Winding-Up Petitions/Bankruptcy Petitions presented by HMRC

For a majority of companies and businesses, the consequential delays and accounting arrangements – and the need to run a business – means that the timely and accurate payment of tax liabilities to HMRC is not always straightforward.  Where tax remains unpaid, or (even worse) tax returns are not filed and no payments are made, HMRC will, and regularly do, petition for the company or individual to be wound-up/declared bankrupt for their unpaid taxes.

HMRC are the most common creditor responsible for both types of petition, the result of which is the end of life for a company and the complete dissolution of all financial security for an individual (and to a lesser extent their spouse where property is jointly owned).

Quite commonly, the unpaid taxes are statutory assessments of taxes due for various periods where the returns have not been filed by the individual or company.  Such assessments are established legal debts (even if you disagree or think they are overstated) and in the absence of returns supported by accounting evidence they cannot be disputed.

In most circumstances, by the point at which a petition for your bankruptcy or for the company’s winding-up has been presented, negotiations have been exhausted or the individual/company are not prepared sufficiently to provide such workings to be able to dispute the tax debt alleged to be due.

Please see our web page here which provides the answers to lots of questions a company may have upon receipt of a Winding-Up Petition.

Early Dangers

A Statutory Demand is an early indicator that a Winding-Up Petition or a Bankruptcy Petition will shortly be presented.  However, particularly for HMRC, a Statutory Demand is not always served and the underlying tax liability is relied on instead.

For a company, shortly after receipt of a Winding-Up Petition, its business will be severely at risk once the Petition is advertised which (for a lot of companies) may have a destructive effect on its business and its access to finance. 

Thereafter, the imposition of a Winding-Up Order or Bankruptcy Order means that all assets, liabilities, rights and obligations are initially passed to the Official Receiver.

Can I defend a Winding-Up or Bankruptcy Petition?

Early engagement with HMRC is always recommended and by negotiating such matters with the appropriate professional advice you can extract an exit. 

If you have a reasonable defence, or even evidence of an opportunity to enable repayment of the tax debt, then this can be raised in proceedings in a similar manner to any defended litigation. 

Of course, as with all litigation, it is more expensive to defend a litigated claim than to have employed the appropriate professionals beforehand (i.e. before presentation of the petition) to negotiate the right amount of tax that is due.

What Risks do I face?

If you are an individual declared bankrupt, then all of your assets will be vested in the Trustee in Bankruptcy (who may initially be the Official Receiver).  This may include half of a jointly owned matrimonial home, which will have to be sold unless a joint owner has funds to acquire half of the equity.

Bankruptcy also has considerable credit implications which restrict your future opportunities, and you normally would be prevented from acting in a professional regulatory environment or acting as a director of a limited company.  Please see our webpage here for more information.

For a company wound-up, the impact is less personal for Directors, who are theoretically immune as a result of the limited liability status of the company.  However, for employees and suppliers reliant on that company, the immediate impact on their livelihood can be just as devastating as bankruptcy (and could even lead to such consequences).

For Directors, where misconduct preceded the liquidation they face severe personal risk and we refer to our page which deals with the personal risks to Directors here.

At Francis Wilks & Jones we are able to assist with defence of a bankruptcy or Winding-up petition and any claims or risks you may face thereafter, including director disqualification claims and claims arising out of insolvency or for breach of a director’s fiduciary duties.

Please call any member of our Tax Disputes Team for your consultation now on 0207 841 0390. Alternatively email us with your query at info@franciswilksandjones.co.uk and we will call you back at a time convenient for you.