When HMRC presents a winding-up petition against your company, the impact is immediate and profound.
Bank accounts can be frozen, reputational damage can occur, and the very future of the business can be put at risk.
Our Insolvency & Restructuring team act quickly for companies and their directors who are facing HMRC recovery action.
We can help you understand your options, protect your position and take urgent steps to avoid, defend or manage a winding-up petition.
What is an HMRC winding up petition?
A winding-up petition is a court application to place a company into compulsory liquidation because it cannot pay its debts.
HMRC is one of the most frequent petitioning creditors in the UK.
HMRC can usually present a winding-up petition if:
- Your company owes £750 or more in tax or related sums such as interest and penalties; and
- HMRC can show that the debt is due, and the company is unable to pay it.
What is the HMRC winding-up petition process?
The process is governed by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016.
Although the legal test is similar to that for any other creditor, HMRC has its own internal policies and a structured escalation process before it seeks to wind up a company. However, broadly speaking, the winding-up petition process is as follows:
- HMRC will likely serve a statutory demand, which will demand payment of the outstanding tax within 21 days. If a company fails to pay a tax debt of £750 or more within 21 days, it is deemed unable to pay its debts, and this can form the legal basis for presenting a winding-up petition. In some circumstances, such as where urgency is required, a non-statutory demand may be issued instead.
- HMRC will file the winding-up petition with the court (usually the High Court in London) and pay a court fee and a deposit for the Official Receiver’s costs. The court will issue the winding-up petition and schedule the first winding-up hearing.
- HMRC will then serve the winding-up petition on the company at its registered office. Once the winding-up petition is served, directors have a critical window to address it before it is advertised publicly. Options at this stage include paying the debt in full, disputing the debt or taking advice from an insolvency practitioner on the company entering a formal insolvency process such as administration or creditors’ voluntary liquidation.
- HMRC will advertise the winding-up petition in the London Gazette no earlier than 7 working days after service and at least 7 working days before the first winding-up hearing. The advertisement of the winding-up petition will likely result in the freezing of the company’s bank accounts and reputational harm, as third parties such as suppliers, customers, and staff will likely learn that the company is in severe financial difficulties.
- The first winding-up hearing will take place at the court. The judge will review all of the evidence and hear arguments from all parties (HMRC, the company and any supporting creditors). If the judge is satisfied that the company is unable to pay its debts, a winding-up order will be made, placing the company into compulsory liquidation. The Official Receiver will be appointed as the liquidator to take control of the company, sell its assets, distribute proceeds to creditors and investigate the conduct of the company’s director(s). In some cases, the Official Receiver will be replaced by an insolvency practitioner as the liquidator.
Your options when faced with potential HMRC winding-up proceedings
You should never ignore any correspondence from HMRC which threatens winding-up proceedings.
The earlier you act, the more options you will have, for example:
- Negotiating with HMRC - in suitable cases and prior to HMRC presenting a winding-up petition, it may be possible to agree a Time to Pay (TTP) arrangement, a short-term payment plan or a lump sum settlement. It is our experience that HMRC will not agree any TTP arrangement or other instalment plan once a winding-up petition is presented.
- Paying the debt in full - where funds are available, paying the petition debt and HMRC’s costs before the winding-up petition is advertised can often prevent further damage being caused to the company.
- Disputing the debt - if the tax liability is genuinely disputed on substantial grounds, or there are ongoing appeals or enquiries, you may be able to challenge the winding-up petition and ask the court to dismiss or adjourn it. In addition, an injunction can be sought preventing HMRC from presenting or advertising the winding-up petition.
- Seeking an adjournment - the court may adjourn the winding-up hearing to allow time for negotiations, refinancing or a restructuring proposal.
- Considering an alternative insolvency or restructuring process such as administration, a company voluntary arrangement, creditors’ voluntary liquidation or a restructuring plan.
We can advise you on which options are realistic in your circumstances and the likely timescales and costs involved. We work closely with trusted insolvency practitioners, accountants and financial advisers where necessary, and we can also coordinate advice on linked insolvency issues.
Our HMRC winding up petition service
We provide specialist advice to:
- Companies that have received an HMRC winding-up petition or other correspondence from HMRC regarding unpaid tax liabilities;
- Directors who are worried about personal liability linked to tax debts;
- Businesses that want to negotiate a Time to Pay (TTP) arrangement with HMRC; and
- Other creditors who need to understand the impact of an HMRC petition.
FAQs
Can HMRC really wind up my company for tax debts?
Yes.
