Winding Up Petition Guide

Table of Contents

• Introduction
• What is a Winding Up Petition?
• What are the risks of issuing a Winding Up Petition?
• What is the Winding Up Petition Process?
• What are the alternatives to issuing a Winding Up Petition?
• Concluding comments

Introduction

Issuing a winding up petition (WUP) to a company (also known as putting a company into compulsory liquidation) is the nuclear option of the insolvency process, especially given the fact the petitioned company’s bank can freeze its assets. Therefore, issuing a WUP should be treated with extreme caution. If you take one thing away from this article, let it be this: Never issue a winding up petition without taking advice from an experienced Commercial Law Solicitor first.

What is a Winding Up Petition?

A winding up petition (WUP) is a legal process that can be taken by a Creditor if a company owes them £750 or more. The petition is issued in Court with a hearing date endorsed on it. The WUP must be served at the registered office of the company.

A WUP is not considered a debt recovery process as by issuing it you are stating that the company is insolvent and cannot pay its debts (including yours). If the Court agrees, a liquidator will be appointed. They will then collect in the company’s assets and distribute them amongst creditors equally, after secured creditors and costs have been paid.

What are the risks of issuing a Winding Up Petition?

There are several, including:

• If WUP procedures have already begun concerning the company that owes you money, you may be liable for costs. Therefore, it is crucial to check the Gazette that there are no additional proceedings against the organisation.
• The receiver of the WUP may defend the petition. If they have a counterclaim against you which is greater than the debt owed, the petition may be struck out. This can result in significant losses for your business in terms of issuing the petition and legal fees.
• You must follow a strict procedure when issuing a WUP, or your petition may be struck out. Therefore, it is always best practice to have a Commercial Law Practitioner issue the proceedings to ensure the correct process is followed.

What is the Winding Up Petition Process?

The standard process for a WUP is:

1. As the Creditor, you will file a WUP in court, along with any supporting documentation.
2. You must serve a copy of the WUP on the company that owes you money (known as the Respondent). Notice is typically served at the organisation’s registered office. You must also advertise in the London Gazette.
3. The Respondent’s bank will likely freeze its bank accounts once they see the Gazette notice, which will bring a halt to all trading.
4. The Respondent, upon receiving the WUP, is likely to pay the debt or dispute it. If they can prove they have a genuine dispute, the Court will not issue a Winding Up Order.
5. The Court will hold a hearing in which it will hear evidence from you and the Respondent. If the court finds in your favour, it will issue a Winding Up Order, putting the Respondent company into Compulsory Liquidation.
6. The Official Receiver will automatically be appointed as the Liquidator in the first instance. You may decide to appoint a licensed insolvency practitioner to manage the winding up process.
7. The liquidator will sell the Respondent company’s assets and distribute the proceeds to creditors according to their priority.

What are the alternatives to issuing a Winding Up Petition?

Given the risks of kicking off the Winding Up process, it is important that you are aware of the alternatives available. These include:

• Informal negotiations to try and agree on a payment plan.
• A Company Voluntary Arrangement (CVA), which allows the company and its creditors to agree on the payment of the organisation’s debts over time.
• Administration, which can lead to the business being able to restructure and trade its way back to solvency.

Concluding comments

Issuing a WUP has grave consequences for the receiving company as it is effectively being put out of business. A Commercial Law Solicitor can run the vital checks required to ensure there are no insolvency proceedings already underway. They can also advise you on whether or not issuing a WUP is the best route for recovering your debt. In many cases, it will not be, and the process could leave you in an even worse financial situation than you were when you simply had an unpaid invoice.

To instruct one of our Commercial Law Solicitors regarding debt recovery, please fill in our contact form or email us at [email protected].