Winding up petitions – what are the facts?

The petition can be used in a wide range of contexts, but most often will be employed if a business has repeatedly failed to make payments, broken promises to do so or there are indications that creditors won’t be paid. In terms of specifics, a winding up petition can only be issued if a company can’t pay debts of more than £750, though these debts can be owed to more than one creditor.


In order for a winding up petition to be filed, the creditors need to ensure that they are able to prove that the debtors owe more than £750 to one or more creditors, and that the company can’t repay this money. Proof that the company can’t repay the debt is usually obtained through the use of a statutory demand. Essentially, this is a formal request for the money to be paid and will result in a winding up petition if the debt has not been settled, or an agreement to pay has not been reached within 21 days. Once these two criteria have been met, an application to the courts can be made in order to begin the winding up procedure.


The process of winding up a company will usually be handled through a solicitor, as the legal procedures can be incredibly complex. However, they do involve paying £220 in court fees and a £1,165 ‘petition deposit’ to pay for the management of the case by the courts. These fees can be recouped if the debtors can afford to pay them back. The fees involved in the process highlight just how serious a move applying for a winding up petition is and, if on the receiving end of such a petition, how quickly you will need to act in order to ensure that your business survives.


When creditors move against a business with a winding up petition, the situation has got to the point at which there are only a few alternatives open to the company. Whatever action you choose to pursue (if you are fortunate enough to be in the position where you can still choose between alternatives), it is important to act with speed and determination. The first option is simply to pay the debts that you have been petitioned for as quickly as possible. However, if the disagreement has reached this late stage, it is more than likely the issue is more complex than a simple matter of late payment.


One option available to a business is a Company Voluntary Arrangement (CVA), though it may be difficult to achieve if it is left too long. A CVA is essentially an agreement between a company and its creditors that places legal protection around the insolvent business and gives it some respite from difficult creditors. This is a great option if the business is strong but suffering from poor cash flow.


A second option may be the placing of the company in administration, after which a CVA may be reached or it may be sold on. However, for this to take place, a business has to be viewed as having a good future and court costs have to be considered. Finally, if the parties dispute the value of the debt or the conditions of repayment, a company could mount a legal defence against the winding up petition. In order to establish whether this is a possibility, sound legal advice should be sought. 


If no action is taken to satisfy the courts or creditors that have issued a winding up petition, there is really nothing that can be done to save a business from liquidation. However, it’s important that measures are taken to prevent personal liability or additional scrutiny of company directors. The best way of doing this is by utilising the professional skills and knowledge of an insolvency practitioner.


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