Why and how to present a Winding-up Petition
- Business Dispute
Oh dear. A company owes you money. They know they are supposed to pay you, but they’ve just gone silent. What is the quickest way to recover an undisputed debt like this?
Generally, you have two choices:
- Commence a conventional debt recovery claim
Depending on the amount you’re owed, you can take the debtor to the County Court or High Court.
The problem is that the process can be slow. Various stages have to be followed, including the exchange of documents known as ‘discovery’, gathering and drafting witness statements, and other delays. This means you might have to wait up to 12-18 months for a trial date, or even longer.
That’s a long time to wait for your money. So here’s another option…
- Present a Winding-up Petition
If the debt is for £750 or more, you could issue a Winding-up Petition.
First, your solicitor would write a Letter of Claim to the debtor company setting out the details of the debt and asking for payment by a certain deadline. The letter should be drafted professionally by somebody who’s an expert at dealing with Winding-up Petitions (Summit Law LLP, for example).
Alternatively, we could prepare a document called a Statutory Demand. This isn’t a court document but it does have to be in a legal format. It will set out details of the creditor, and brief details of the debt including invoice date, invoice number and amount due. It will also contain the debtor’s details in full, including their registered office address.
If the debtor still doesn’t reply or pay you, we would then draft a Winding-up Petition. This contains similar information to the Statutory Demand, but is a legal document that is lodged with the appropriate court. You pay a court fee and Official Receiver’s deposit, and the court clerk sets a date for the hearing. The court clerk also seals or stamps the Winding-up Petition, and gives you a copy.
The sealed document has to be personally served on the debtor at their registered address. It is common to employ a process server or enquiry agent to do this.
Why choose to issue a Winding-up Petition
The beauty of choosing this option is that the hearing will be a lot quicker, possibly in as little as 7-12 weeks.
It’s seen as an aggressive step for a creditor to take, because the impact on the debtor is draconian.
- The presentation of the Winding-up Petition will be advertised in the London Gazette
- Other creditors will become aware that the company has financial difficulties, and might support the Winding-up Petition
- Their bank might see the announcement and freeze the debtor’s account so they can’t pay their staff or landlord
What happens next?
If a Winding-up Order is made at the hearing, the company will be placed into compulsory liquidation.
The Official Receiver will interview the directors and appoint a liquidator whose job is to investigate the company’s affairs and establish the reasons for its failure. The liquidator will also seek to realise the company’s assets. This may include bringing personal claims against the directors themselves, including actions for misfeasance, wrongful trading, illegal payment of dividends, and overdrawn loan accounts. The liquidator might also bring a claim against them for antecedent transactions – for example, if the company tried to transfer assets to a third party without receiving proper consideration it’s called a transfer at undervalue. The court can then undo these transactions.
As a creditor, remember that the liquidator will have to repay all the company’s unsecured debts on a pari passu basis (that means sharing out the money equally between creditors).
If the debtor wishes to undo the Winding-up Order, they’ll have to make a formal application for rescission.
As you can tell, this is such a draconian process that it is quite common for the debtor to pay up before things escalate to a Winding-up Order.
P.S. If you’ve received a Winding-up Petition, read this article >
If you’d like more information about winding-up petitions, call us on 020 7467 3980. We’ll be happy to help.