What is a Winding Up Petition?

Winding Up Petition

What is a Winding Up Petition? A winding up petition is a legal process taken by creditors against a company that owes them a debt. It can also be brought by the company itself through its Directors.

If the company owes £750 or more, the creditor can petition the court for the company to be wound up and placed into compulsory liquidation. The petition will refer to a hearing date and then must be served on the company at its registered office. If the matter is to proceed to a hearing of the petiton at court, it will need to be advertised in London Gazette.

If a winding up order is made, the creditor can seek to appoint an insolvency practitioner as liquidator.

The procedure for issuing a winding up petition is set out in the Civil Procedure Rules Practice Direction on Insolvency Proceedings.

This is often considered a last resort by creditors. It is not intended as a debt collection process but a matter in the public interest if the company cannot pay its debts when then fall due ie. it is insolvent. The consequential compulsory liquidation that may arise is deemed to be an insolvency class action when creditors are pooled together and share in the recoveries, assuming there are sufficient funds available after the costs of liquidation have been discharged.

Winding Up Petitions are advertised in The Gazette as public notices. They are a serious matter. A company cannot go about its business normally if a winding up petition has been issued and advertised in particular. It can lead to the company’s bank accounts being frozen.

Crucially once a winding up petition has been issued any disposition of the company’s property is void without validation by the court by virtue of Section 127 of the Insolvency Act 1986. This presents the company with a practical difficulty in continuing to trade, without a Validation Order authorising certain of the company’s transactions to take place. The Insolvency Proceedings Practice Direction has within it a strict procedure which can be deployed to apply to court for a Validation Order so that trading might be able to continue in some way.

 

 

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