Understanding a Winding-Up Petition
When a creditor files a legal notice in the court to wind up a company it believes to be insolvent it is known as a winding-up petition. It is applied for if a creditor who has outstanding debts in excess of £750 that have remained unpaid for more than 21 days. The notice asks the court for the company’s dissolution on the grounds of being insolvent. The income from the liquidation is used to repay creditors. The HMRC handles around 60% petitions including issuing them. Generally a statutory demand is issued first. Outstanding debts could arise from cheques being dishonoured, directors not keeping to payment agreements, etc.
Consequently, the creditor reacts by issuing a WUP (winding-up petition) through the courts. When a creditor takes such a major step, it reflects, they are serious to get their payment and even willing to get a company liquidated in the process. At this point the debtor has the chance to avoid being wound up by disputing the claim, making a prompt settlement or opting for a CVA (company voluntary arrangement).
If a WUP is upheld then the courts will grant a winding up order and the debtor will have all its payments frozen following the liquidation. Nothing can then be paid without getting a validation order and will prevent the company from carrying out its daily trading. Therefore, it is critical to take quick action when a business is served a WUP as when the winding up order has been granted there is nothing the debtor can do to stop the process of liquidation.
The cost to issue a WUP range between £400-800, with filing costs of £280 and a court fee as a deposit of £1,600 making it an expensive step to take.