There are not many individual documents that represent as clear a threat to a business as receiving a winding up petition (WUP)

A lot of business owners and directors might think that an unpaid energy bill or overdue loan to their bank would be a bigger headache.

They could ultimately become a headache if not paid in good time but they don’t have the immediate legal power that a WUP carries. 

The power to close a business down – for good. 

In this blog we’ll take a little time to spell out why receiving a WUP should be treated as a potential extinction level event for your business – because it is – and what you can do to avoid it.

What is a Winding Up petition?

A WUP is a legal notice put forward to a court by any creditor against a company that owes them an amount of £750 or more. 

If the court accepts that the debt is accurate and owed they will notify you of the petition and the impending hearing. 

If you do nothing then 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 for the costs of liquidation and secondly, to repay as many of the company’s creditors as possible as much as possible.

To the instigators of the WUP, it’s a simple calculation – do they want to reclaim something or nothing?

However a WUP will only be requested by creditors if you’ve either failed to respond to communications requesting payment as well as failing to acknowledge a statutory demand. 

If they have no success, it will ask the courts to intervene. 

It’s serious for your business but it’s also been serious for them too to get to this stage.

Why do you need to treat a winding up petition so seriously? 

  • Reputational damage

Once a WUP is filed then it becomes a matter of public record. 

This doesn’t mean that every potential customer, supplier or investor will view the company as financially unstable but there is a good chance they will find out which means a loss of pride as well as trust and credibility. This can have long-term consequences for any company’s ability to attract new business and secure future funding, especially in tightening economic circumstances.

  • Loss of control

Once a WUP is in motion, the company begins to lose control over its affairs. This includes bank accounts being frozen and access to cash denied which could be catastrophic. 

  • Potential Liquidation

If a WUP is successful, the business will be forced into liquidation. Closure. That’s it. 

Strategies to handle a winding up petition

A company served with a winding up petition has several options they could consider to get out of the situation. 

These can include repaying the debt if possible, looking to request an adjournment or making a payment agreement with the petitioner.

Out of all of the winding up petitions issued in the UK, the majority, 60% of them, are issued by HMRC. 

There is a specific agreement that can be reached with HMRC called a Time to Pay (TTP) arrangement but it also needs a little explanation. 

A TTP agreement sees the company agree to repay HMRC outstanding debts in regular instalments over an agreed timescale which is usually six months or less – although depending on circumstances this can be extended as far as two years (24 months). 

This would cover debts such as VAT, PAYE or corporation tax arrears. A TTP arrangement will help a business escape the immediate threat of a WUP and give them a degree of short term certainty as well as a suspension on accrued interest for overdue amounts.

The business can continue and directors can continue to run it as long as they stick to the TTP. If they miss payments then HMRC will likely proceed to instigating a winding up petition for the outstanding sums. 

Given the seriousness of a winding up petition – if you or your businesses receive one you need to get some immediate impartial advice on what to do next and how to proceed. 

We offer a free consultation for any business owner or director in this situation at their earliest convenience. 

Depending on how much time has elapsed since the WUP is issued, you might have various options and quick decisions to take but after speaking with one of our expert advisors you will know exactly what you are facing and what you can do about it. 

Receiving a WUP can be scary and unsettling but there is a way ahead – but you have to act quickly.