Facing a winding up petition can be a daunting prospect for any company. It signifies that a creditor has taken formal legal action to recover debts owed, often as a last resort after exhausting other options.
For companies struggling with tax debt, such petitions come from HMRC, one of the most frequent issuers of winding up petitions.
If your business is under threat of a winding up petition from HMRC, it’s crucial to act immediately. Failure to address the petition could lead to the compulsory liquidation of your company and irreversible damage to its future prospects.
What is a winding up petition?
A winding up petition is a legal notice filed by a creditor with the court, demanding the liquidation of a company to recover unpaid debts. Once issued, the petition sets off a process that could result in the company’s closure and the liquidation of its assets.
The petition, if unaddressed, signals the start of a formal procedure called compulsory liquidation. If the court grants a winding up order, an official receiver – who’ll be a licensed insolvency practitioner – is appointed to liquidate the company’s assets, with proceeds distributed to creditors.
We can’t stress this enough – you must respond quickly when served with a winding up petition from HMRC or any other creditor. Even at advanced stages, there could be options to halt the process, such as negotiating with creditors or entering an insolvency process.
HMRC and winding up petitions
HMRC is a common issuer of winding up petitions in the UK. Its approach to debt recovery is stringent, using winding up petitions to recover unpaid taxes and to act as a deterrent for other companies. If your company owes tax arrears, the risk of being included in the HMRC winding up petition list is increased.
Key reasons why HMRC issues winding up petitions include:
Unpaid VAT: HMRC actively pursues VAT arrears, which often result from cash-flow problems within the business.
PAYE/NIC arrears: Failure to pay employee-related taxes, including National Insurance Contributions (NIC), is another frequent trigger for a winding up petition from HMRC.
Corporation Tax debts: Companies unable to meet their corporation tax obligations may also face action from HMRC.
The inclusion of a company in the HMRC winding up petition list can have serious consequences. If you receive a winding up petition from HMRC, engaging with them – either on your own or through a licensed insolvency practitioner is crucial. We can help you assess your financial situation and explore options to prevent compulsory liquidation by HMRC.
Other common causes of winding up petitions
While HMRC is a leading issuer of winding up petitions, other creditors also resort to this legal measure when debts remain unpaid. Common reasons include:
Unpaid invoices or loans: Commercial creditors may file a petition after exhausting attempts to collect overdue payments.
Bounce Back Loan defaults: Unpaid pandemic loans have led to an increase in winding up petitions from lenders.
Breach of contract: A creditor may seek a petition to recover losses from a breached agreement.
Companies with persistent financial difficulties are particularly vulnerable to winding up petitions, which is why early action is critical.
The impact of a winding up petition
The consequences of a winding up petition are far-reaching:
Frozen bank accounts: Once the process is underway, your company’s bank accounts may be frozen, preventing access to funds needed for operations.
Reputational damage: Public advertisement of the petition can harm relationships with clients and suppliers.
Operational disruption: Limited cash flow and loss of customer confidence can lead to further financial strain.
If your company has been included in the HMRC winding up petition list, the risks escalate. HMRC petitions are known to move swiftly, leaving little time for resolution.
What are your options to address a winding up petition?
If your company is facing a winding up petition, you must act quickly. There are several options to consider:
- Negotiating with creditors: Open communication with creditors is often the first step in resolving the issue. By presenting a repayment proposal supported by cash-flow forecasts, you might be able to demonstrate your commitment to settling the debt.
- Company Voluntary Arrangement (CVA): A CVA allows the company to restructure its debts, offering a formal agreement to repay over an extended period. This process can halt creditor action and protect your business from liquidation.
- Administration: Entering administration provides a legal stay on all creditor actions, including HMRC winding up petitions. An administrator will work to restructure the business and secure the best outcome for all parties.
- Voluntary Liquidation: If the business is no longer viable, a Creditors’ Voluntary Liquidation (CVL) allows for an orderly winding down of the company. This process can maximise returns to creditors while relieving directors of ongoing liabilities.
Engaging with an insolvency practitioner can help determine the most appropriate solution for your situation. It also stops you from having to deal with the stress alone.
The compulsory winding up process
If no action is taken, the winding up petition will proceed through the following stages:
Statutory demand: Before filing a winding up petition, a creditor must serve a statutory demand requiring the company to pay the debt within 21 days. If you’ve received a statutory demand, please call our experts for free, confidential advice.
Winding up petition filing: If the debt remains unpaid, the creditor can file a winding up petition with the court, which must be accompanied by a statement of truth validating the debt.
Serving the petition: The court will serve the petition to the company, with a response due within a designated period (typically 7-14 days). At this stage it still might not be too late to reverse the winding up petition.
Advertisement: The petitioning creditor must publicly advertise the winding up petition, alerting other creditors to the action.
Hearing: A court hearing is scheduled to consider the petition. The company may dispute the debt or argue against the winding up order.
Winding up order: If the court grants the compulsory winding up order, the company’s assets are liquidated according to insolvency law, prioritising secured creditors, followed by preferential and unsecured creditors.
Liquidation: An appointed licensed insolvency practitioner or official receiver will liquidate company assets to repay creditors.
Dissolution: Once liquidation concludes, the company is formally dissolved and removed from the Companies Register.
Time is of the essence at every stage of this process. Consulting our licensed insolvency practitioners can provide the guidance you need to act effectively and prevent liquidation.
Seeking professional help
Dealing with a winding up petition, especially one issued by HMRC, can be overwhelming. Our licensed insolvency practitioners offer valuable support, from negotiating with creditors to managing insolvency procedures. Their expertise can help you explore alternatives, reduce stress and protect your company’s future.
If you’ve been served with a winding up petition from HMRC, don’t wait. Contact our licensed insolvency practitioners for free, confidential advice and practical solutions tailored to your business needs.