HMRC can petition for a company to be wound up if it owes £750 or more in unpaid tax. HMRC is often one of the most aggressive creditors in pursuing unpaid debts. A winding-up order is likely to be made by the court if HMRC proves that the debt exists and that the company is unable to pay.
Will the bank freeze our accounts if HMRC issues a winding-up petition?
Banks monitor The Gazette for advertised winding-up petitions and upon seeing an advertisement will almost certainly freeze the company’s bank accounts, usually within 24-48 hours, to protect all creditors’ interests and to prevent the disposal of assets.
While The Gazette is the main public notification method, the court maintains a public register of winding-up petitions which can be manually checked.
Some credit reference agencies and data service providers access this court data to provide earlier warnings (up to several weeks in advance) to their clients, including banks.
What if we dispute the amount HMRC says we owe?
If there is a genuine and substantial dispute about the tax debt, or ongoing appeals or enquiries, it may be possible to defend the winding-up petition. You will need clear evidence and should seek legal advice without delay.
Can we stop the winding-up petition being advertised?
Sometimes. It is our experience that HMRC will delay advertising the winding-up petition until the last possible opportunity. HMRC does this to provide the company with as much time as possible to pay the debt in full before the petition is advertised.
In some circumstances, it is possible to apply to the court for an injunction preventing HMRC from advertising the winding-up petition if the debt is genuinely disputed on substantial grounds.
What are the risks for directors if a winding-up order is made?
If the court makes a winding-up order based on a petition by HMRC, the company will enter compulsory liquidation.
In a compulsory liquidation, the director(s) 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 insolvency practitioner takes over as liquidator.
The liquidator will investigate the director(s) 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. Early advice can help manage these risks.
How our Insolvency and Restructuring Solicitors can help
Our HMRC winding-up petition work includes:
- Urgent advice as soon as a statutory demand or winding-up petition is threatened or received;
- Liaising with HMRC and its debt enforcement team to explore settlement options such as TTP arrangements;
- Dealing with applications to the court to restrain presentation or advertisement of a winding-up petition where appropriate;
- Defending the winding-up petition at court in the appropriate circumstances;
- Advising on the risk of director disqualification proceedings and personal claims being brought against the company’s directors;
- Working with insolvency practitioners in regards to formal insolvency processes such as administration, creditors’ voluntary liquidation, a company voluntary arrangement or a restructuring plan;
- Applying for validation orders to allow payments from the company’s bank account to be made in order to ensure the company can continue to trade in the period between the winding-up petition being presented and the court hearing.
Why Work With Our Insolvency Team
- We are ranked in the Legal 500 and Chambers and Partners for our legal expertise.
- Richard Wolff, our Head of Insolvency, has been recognised as a leading partner by the Legal 500, recognising the strongest partners in their field, leading on market-leading deals and endorsed by peers and clients alike.
- We are members of R3, the Association of Business Recovery Professionals.
- You will receive city-quality advice at regional prices.
- Price transparency – we provide our clients with a cost estimate at the outset of any engagement with ongoing cost updates throughout the matter.
- Our Partner-led service ensures that you receive the very best legal advice and commercially focussed support.
- Our insolvency and restructuring team has in depth experience across a diverse variety of sectors, focused on achieving your objectives and meeting your deadlines.
- We are a full-service law firm operating from a single-site office, which means our teams communicate effectively and efficiently and our insolvency and restructuring lawyers can draw on support when required from other specialist lawyers such as those in our corporate, property and dispute resolution teams.
- Our insolvency and restructuring solicitors use the latest technology to ensure that we are working as efficiently as possible and that geographical distance does not prevent us from providing you with excellent client service.
- Our fast response times enable us to deal with time-sensitive enforcement scenarios.
- We have excellent working relationships with many national, regional and local independent insolvency practitioners who can be called upon to provide their advice and input as and when required.
- Check out the Myerson Promise for more information on the benefits of working with us.
Contact Our Insolvency Team
Worried about an HMRC winding-up petition?
Our expert Insolvency solicitors are here to help you take control of the situation.
0161 941 4000
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Vicky Biggs
Legal Director
Vicky is a Legal Director in the Insolvency and Restructuring team at Myerson and has been with the firm since 2012. Utilising her commercial litigation experience, Vicky now specialises in contentious insolvency matters, advising insolvency practitioners, directors and individuals in relation to both corporate and personal insolvency issues.
Vicky advises on a wide range of insolvency matters, including claims made by administrators, liquidators and trustees in bankruptcy, director disqualification proceedings, remuneration approval applications, retention of title claims, validation orders, bankruptcy annulment applications and winding-up and bankruptcy petitions.
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