If your business is owed money, or you have been warned about possible legal action for unpaid debts, you may come across the term winding-up petition. For many directors and business owners, this can be an unsettling phrase, especially if you have never dealt with one before.
However, the reality is that disputes over payment are an unfortunate but fairly common part of running a business, even for successful and well-managed companies. Understanding what a winding-up petition is, and what it actually means in practice, can make a significant difference to how you respond.
In this blog, our Commercial Litigation and Dispute Resolution team explains what a winding-up petition is, when it might be used, and the practical impact it could have on your business.
What is a winding-up petition?
A winding-up petition is a formal application to the court asking for a company to be placed into compulsory liquidation. Most often, it is issued by a creditor who is owed money and believes the company cannot pay its debts.
If the court makes a winding-up order, the company will be forced to close. Its assets are gathered in and sold, with the proceeds distributed to creditors where possible. In most cases, this marks the end of the business.
When can a winding-up petition be issued?
A creditor may apply for a winding-up petition where there is evidence that a company is insolvent, meaning it cannot pay its debts or bills when they become due (cash flow test), or if the company’s total liabilities are greater than the value of its assets (balance sheet test). This typically arises where:
- the company owes a creditor £750 or more
- a statutory demand has been served and not paid within 21 days
- a court judgment remains unpaid
- there is clear evidence of ongoing financial difficulty.
Although it is usually seen as a last resort, a winding-up petition is a powerful tool for creditors and can put immediate and significant pressure on a company to act.
What happens once a winding-up petition is issued?
Once a winding-up petition has been issued, it is normally advertised publicly. This step alone can have serious consequences. Banks may freeze company accounts and suppliers, customers or other stakeholders may quickly become aware of the business’s financial position.
If the court ultimately grants the winding-up order, an official liquidator will be appointed. The liquidator will take control of the company’s affairs, investigate its finances and manage the sale and distribution of its assets.
What should you do if your business receives a winding-up petition?
Whilst receiving a winding-up petition can be extremely worrying, ignoring it is the worst thing you can do. Acting quickly and seeking professional advice early on often opens up more options that can significantly affect the outcome.
Depending on the situation, it may be possible to:
- pay the debt in full
- negotiate a settlement or payment arrangement with the creditor
- apply to have the petition dismissed if the debt is genuinely disputed
- consider alternative insolvency or restructuring options.
Strict deadlines apply so taking legal advice as early as possible is usually essential.
Can a winding-up petition be challenged?
Yes, in certain circumstances, a winding-up petition can be challenged. This may be appropriate where:
- the debt is genuinely disputed
- the amount claimed is incorrect
- the correct legal process has not been followed.
Courts are generally reluctant to allow winding-up proceedings to continue where there is a genuine dispute. Any challenge must be made promptly and handled correctly to be effective. You can also read our previous article regarding resolving disputes via Alternative Dispute Resolution methods as an alternative to going to court.
How Our Commercial Litigation and Dispute Resolution Team Can Help
Whether you are trying to recover a debt or dealing with a petition issued against your company, winding-up proceedings can have fast-moving and far-reaching consequences.
Our Commercial Litigation and Dispute Resolution team regularly advises businesses on debt recovery, insolvency related disputes and defending winding-up petitions. We focus on helping you understand your position clearly, weigh up your options and take practical steps to protect your business.
If you are concerned about a winding-up petition or would like advice tailored to your circumstances, speaking to a solicitor can help you move forward with confidence and clarity.
Dispute Resolution Solicitors Blackheath
At Beverley Morris & Co. Solicitors, our experienced litigators and dispute resolution specialists in Blackheath recommend the most appropriate form of resolution for your circumstances, preferences and objectives.
This may involve the court system but more often it will involve round table negotiation, mediation or arbitration.
We handle both simple and complex disputes, from family law issues to landlord and tenant disputes, freezing injunctions and shareholder disputes.
For more information or to speak to one of our specialist dispute resolution solicitors in London, call 020 8852 4433 or email enquiries@beverleymorris.co.uk.