When a creditor files a winding-up petition against your company, the consequences are immediate and serious. It’s one of the strongest legal actions a creditor can take and often comes after months of pressure, unpaid invoices or unresolved tax arrears.
A petition can freeze your bank accounts, stop your business trading and, if it isn’t dealt with quickly, force your company into Compulsory Liquidation. This means you lose the chance to choose your own route out of insolvency.
What a winding-up petition actually is
A winding-up petition is a formal request to the court to close your company. It’s usually triggered because a creditor has failed to recover the debt using other methods, like a statutory demand, and has lost confidence that you’ll repay it at all.
If the court agrees, it issues a winding-up order and the company is placed into Compulsory Liquidation, handled by the Official Receiver.
Once the petition is filed, several things happen:
- It becomes public in the Gazette, which alerts banks and other creditors
- Your bank accounts may be frozen
- Directors can lose the ability to manage or dispose of company assets
- The risk of wrongful trading increases significantly if you continue trading
Why creditors use winding-up petitions
Creditors use winding-up petitions because they are effective. A petition:
- Forces the issue into a public legal process
- Pressures the company to act quickly
- Reduces the creditor’s risk of being ignored
- Prevents the disposal of assets that should be available to repay debts
HMRC uses petitions regularly when PAYE, VAT or Corporation Tax arrears have escalated beyond manageable levels. In many cases, directors will already have received letters warning of enforcement before the petition is issued.
Suppliers may also petition if invoices remain unpaid or if they believe the company is insolvent and has no realistic way to catch up.
What happens after a winding-up petition is issued?
1. Petition is filed
The creditor submits the petition to court and sets a hearing date. This is the point at which directors need to take urgent advice.
2. Petition is served on the company
You’ll receive formal notice, usually delivered to the registered office. At this point, your options start to narrow.
3. Notice appears in the Gazette
Banks monitor these notices. Once published, they are obliged to freeze accounts unless the court grants permission to use funds. Trading becomes extremely difficult.
4. The court hearing
If no action is taken to resolve the debt or challenge the petition, the court is likely to make a winding-up order. The company then enters Compulsory Liquidation and an Official Receiver takes control.
At this stage, the directors’ conduct will also be investigated as part of the Compulsory Liquidation process, just as it is in every insolvent liquidation.
Can you stop a winding-up petition?
In some cases, yes. But timing is everything.
1. Repay or settle the debt
If you can repay the creditor in full, the petition can be withdrawn. This is only realistic if arrears are manageable and funds are available quickly.
2. Dispute the debt
If the debt is genuinely incorrect or not owed, you may be able to challenge the petition. Evidence will be required and timeframes are tight.
3. Enter a Creditors’ Voluntary Liquidation (CVL)
Once a petition has been advertised, a Creditors’ Voluntary Liquidation is often the safest remaining option. It allows directors to:
- Appoint their own licensed insolvency practitioner
- Close the company in a controlled, compliant way
- Reduce the risk of wrongful trading by stopping trade
- Avoid the complications of Compulsory Liquidation
4. Consider Administration
If the business still has value to protect, Administration could provide a better outcome. It provides an instant moratorium that stops creditor action, including petitions, while a rescue or sale is arranged. Administration is normally only viable where jobs, contracts or assets can be saved.
What happens if the petition succeeds?
If the court grants a winding-up order, the company goes into Compulsory Liquidation. Then:
- The Official Receiver takes control
- All trading must stop immediately
- Company assets are collected and sold
- Employees are dismissed
- Director conduct is reviewed
- The company is ultimately dissolved
There is also a mandatory investigation called a director conduct report. This is a legal part of any insolvent liquidation and looks at whether any director’s action caused the company to fail. Most investigations result in no action but misconduct can lead to being held personally liable for company debts, or even director’s disqualification.
Warning signs that a petition may be coming
Companies rarely receive a petition without earlier signals. These often include:
- HMRC warnings about VAT or PAYE arrears
- Unpaid supplier invoices escalating to statutory demands
- Creditors threatening formal action
- Inability to pay debts on time (cash-flow insolvency)
- Liabilities outweighing assets (balance-sheet insolvency)
Acting at this stage gives you more options and reduces personal risk.
Key takeaways: What a winding-up petition means for your company
A winding-up petition is one of the most serious forms of creditor action. Once it’s issued, timelines are tight and the risk to the company increases quickly. A petition:
- Signals that a creditor believes your company can’t pay its debts and wants the court to close it
- Can freeze your bank accounts once advertised, making trading difficult
- Increases scrutiny on directors, especially around wrongful trading and asset movements
- Reduces your control over the outcome if you wait until the court hearing
- Doesn’t remove all options: voluntary liquidation or administration may still be available if you act early
The earlier you take advice, the more chance you have to protect the business, creditors and your own position as a director.
Get advice on dealing with a winding-up petition
A winding-up petition moves fast. Once the notice reaches the Gazette, banks react immediately and directors lose the ability to steer events. Early intervention is the single biggest factor that determines whether you can protect jobs, safeguard assets or avoid Compulsory Liquidation.
Speaking to a qualified insolvency practitioner at this stage gives you clarity on your legal position, whether the petition can be stopped, and whether you have alternative options.
If you’ve received a statutory demand, a petition or even just warnings from HMRC or suppliers, now is the time to act. Get in touch for free, confidential advice and take control before the situation escalates.
