Company Winding Up Process Explained

If a company owes you money and you can prove that it is unable to pay off its debt to you, you can apply to the court for ‘compulsory liquidation’ – to close or ‘wind up’ the company.

This is the legal process by which order of court appoints a liquidator to close the activity of a limited company. Thus leaving the company no longer running.
If the company doesn’t have the money after compulsory liquidation, the creditor may still not get paid necessarily. The point of winding up is to make sure the company’s activity has been properly dealt with.

If a winding up petition is successful, dealing with the company’s affairs includes;
– Selling the company’s assets.
– Collecting money the company is owed.
– Making sure all company contracts are completed, ended or transferred.
– Settling legal disputes.
– Ceasing the company’s business.
– Distributing funds to creditors (including you if it is your petition).
– Returning share capital to shareholders.
Any left over after the debts have been paid off can be split amongst shareholders.

The liquidator then applies for the company to be removed from the register at Companies House and dissolved. This means the company no longer exists.

HOW DO I WIND UP A COMPANY?

If you are owed money by a company, you must present a petition to the High Court in order for that company to be wound up.
These petitions are usually presented by creditors who claim the company is unable to pay its debts. This must be proved in the Court.

You must be owed at least £750 and be able to prove that the company is unable to pay you.
There are also forms to fill in when you apply for compulsory winding up and you need to send these forms to court.

HOW CAN I PROVE THAT THE COMPANY CAN’T PAY ME BACK?

A company will be regarded by the court as unable to pay its debts if:
–  A creditor issues a statutory demand form for a debt of £750+ and it is not paid, settled or secured within 21 days.
Anyone who is owed money can make a statutory demand for a debt to be paid. This gives the debtor 21 days to pay the debt or reach an agreement.

– The completed statutory demand form must be delivered to the company’s registered office with proof of delivery.
The company can dispute the statutory demand and apply for the court to restrain a creditor from presenting a petition for compulsory liquidation.

– The creditor issues a ‘claim for judgement’ and the execution is not satisfied/the sheriff or bailiff is unable to seize enough assets to clear the debt.

– No payment is made in response to a statutory demand, proving to the court that the company cannot pay its debts when they are due.

– The creditor can prove in court that the company’s debts are greater than their assets.

HOW DO I PRESENT A WINDING UP PETITION?

First, you must pay a petition deposit to manage the compulsory liquidation.
You might be able to claim this back if the company is able to afford it, as well as the court fees.
You must then complete a wind up petition form and a written statement of facts (an affidavit) to verify why a wind up petition is necessary.

The petition is filed at Court, along with the relevant court fee and deposit. Sufficient copies of the petition are also filed to be delivered to the company or anyone else involved. The Court then fixes the time and place for the petition to be heard.

The court will seal a copy of the petition and deliver or ‘serve’ it to the company’s registered office. A copy will also be sent to a voluntary liquidator, admin receiver and supervisor of voluntary arrangement appointed to the company.
After service of petition, the petitioner must file an affidavit at court to verify.

A week (but no less) after service of the petition, the petitioner must advertise the petition in the local gazette. This is so other parties who may have been involved can choose to attend the hearing and let the petitioner know whether they will be supporting or opposing the petition.

At a minimum of 5 days before the hearing, the petitioner must file a certificate of compliance at court with a copy of the gazette advertisement.

The company must file an opposing affidavit at least 7 days before the hearing, should they wish to oppose the petition.

The petitioner will have to compose a list on the day of the hearing of the people who will be attending.

The court will hear the creditors, petitioners, the company, its shareholders and may also choose to hear anyone with an interest in the company’s assets.

The court will then either adjourn, dismiss the petition, make a winding up order, make an interim order (a temporary order until a final order is made, or both parties agree) or make another order that they deem appropriate.

WHAT ARE THE COSTS?

The costs can vary as there are fees to pay which can be reclaimed from the debtor OR will be repaid if the company is not wound up.
You may also choose not to use company house search or advertise in the Gazette.

You will have to pay;
– Court Fee (£280)
– Petition deposit (£1,600)
– Process Server Fee, The cost of serving proceedings (£75 – £100)
– Company House Search Fee – (£2 to get accurate debtor details)
– Advertisement Fee – (£79.40 plus VAT to advertise in the London Gazette)

As mentioned, if a company cannot be successfully wound up, you would be repaid the £1600 deposit.
If the company can be wound up, and has sufficient surplus funds following the process, you may be able to claim back fees from them on top of your owed debt.

CAN ANYONE APPLY?

Anyone who is owed money can make a statutory demand for a debt to be paid. This gives the debtor 21 days to pay the debt or reach an agreement.

After 21 days, if you feel the debtor is unable to pay, you can apply for a winding up petition.

HOW CAN YOU PUT A STOP TO THE WINDING UP PROCESS?

There are multiple ways a winding up order can be stopped;

If the relevant facts are not available when processing a winding up order, the company can apply for the court to rescind the petition. This should happen within a week of the order being made.

The company can also appeal to the court against the order. The court can then change its decision or rescind the order. This should happen within 4 weeks of the order being made.

If you are the one who has ordered for a company to go into compulsory liquidation, you can choose to withdraw your claim. The procedure will vary depending on how far along your petition is.

If the liquidation proceedings come to a permanent stop or are ‘stayed’, the directors will generally regain control of the company.

WHAT HAPPENS AFTER?

A liquidator is appointed, usually the Official Receiver. This person is an officer of the High Court and a civil servant in The Insolvency Service. (Insolvent meaning unable to pay)

Their duty will include ensuring that the winding up notice has been posted in the local gazette. Plus investigating the company’s activity to establish why it has become insolvent, and acting as a liquidator – collecting assets and paying creditors.

An insolvency practitioner may be appointed in the place of the official receiver as liquidator, but they will still have to carry out the other duties.
This means there will then be two people carrying out the liquidation.

OTHER FAQs

During the winding up process, what does the company director do?

The company director must provide information about the company’s activity to the official receiver and any insolvency practitioners involved and attend an interview to talk through these when necessary.
They will have to hand over the company’s assets, books, bank statements, records, insurance policies etc – anything relating to debts and assets.

How long does the process take?
This depends on the complexity of each individual case; the company being wound up and the assets involved. As soon as the process is complete, the company is dissolved and does not exist.

Where can I get advice about winding up a company?

It is always important to get financial and legal advice before going ahead with this process as there may be other options that would be better suited to what you need.
It is recommended to go to the Citizen’s Advice Bureau or financial advisor.
Franklin James Credit Management provides a free consultation to assess your situation and best advise you on how to go forward.
Using our 25+ Years of experience in this industry, we will also take care of the technical process for you.

Technical Terms

Insolvent – Cannot Pay Debts
Compulsory Liquidation – closing down or dissolving a business