What to do if your client faces a winding-up petition

SPONSORED: When a client is threatened with or receives a winding-up petition, it signifies that a creditor has reached the limit of informal attempts to recover a debt and is now resorting to formal legal proceedings. This is a serious issue that requires immediate attention as it can have far-reaching consequences for the company’s operations and future viability.

Marco Piacquadio, Director of FTS Recovery, FA Simms and Beacon LIP

That said, there are steps that can be taken to mitigate the situation. Prompt actions such as negotiating with creditors, seeking professional guidance, or applying for administration can potentially resolve the matter and stop the petition from progressing further.

What can trigger a winding up petition?

A winding-up petition is an official legal document and the initial step in a compulsory liquidation process. So if your client find themselves in any of these situations – or if you notice any of these red flags – it’s time to take action.

They have mounting outstanding debts: Persistent non-payment of invoices, loans, or contractual fees often prompts creditors to take legal action. 

They’re in tax arrears: HMRC remains the most frequent issuer of winding-up petitions, particularly over unpaid VAT, PAYE/NIC, and Corporation Tax. The agency’s approach prioritises enforcing compliance as a deterrent to others. 

They’re in breach of contract: Failure to fulfil contractual obligations, such as performance benchmarks, may also result in creditors pursuing liquidation. 

They’ve given a personal guarantee for an unaffordable liability: Creditors can target directors personally if they’ve provided guarantees for company debts in addition to seeking repayment from the company itself.

And then there’s Bounce Back Loans

Unpaid Bounce Back Loans (BBLs) are a lingering issue for many business owners. Although these loans were backed by the government, your client needs to be clear that this only protects lenders from losses – not borrowers. If they fail to meet their obligations, creditors may escalate matters by issuing a winding-up petition.

To prevent such a scenario, they should proactively engage with their lenders as soon as repayment difficulties arise. Options such as extending the repayment term or temporarily switching to interest-only payments may provide relief and buy time to stabilise cash flow.

For those struggling with unpaid BBLs, entering an insolvency procedure could also provide a structured path forward. If your client needs urgent advice regarding a Bounce Back Loan or a winding-up petition, we can help.

What can your clients do to address a winding-up petition?

1. Engage in creditor negotiations

The first and often simplest step is to open a line of communication with the creditor. Acknowledging the debt and presenting a detailed repayment proposal can go a long way. Providing supporting documents, such as cash flow forecasts, can reassure creditors about the company’s commitment and ability to pay.

2. Consider a Company Voluntary Arrangement (CVA)

A CVA is a structured insolvency process that allows a business to negotiate a payment plan with multiple creditors. This formal agreement can help businesses avoid a winding-up petition and give them moratorium period, which temporarily protects the business from further creditor actions for the duration of the CVA.

“Prompt actions such as negotiating with creditors, seeking professional guidance, or applying for administration can potentially resolve the matter and stop the petition from progressing further.”

3. Explore administration  

Entering administration could protect a business from its creditors while a licensed administrator takes control. This process can allow for restructuring, preserve parts of the company, and maximise returns to creditors. Administration also provides a moratorium on legal actions against the company.

4. Opt for voluntary liquidation

When a company is no longer viable, a Creditors’ Voluntary Liquidation (CVL) may offer the best solution. This orderly process allows directors to wind up the company with professional oversight, ensuring fair treatment for creditors.

The consequences of a winding-up petition

A winding-up petition can have immediate and severe repercussions on a business:

Aside from frozen bank accounts and reputational harm, if a creditor decides to proceed with a winding-up petition, It can lead to the compulsory liquidation of your clients business. The process typically unfolds as follows.

1. Statutory demand: Before filing the petition, creditors issue a formal demand for payment, giving the company 21 days to resolve the debt. If your client has received such a notice, they should act immediately to avoid escalation. 

2. Filing the petition: When the debt remains unpaid, the creditor files a winding-up petition in court, accompanied by a statement affirming the validity of the claim. 

3. Serving the petition: The court formally delivers the petition to the company, typically requiring a response within 7 to 14 days. 

4. Public advertisement: The petition is advertised in The Gazette, alerting other creditors to the proceedings and giving them the opportunity to support or challenge the petition. 

5. Court hearing: The court considers the petition and any defences the company may present, such as disputing the debt. 

6. Winding-up order: If the court approves the petition, a winding-up order is issued, compelling the company to cease trading and appointing a liquidator. 

7. Liquidation: The liquidator sells company assets to repay creditors in a legally defined order of priority. 

8. Dissolution: Once all assets are distributed, the company is formally dissolved and removed from the Companies Register.

Given how quickly this process progresses, early intervention is vital.

How we can help your clients

As trusted advisers, accountants often act as the first point of contact for directors facing financial distress. Encouraging your clients to consult a licensed insolvency practitioner at the earliest sign of trouble can make a significant difference.

We can provide expert advice, manage complex insolvency cases, and represent the company in creditor negotiations. We’ll assess the situation, outline the available options, and work to achieve the most favourable outcome for your client and its creditors.


Talk to FA Simms about your client’s situation by calling 01455 555 444 or emailing [email protected]

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