition.

Why Might a CVL Still Be Preferred?

A CVL allows the directors and shareholders to initiate an orderly liquidation before the court makes a compulsory winding-up order.

The company can nominate a licensed Insolvency Practitioner, prepare its records and statement of affairs, deal with employee information and arrange for assets to be secured in a controlled manner. Creditors retain the right to nominate a different liquidator. (Legislation.gov.uk)

By comparison, if a winding-up order is made, the Official Receiver initially takes control and the company enters compulsory liquidation immediately. (GOV.UK)

A CVL may therefore provide a more organised transition and allow the practical work to begin before the court hearing.

However, the purpose of a CVL is not to place the directors' interests ahead of creditors. The proposed liquidator must remain independent and will act for the creditors as a whole once appointed.

Does a CVL Avoid an Investigation into the Directors?

No.

Choosing a CVL instead of compulsory liquidation does not prevent the company's affairs or the directors' conduct from being reviewed.

A CVL liquidator must establish the reasons for the company's insolvency, secure and realise its assets and consider the conduct of the directors. A conduct report must be submitted to the Insolvency Service. (GOV.UK)

Transactions involving director's loan accounts, connected companies, asset transfers, dividends, personal guarantees and payments to selected creditors may all be examined.

The same underlying obligations to preserve records, disclose company assets and cooperate with the office-holder apply.

A CVL should be selected because it is an appropriate and orderly insolvency procedure, not because the directors believe it will avoid scrutiny.

What Happens If the Court Has Already Made a Winding-Up Order?

Once the winding-up order has been made, the company is in compulsory liquidation.

The directors no longer have authority to commence a CVL, appoint their preferred liquidator or deal with the company's assets. The Official Receiver will take control and the directors must cooperate. (GOV.UK)

There are limited procedures for applying to rescind or appeal a winding-up order. The Insolvency Practice Direction states that an application to rescind should ordinarily be made within five business days of the order. (GOV.UK Justice)

These applications require specialist legal advice and proper grounds. A director's preference for a CVL will not, by itself, mean that the order should be reversed.

Creditors may later appoint a licensed Insolvency Practitioner as liquidator in place of the Official Receiver, but the process will remain a compulsory liquidation rather than becoming a CVL.

What Should a Director Do Immediately?

The first step is to establish exactly what has been received. The director should locate the complete sealed petition and confirm the date of presentation, the hearing date, the petitioning creditor, the amount claimed and whether the petition has been advertised.

The director should then contact a licensed Insolvency Practitioner and an insolvency solicitor. The Insolvency Practitioner can assess whether the company is insolvent and prepare a CVL, while the solicitor can communicate with the petitioner and deal with the court proceedings.

Company money and assets should be preserved. Directors should not repay themselves, transfer assets to a new company, pay connected creditors or make unusual withdrawals.

The company's bank statements, accounting records, creditor list, employee details and asset information should be gathered immediately. A proposed liquidator will need complete information to prepare the liquidation documents within the available time.

The company should not continue accepting orders, deposits or credit unless there is a proper basis for doing so and professional advice has been obtained.

Most importantly, the petition hearing must not be ignored. Unless the court confirms that it has been withdrawn, dismissed or adjourned, the company should assume that the hearing will proceed.

Directors' duties continue whether the company is trading or has stopped. Once insolvency arises, the directors must take account of creditors' interests and should seek professional advice before taking further action. (GOV.UK)

Speak to Parker Walsh

A winding-up petition does not always prevent a company from entering a Creditors' Voluntary Liquidation, but there is usually only a limited period in which to act.

A CVL may remain possible before the winding-up order is made, particularly where the petition has not yet been advertised and the petitioning creditor is prepared to cooperate. However, the petition must be dealt with formally and an adjournment or dismissal is not guaranteed.

The company's bank account, proposed payments and liquidation funding must also be considered carefully because of the restrictions affecting transactions after presentation of the petition.

Molly Monks F.I.P.A of Parker Walsh is a licensed Insolvency Practitioner and provides clear, confidential advice to directors facing winding-up proceedings.

Parker Walsh can assess whether a CVL remains achievable, prepare the voluntary liquidation urgently and work alongside the company's solicitor to ensure that the court and insolvency processes are properly coordinated.

Frequently Asked Questions

Can I start a CVL after a winding-up petition has been served?

Potentially, yes, provided the court has not already made a winding-up order. However, starting the CVL does not stop the petition. The court proceedings must be formally adjourned, dismissed or withdrawn.

Does appointing an Insolvency Practitioner cancel the hearing?

No. Instructing an Insolvency Practitioner, paying a deposit or signing an engagement letter does not cancel the petition. Unless the court confirms otherwise, the hearing will proceed.

Can the court give me more time to complete the CVL?

Yes. The court has the power to adjourn the hearing, but an adjournment is discretionary. Evidence should normally be provided showing that the CVL is properly prepared, funded and capable of completion within a realistic period.

Is it easier before the petition is advertised?

Usually, yes. Before advertisement, other creditors are less likely to have appeared in support and the rules provide a potential procedure for the petitioner to seek permission to withdraw. Once advertised, another creditor may seek to continue the petition.

Will paying the petition debt stop the liquidation?

Not necessarily. The petitioner may agree to withdraw or dismiss the petition, but other creditors may support it. The payment itself may also need to be considered under section 127 and the rules concerning preferences.

Can I use the company's bank balance to pay for the CVL?

Potentially, but the bank account may have been frozen and a validation order may be required. A payment made after presentation of the petition may be at risk if a compulsory winding-up order is later made.

Can a director personally pay the liquidation fee?

Yes, a director or third party can usually fund the CVL, provided the source and terms of the payment are properly recorded. The director should not assume that the company or liquidator will automatically reimburse them.

What if the hearing is tomorrow?

The company should obtain urgent advice from an insolvency solicitor and a licensed Insolvency Practitioner. An adjournment may be requested, but there is no guarantee that the court will grant it.

What happens if I do not attend the hearing?

The court may make a winding-up order in the company's absence. The company should ensure that it is properly represented unless it has received formal confirmation that the petition has been withdrawn or the hearing vacated.

Can I enter a CVL after a winding-up order has been made?

No. Once the order is made, the company is in compulsory liquidation. There may be limited grounds to seek rescission or appeal, but the directors cannot simply replace the compulsory liquidation with a CVL.

FAQs

What is the difference between a CVL and compulsory liquidation?

A CVL is initiated voluntarily by the directors and shareholders, whilst compulsory liquidation is imposed by the court following a winding-up petition. A CVL generally allows for a more orderly and controlled process.

How quickly does a CVL need to be arranged after a petition is received?

There is no fixed timeframe, but action should be taken immediately. The available window narrows significantly once the petition has been advertised or a hearing date is close.

Who chooses the liquidator in a CVL?

The company can nominate a liquidator, but creditors have the right to nominate a different one, and their choice takes priority if there is a disagreement.

Can trading continue while a CVL is being arranged after a petition?

This should only be considered with professional advice, as continuing to trade or take on new credit whilst insolvent can create further risks for directors.

Does a CVL protect directors from all liability?

No. A CVL does not prevent scrutiny of director conduct or transactions. A conduct report is still submitted to the Insolvency Service regardless of which liquidation route is taken.

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