A winding up petition is one of the most serious actions that can be taken against a Company. If it is ignored, it can quickly lead to compulsory liquidation and the loss of all control by the directors. Understanding the process and acting early can make a significant difference to the outcome.

What Is a Winding Up Petition?

If a Company owes £750 or more to a creditor and has failed to pay, that creditor may apply to the Court for the Company to be wound up. This application is known as a winding up petition. If the Court grants the petition, the Company will be placed into compulsory liquidation and will cease trading.

What Happens in Compulsory Liquidation?

Once a winding up order is made, the Court appoints the Official Receiver, a government body, who takes control of the Company. The Official Receiver is responsible for identifying and realising Company assets, recovering money owed to the Company, including any overdrawn directors’ loan accounts, and deducting their fees from the funds recovered. Any remaining monies are then distributed to creditors in accordance with the statutory order of priority. At this stage, directors lose control of the Company entirely.

Costs of Issuing a Winding Up Petition

A creditor issuing a winding up petition is required to pay a Court fee of £343 together with a petition deposit of £2,600. If the Company has assets or recoverable funds, the petition deposit may be refunded to the creditor.

Serving the Petition

The winding up petition must be formally delivered to the Company, which is known as ‘service’. It may be served on a director or an employee. If personal service is avoided, it may be posted through or attached to the Company’s premises and will still be legally valid. Professional process servers are commonly used, and once service has taken place, the creditor must confirm this to the Court. Avoiding service does not stop the process and can make the situation worse.

What Directors Should Do Immediately

Once a winding up petition has been served, time is critical. Directors should seek immediate advice from an Insolvency Practitioner, such as Molly Monks at Parker Walsh. Options reduce significantly once the petition is live, and a Court hearing will already be scheduled. Early advice can often prevent the worst-case outcome.

The Consequences of Doing Nothing

If no action is taken, the petition will be advertised in the London Gazette up to seven days before the hearing. Banks monitor the Gazette and will typically freeze the Company’s bank accounts once the advertisement appears, making it impossible for the Company to continue trading. In many cases, this forces the business to cease operations entirely.

The Court Hearing

Directors are not required to attend the Court hearing. However, unless there is a valid defence or an alternative process in place, the Court will almost certainly issue a winding up order. The Official Receiver will then take over, and compulsory liquidation will begin.

An Alternative Option: Creditors’ Voluntary Liquidation (CVL)

In many cases, it may be possible to place the Company into Creditors’ Voluntary Liquidation before the Court hearing, with the guidance of an Insolvency Practitioner such as Molly Monks. A CVL allows the directors to appoint their own liquidator, subject to creditor ratification, and enables the process to be managed in an orderly and controlled manner. It also demonstrates that the directors are acting responsibly.

In some cases, the petitioning creditor may withdraw the winding up petition once a CVL is underway. If the petition is not withdrawn, the Court can be informed that the Company is already in CVL, and the judge may set aside the hearing, as compulsory liquidation is no longer necessary.

Key Advice for Directors

A winding up petition should never be ignored. Directors should act immediately, seek professional advice as early as possible, and provide full and accurate Company information. Speed, transparency and expert guidance are essential to achieving the best possible outcome.

How Parker Walsh Can Help

If your Company has received a winding up petition, early advice is critical. At Parker Walsh, Molly Monks, Licensed Insolvency Practitioner, can assess your position quickly, explain your options clearly, and advise on whether a Creditors’ Voluntary Liquidation or alternative solution is appropriate.

The earlier you act, the more options you are likely to have.

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