Compulsory Liquidation & Winding-Up Petition Defence

In most cases, the process begins by serving a statutory demand for payment. If a company fails to pay a debt of £750 or more within 21 days, it is deemed unable to pay its debts. This may form the legal basis for a winding-up order.

In some circumstances, such as where urgency is required, a non-statutory demand may be issued instead.

The petition is a prescribed form under the IR 2016. It must contain specific information and be supported by a statement of truth, ideally in the form of a witness statement, signed no more than 10 business days before submission.

The petition is filed with the court, usually the High Court in London or a regional district registry (e.g. Manchester, Leeds, Bristol). At this stage, the petitioner must:

• Submit the winding-up petition and statement of truth; and
• Pay the court fee and the Official Receiver’s deposit.

Once complete, the petition is considered “presented,” and the court seals it and schedules a hearing.

The sealed petition must be served on the company. This is typically done via a process server at the registered office. Where personal service is not possible, alternative methods, such as attaching the petition to the premises or posting it through the letterbox, may be used.

If service by standard means is not feasible, the court may permit alternative service.

Service must be verified by a certificate of service, usually completed by the process server.

The petitioner must advertise the winding-up petition in The London Gazette:

• No sooner than 7 business days after service; and
• No later than 7 business days before the hearing.

This allows other interested parties to attend the hearing to support or oppose the petition. A copy of the advertisement must be lodged with the court at least 5 business days before the hearing.

A certificate of compliance must be filed with the court at least 5 business days before the hearing, confirming that service and advertisement requirements have been met.

Anyone wishing to attend the hearing (including creditors or the company itself) must serve a notice of intention to appear. The petitioner then compiles a list of appearances, submitted to the judge at the hearing.

At the hearing, the court will consider representations from the petitioner, the company, creditors, shareholders, and other interested parties. The court may:

• Dismiss or adjourn the petition;
• Make a winding-up order; or
• Issue an interim or other appropriate order.

If a winding-up order is made, the Official Receiver is appointed as liquidator.  The Official Receiver may later be replaced by a private insolvency practitioner following a creditor vote or appointment by the relevant Secretary of State. 

Compulsory liquidation, also known as compulsory  winding-up, is a formal legal process where a company is forced to cease trading and its assets are sold to pay off outstanding debts. 

The process is initiated by the making of a winding-up order by the court, typically following the presentation of a petition by a creditor who is owed at least £750 by the company. 

Compulsory liquidation typically takes between 6 to 24 months from the presentation of the initial winding-up petition to the final dissolution of the company.  However, the length of the process can vary depending on the complexity of the company’s affairs, the number or creditors, the resolution of any disputes and investigations carried out by the liquidator. 

In a compulsory liquidation, the directors no longer control the company, its assets and its operations.  They are no longer able to act on behalf of the company, as the Official Receiver or private liquidator takes over.  The directors have to cooperate with the liquidator and provide information and documents relating to the company’s financial affairs.

The liquidator will investigate the directors’ conduct during their time in office, looking for any evidence of misconduct or wrongdoing.  This can lead to claims being brought personally against one or more directors in order that monies are recovered for the benefit of the liquidation estate.  The liquidator is obliged to make a report to the Insolvency Service in respect of the director’s conduct which can lead to director disqualification proceedings being brought by the Secretary of State. 

1. Initiation.  The primary difference between voluntary and compulsory liquidation concerns who initiates the process.  Voluntary liquidation (which applies to both solvent and insolvent companies) is initiated by the company’s directors and shareholders.  Compulsory liquidation on the other hand is initiated by a winding-up order made by the court, usually following a petition from a creditor who the company owes money.
2. Control. The shareholders of a company maintain more control over the voluntary liquidation process and can choose the insolvency practitioner who will deal with the liquidation process (although creditors do have the right to replace the shareholders’ choice of insolvency practitioner).  In a compulsory liquidation, the shareholders and directors of a company have significantly less control and the process is likely to be more disruptive and open to the public gaze.
3. Timing. Often, voluntary liquidation allows for a more controlled and planned process which will potentially minimise disruption to the orderly winding up of a company’s affairs.  Compulsory liquidation can be a sudden and disruptive process as it is initiated by a third-party creditor. 

When a liquidator is appointed, the liquidator effectively takes over the directors’ powers and then controls how the company acts and winds up its affairs.  Liquidators have wide powers to enable them to perform their functions and these are set out in the Insolvency Act 1986 and include the power to:

• Pay any class of creditors in full.
• Make any compromise or arrangement with creditors.
• Compromise liabilities owing to the company, take security for the discharge of such liabilities and compromise all questions relating to or affecting the assets or the winding up of the company.
• Bring legal proceedings under the Insolvency Act 1986.
• Bring or defend any action or other legal proceedings in the name and on behalf of the company.
• Carry on the business of the company so far as may be necessary for its beneficial winding up.
• Sell any of the company’s property by public auction or private contract, in whole or in part.
• Do all acts and execute documents in the name and on behalf of the company and use the company’s seal.
• Raise money on the security of the assets of the company.
• Appoint an agent to do any business which the liquidator is unable to do themself.
• Do all such other things as may be necessary for winding up the company’s affairs and distributing its assets.

Time is likely to be of the essence so you should seek urgent legal advice in the event the liquidator threatens proceedings against you. 

Once the winding up is complete, the liquidator must prepare a final statement of account and send this to the company’s creditors.  The final statement of account must also explain how creditors can object to the liquidator’s release.  The liquidator then sends a copy of the final statement of account to the court and to Companies House together with a statement confirming whether any of the creditors object to their release.  The company is automatically dissolved 3 months later, although this can be deferred on an application to the Secretary of State by anyone who has an interest in the liquidation of the company. 

We were instructed to act on behalf of the joint administrators of a company that designed, manufactured and installed custom made luxury play equipment and children’s play areas and which installed specialised decking and boardwalks, as well as provided sawmill services, for clients based worldwide.

We advised and assisted the joint administrators in relation to their appointment, which was temporarily complicated by the presentation of a winding-up petition against the company shortly prior to the date upon which the director intended to appoint the joint administrators via an out-of-court appointment.  We were able to get the winding-up petition withdrawn allowing for the out-of-court appointment of the joint administrators to take place.

We acted for a computer services company which was served with a winding-up petition issued by HMRC in relation to unpaid corporation tax.  The company had been significantly affected by the Coronavirus pandemic and took out a bounce-back loan to assist with meeting payments during the period in which it was unable to trade.  We were able to get the winding-up petition withdrawn so that the company was able to enter creditors’ voluntary liquidation which was a more expeditious and cost-effective insolvency process for all of the company’s creditors than allowing HMRC to obtain a winding-up order against the company.

We acted for an advertising agency company which was served with a winding-up petition issued by HMRC in relation to various unpaid taxes, including national insurance contributions, PAYE and VAT.  The company had traded well during the Coronavirus pandemic but the downturn in the economy after the pandemic had caused the company to run into financial difficulties.  We were able to get the first winding-up hearing adjourned to allow the company to enter into creditors’ voluntary liquidation which was for the benefit of all the company’s creditors including HMRC. 

We acted for a health and safety compliance services company which was served with a winding-up petition by HMRC in relation to unpaid VAT and corporation tax.  The sums claimed by HMRC were disputed by our client on the basis that there had been improper accounting for, and allocating of, CIS deductions.  We were successful on four separate occasions in obtaining an adjournment from the court so that a winding-up order was not made against the company.  Ultimately, HMRC withdrew the winding-up petition when the agreed debt amount was paid in full by our client.