In the context of the English legal system, a winding-up petition is a formal legal document filed by a creditor. It can be used either to
- initiate the liquidation process of a company that is unable to pay its debts; or
- As a legal threat to the debtor to get a debt paid.
Winding up petitions must be used carefully if they are being issued to try and get a debt paid. The Courts tend to frown on the use of winding up petitions for debt recovery purposes, even though everyone from HMRC downwards tends to use them for this purpose.
Our legal team at FWJ can help advise you on when petitions can best be used to recovery debts as part of the debt recovery process. Or alternatively, if you are on the receiving end of a petition, we can look in to this and whether it is being correctly used or is an abuse of process.
The Insolvency Act 1986
The winding-up petition is governed by the Insolvency Act 1986 and is a crucial step in the process of winding up a company.
Framework for winding up petitions
The Insolvency Act 1986, in conjunction with the Civil Procedure Rules (CPR), provides the framework for winding-up petitions. Here’s an explanation of the key points:
- Initiating the Winding up petition: According to Section 124 of the Insolvency Act 1986, a creditor can present a winding-up petition to the court if the debtor company owes them a debt of £750 or more. This is a key threshold that must be met before a creditor can commence the winding-up process. It remains a low threshold and much lower than the equivalent threshold for a bankruptcy petition – which is £5,000
- Grounds for winding up: Section 122 of the Insolvency Act 1986 sets out the grounds on which a winding-up petition can be presented. The most common ground is when the company is unable to pay its debts. This is known as a “compulsory winding-up” and can be based on a statutory demand that has not been complied with, or the creditor can prove the company is unable to pay its debts as they fall due.
- Procedure and filing: The Civil Procedure Rules, specifically Parts 7 and Part 8, sets out the procedure for filing a winding-up petition. The creditor must complete a prescribed form known as Form 4.1, which includes details about the debt owed, the grounds for the petition, and evidence of the company’s inability to pay its debts. The completed form is then filed at the relevant court, usually the High Court or a specified County Court. At FWJ we can help prepare these documents and file them on line at court.
- Advertisement and notice: After the petition is issued, it must be advertised in the London Gazette according to Rule 7.16 of the Insolvency Rules 2016 in order to have the company wound up. Advertising in the London Gazette serves as notice to the public and other creditors that a winding-up petition has been presented against the company.
- Response from the debtor company: Once a winding-up petition is served on the company, the company has a limited time (usually 5 business days) to respond to the petition in order to avoid the risk of it being advertised in the London Gazette. The company can either dispute the petition, pay the debt, or propose a voluntary arrangement to the creditors. At FWJ we have an expert team who can deal with the right responses to a winding up petition – from settlement negotiations, disputes, injunctions and withdrawal.
- Winding up petition hearing: If the company fails to respond to the petition, fails to pay the debt or disputes the petition, a court hearing will take place. At the hearing, the court will consider the evidence presented by both parties and decide whether to grant the winding-up order, adjourn the petition or dismiss the petition.
- Consequences of a Winding up Order: If the winding-up order is granted, the court appoints a liquidator to take control of the company’s assets, sell them, and distribute the proceeds to the creditors according to the statutory order of priority.
It’s important to note that the filing of a winding-up petition is a serious step and can have significant implications for the company. It is usually seen as a last resort for creditors when all other attempts to recover the debt have failed.
