Who can issue a Winding Up Petition?

Any creditor owed at least £750 can apply to for a Winding Up Petition. They may take this action if a company is continually refusing or unable to pay a debt that is due.

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Criteria for Applying for a Winding Up Petition

If a creditor is owed more than £750 they can apply for a Winding Up Petition. If the Petition is granted there are serious implications for the company. These include the freezing of its bank account. This will make ongoing trading very difficult.

Because of the severe impact the Court must first be convinced that it is the right action to take. Generally the creditor will have to prove that the company is unable to pay its debts as they fall due. Normally they must be able to point to the fact that a Statutory Demand has been ignored or CCJ remains unpaid.

The question that often arises is how difficult it would be for a creditor to prove that a company is unable to pay its bills. There is case evidence that the court will grant a Winding Up Petition on the basis that a company has failed to pay a debt which it has not disputed.

The use of a Winding Up Petition for Debt Collection

The threat of Winding Up can be used by creditors purely as a debt collection tool. Issuing a Statutory Demand with an associated threat of a winding up petition can prompt swift payment of a hitherto unpaid debt.

The company directors will be aware of the negative effects associated with a Winding Up Petition. The mere threat may therefore be sufficient to pressurise them into paying what the company owes to prevent the action.

It is not generally sensible for an unsecured creditor to start winding up proceedings if their debt is small. The costs associated with the process are normally around £3000. They will have to pay these up front. In addition there is little hope of the debt being recovered if the company is insolvent.

If a company is Wound Up the petitioning creditor is not paid preferentially unless their debt is secured. As an unsecured creditor they will receive a share in any assets realised only after secured creditors and the Liquidator have been paid.

Which Creditors commonly apply for a Winding Up Petition?

It is possible that a creditor will apply for a Winding Up Petition without any expectation that their debt will be repaid. This may be the case if they have a quarrel with the company. They know that the Petition will put the Directors under the maximum amount of pressure.

Alternatively HMRC may use the Winding Up process. They will resort to this action if a Time To Pay arrangement cannot be agreed with the company.

HMRC are not a preferential creditor. As such the closure of a company may result in them failing to collect any of the tax debts owed. However they must take this action anyway to prevent the arrears becoming worse than they are already.

It is arguable that HMRC use Winding Up as a deterrent to other companies. When directors can see action being taken against others for non payment of tax they are perhaps more likely to ensure their own company affairs are in order.

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