HMRC winding up petition: what can you do?

If you have failed to pay your VAT, PAYE & NI, corporation tax, and/or you have missed payments according to your time to pay arrangement, HMRC can apply to the courts to have your company wound up to recover the monies owing.  A winding up petition is one of the most serious actions HMRC can take against your company.  If not properly managed, it will lead to the compulsory liquidation of your business, so we talk through the HMRC winding up process in detail here, and what you should do if your business has received an HMRC winding up petition, or you are concerned that it is going to.


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What is an HMRC winding up petition?

A winding up petition is HMRC’s final resort.  Prior to petitioning the court, it will send a statutory demand and numerous communications to your business requesting payment.  You may also have received a visit from one of its enforcement officers.  If it has no success, it will ask the courts to intervene.  

The courts will notify you of the petition and its impending hearing (usually you are given between 4-8 weeks notice).  If you do nothing, a winding-up order will be issued at this hearing to place your company into liquidation.  Once the liquidation is in process, the liquidators will use the company’s assets firstly, to pay the costs of liquidation and secondly, to pay as many of the company’s creditors as possible.

In 2014, HMRC issued 3,074 winding-up petitions against UK companies, which rose to 3,484 in 2015, a 13% yearly increase. To put this in context, there were a total of 3,755 compulsory liquidations of businesses in England and Wales in 2014, which decreased to 2,889 in 2015.HMRC-winding-up-petition

What should you do if your business has been issued with an HMRC winding up petition?

When you receive the petition, you have 7 days to respond before the it’ll be advertised in the London Gazette.  Once the petition is advertised, your bank and other creditors will see what is happening and they will react.

Usually,

  1. Your bank account will be frozen
  2. Creditors may refuse further credit and if they are concerned about money owing to them they can apply to attach to the petition any money that they are owed
  3. Rumours will start to circulate within your industry, and depending on your type of business, you may find competitors using the information to take your customers

In order to deal with the petition with minimum cost impact therefore, it’s crucial that you act fast.lawbookswig-copy

What legal options do you have for dealing with an HMRC winding-up petition?

Realistically, you have six potential options:

  • Pay in full: if you can pay the debts within seven days, including the costs of the petition, the process can be stopped.  This will prevent the petition from being advertised in the London Gazette and any other creditors being alerted to it.  However for most businesses, given that non payment of taxes has escalated to this point, this might be unrealistic, especially if other creditors have attached to the petitionHMRC-winding-up-petition
  • Apply to adjourn the winding-up petition: this buys you a period of time to decide on how you want to proceed, or to put a CVA in place, or raise finance.
    HMRC-winding-up-petition
  • Arrange a Time to Pay (TTP) or a Company Voluntary Arrangement (CVA): if your business will be able to pay the debt but not immediately, it may be possible to come to a formal agreement with HMRC which might be either a TTP for HMRC debts only, or a CVA if you have other outstanding debts.  Either option will enable you to repay the debt over an agreed longer timescale, in predefined instalments.  However, this has the potential to be tricky for two reasons.  Firstly, it requires HMRC to have faith that you will be able to honour the agreement, and if you have already had a TTP agreement it is likely to look unfavourably on this.  Secondly, it does need to be proposed and agreed within the seven-day window, which can be difficult though not impossible.
    HMRC-winding-up-petition
  • Make an application to put the company into administration: whereby the company is legally protected, giving you some valuable breathing space to determine the best way forward (either sale of the businesses assets, or proposing a CVA).
    HMRC-winding-up-petition

 

How can we help?

If you are thinking about formal insolvency procedures, our fee calculators will help you to get an idea of how much voluntary liquidation, a company voluntary arrangement or a prepack might cost you (our fee for a prepack is the same as our fee for liquidation, so use our liquidation calculator to find out how much prepack would cost).

If you require an adjournment of the petition to buy some breathing space, this is also something that we can arrange for you.

If you have any questions, or would like to talk anything through,  contact one of our business rescue experts for more tailored advice.