A Winding Up Petition is a request to a court by a creditor for a company to be liquidated due to that company being insolvent and unable to pay its lawful debts.
This should not be confused with a Bankruptcy Petition which applies only to individuals and sole traders. Partnerships are also covered by different procedures.
The debtor company must owe the creditor at least £750 and the claim must be for a liquidated sum, i.e. a fixed sum of money not, for example, damages.
It is not necessary to serve a company with a Statutory Demand before commencing proceedings although many creditors do so. The Statutory Demand calls upon the debtor company to deal with the demand within 21 days of service either by satisfying the debt, compounding it or securing it. A statutory demand may be issued by the creditor who is owed the debt or by a person instructed by them.
The debtor company may apply to the court to set aside the Statutory Demand on the basis that the debt is disputed on bona fide grounds or that there a counterclaim, set off or cross-demand which equals or exceeds the amount of the debt claimed by the creditor. If the claim is disputed, you should expect to receive a warning letter threatening to make an application to the court to set aside the statutory demand or for an injunction preventing a petition from being issued. Any such letter should be taken seriously since it signals that you may soon be vulnerable to an order for costs being made against you.
The next stage is to issue the winding-up petition in the court. A court fee and a substantial deposit are payable at this stage. The deposit is intended to cover the costs of the liquidator in carrying out their duties and generally this will be repaid if the matter settles before a final order.
The Winding Up Petition is usually served on the company at its registered office. Ideally it is handed to an officer (a director or the company secretary) of the company, an employee of the company or a person who is "authorised to accept service of documents on behalf of the company" at the company's Registered Office. Most commonly a person authorised to accept service of documents on behalf of the company is an employee of a firm of accountants or solicitors whose offices are the location for the company's Registered Office. If the Registered Office is unattended the Winding Up Petition can be left in such a position that it is likely to come to the attention of a person attending at the Registered Office.
Even sector professionals like solicitors and insolvency practitioners use a Process Server to serve Winding Up Petitions. In choosing your Process Server you should ensure that the company or individual is sufficiently professional and competent to carry out your instructions. There is currently no regulation of this industry sector in the United Kingdom and effectively anybody can call themselves a Process Server. You might check that your Process Server is registered with the Information Commissioners Office and that they have in place professional indemnity insurance should anything go wrong.
After service of the Winding Up Petition the petitioner may receive payment or an offer but if no payment is forthcoming they will have to decide whether to go the expense of completing the process - advertising the Winding Up Petition and attending the hearing to seek an order. If the debtor company has not made any offer they may well be insolvent and further expenditure may be a waste of money.
In an action against a company the next significant step is the advertisement of the Winding Up Petition in the London Gazette. This is can be very serious for the company since its bankers will become aware of the situation and may freeze accounts or call for the payment of directors' guarantees. Other creditors may also become aware of the Winding Up Petition.
It is imperative that legal advice is sought by any company subject to a Winding Up Petition. There are a number of strategies that can be adopted to avoid or mitigate the consequences of a Winding Up Petition but this is a complex and specialised area well beyond the scope of the basic information offered here.
If the creditor does proceed with the process then if Winding Up Petition is ignored or uncontested the court will likely appoint an official receiver as the insolvency practitioner to liquidate the company and investigate company affairs, including the conduct of directors.
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