Issuing a Winding Up Petition – A short Guide

issuing a winding up petition

Chasing unpaid debts from a company can be extremely frustrating, and when traditional debt recovery methods prove ineffective, issuing a winding up petition may become a necessary course of action.

South Bank Legal specialises in providing expert guidance throughout this process.

Why Consider Issuing a Winding Up Petition?

Exhausted debt recovery options:

When conventional debt recovery efforts have been exhausted, and a company remains unwilling or unable to settle its outstanding debts, a winding up petition can be a potent tool. This legal action can lead to the compulsory liquidation of the company, compelling the sale of assets to satisfy outstanding debts.

Sending a strong signal:

Issuing a winding up petition sends a clear and compelling message to the debtor company. It underscores the seriousness of the situation, emphasising that failure to address the outstanding debt may result in the ultimate dissolution of the company and its business.

Grounds for Issuing a Winding Up Petition

The court will issue a winding up order under specific circumstances. The primary grounds for issuing a winding up petition is the company’s inability to pay its debts. The grounds for issuing a winding up petition typically include:

Unpaid debt

The most common ground for issuing a winding up petition is the company’s failure to pay its debts. If a company owes a debt of £750 or more and has not responded to formal demands for payment, this can be a basis for seeking a winding up order.

Statutory Demand:

Before issuing a winding up petition, it is common practice to serve a statutory demand. This formal written demand gives the debtor company a defined period (usually 21 days) to settle the debt. If the debt remains unpaid, or the debtor fails to have the demand set aside, it can strengthen the grounds for issuing a winding up petition.

Inability to pay debts:

The company must be shown to be unable to pay its debts, indicating insolvency. This inability to pay can be demonstrated by the debtor company failing to comply with a statutory demand or if it is unable to pay its debts as they fall due.

Insolvency tests:

There are two key insolvency tests that can be used to demonstrate the company’s inability to pay its debts:

  • The “cash flow” test: The company is unable to pay its debts as they become due.
  • The “balance sheet” test: The company’s liabilities exceed its assets.

No genuine dispute over the debt:

Any debt forming the basis of a winding up petition should not be subject to a genuine dispute. If the debtor company disputes the debt and has valid grounds for doing so, the court may grant the debtor company an injunction, which is a court order preventing the winding up petition from being issued in the first place or, if it has been issued, from the petition being advertised in the London Gazette.

It’s important to note that issuing a winding up petition is a significant legal action, and it is recommended to seek legal advice before proceeding. A solicitor can assess the specific circumstances of the case and provide guidance on the most appropriate course of action and whether there are grounds for issuing a winding up petition.

Issuing a Winding up Petition

Issuing a winding up proceeding involves a series of legal steps that culminate in the court granting a winding-up order. Outlined below is an overview of the process.

Apply to the court

If the debt remains unpaid after the statutory demand, the next step is to issue a winding up petition. Form Comp 1 is submitted to the court, outlining the details of the debt, the grounds for the petition, and other relevant information. The contents of the petition must also be separately verified.

Service of the winding up petition

Proper service of the winding up petition is crucial. It must be served at the company’s registered address and given to a representative of the company who is authorised to accept service on the company’s behalf. The petitioner must provide evidence of service to the court.

Court sets a hearing date:

When the winding up petition is issued, the court sets a hearing date.

Granting a winding up order:

If, at the hearing, the court is satisfied with the grounds presented in the petition and there is no opposition by the company, the court may grant a winding up order. This order forces the compulsory liquidation of the company.

What Happens Next?

When a winding-up order is granted by the court, it initiates the compulsory liquidation of a company. The granting of a winding up order initiates a formal process that involves the dissolution of the company and the realisation and distribution of its assets among creditors.

The court appoints an official receiver to take control of the company’s affairs. The official receiver is an officer of the court and is responsible for overseeing the liquidation process.

 

The official receiver conducts an initial investigation into the company’s affairs. This investigation aims to assess the financial position of the company, examine the conduct of its directors, and identify any potential assets that can be realised for the benefit of creditors.

A formal notice of the winding-up order is published in the London Gazette, which serves as a public record. This notice provides information about the winding up and acts as a notification to creditors, shareholders, and the public.

The official receiver convenes a meeting of creditors, known as the creditors’ meeting. During this meeting, creditors have the opportunity to appoint a licensed insolvency practitioner as the liquidator if they choose to do so.

If creditors decide to appoint a licensed insolvency practitioner, the official receiver steps aside, and the appointed liquidator takes control of the liquidation process. The liquidator’s primary duty is to realise the company’s assets and distribute the proceeds among creditors.

The liquidator takes charge of selling or realising the company’s assets. The proceeds from the sale are used to pay off the costs of the liquidation process and, to the extent possible, distribute funds to creditors according to their priority.

The liquidator is required to submit a final report to Companies House, providing details about the conduct of the liquidation and the distribution of assets. This report becomes part of the public record.

How can South Bank Legal assist?

If you are a creditor seeking payment of unpaid debts, our commercial debt recovery solicitors can guide you through the process of issuing a winding up petition or statutory demand.

If you are the  director of a company served with a winding up petition, our dispute resolution solicitors will advise you on how to defend the company whilst giving you pragmatic and commercially aware advice.

Our insolvency and bankruptcy solicitors advise on:

  • company administration
  • receivership
  • liquidation (winding up)
  • individual bankruptcy
  • statutory demands as a means of debt recovery
  • setting aside statutory demands
  • winding up petitions and bankruptcy petitions
  • validation orders
  • pursuing and defending directors in claims for wrongful trading
  • pre pack administration sales
  • transactions at an undervalue
  • petitions to wind up companies on the just and equitable ground under section 122(g) of the Insolvency Act 1986
  • provision of information to liquidators under section 235 of the Insolvency Act 1986

 

For a confidential discussion with South Bank Legal, please get in touch using the form below or call us on 02035765179.

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