Guide to Winding Up Petitions (WUP) and How to Deal With Them #023

A Winding Up Petition (WUP) is a legal application by a creditor to the High Court or

another appropriate court asking that a company be closed down.

The purpose of winding up a company is generally to remove control of a company

from its directors so that its affairs can be dealt with properly. At the end of the

process the company is dissolved and ceases to exist.

Compulsory winding-up is a legal process by which, if granted by the court, the

official receiver is appointed to oversee closing down the company and may then

engage a licensed insolvency practitioner as approved liquidator.

The petition must be properly served on the company, normally by personal delivery

at its registered office, and must be advertised in the London Gazette. The

advertisement is intended to notify the public but in practice is also how banks and

other institutional creditors learn of the petition. The process of service and notice is

complex and often petitions are rejected in Court when the petitioning creditor is

unable to prove that the correct process has been followed.

Directors, on receipt of the petition, should be aware that when the bank learns

about it may freeze the company bank account. They should also be aware that any

further trading after the date of receipt may mean that they can be held personally

liable for any company debts accrued after that date if, when their actions are

investigated, they are found not to have acted in the best interests of the company’s

creditors.

If the directors wish to continue trading in order to save the company then they

should seek help from a business rescue adviser if the company is insolvent. If they

believe that trading on would benefit creditors through recovering assets, then they

should seek help from an insolvency practitioner who might well be introduced by the

bank or another secured creditor. Whatever the reason for continuing to trade,

trading while insolvent there are issues for directors who are advised to seek

professional help.

Failure to respond to a petition can lead to a company being closed down. In view

of the complexity of the process the directors should not try to deal with the petition

without expert guidance from an insolvency, legal or business rescue adviser, who

would normally introduce an insolvency barrister to represent the company in court.

The need to use a barrister is because only two people have rights of audience in the

winding up court, either a director or counsel acting on the company’s behalf.

Although the petition is very serious and should not be ignored it does not mean that

the company is doomed to closure. With proper representation based on a credible

plan to deal with the company’s difficulties it is possible to have a winding up petition

dismissed.

For example, if the debt has been paid or if a Company Voluntary Arrangement

(CVA) has been approved. It is not uncommon for the court to adjourn the petition

hearing if the company can demonstrate that it is attempting to resolve the petition

debt. Reasons for adjournment might be asking for time to pay the debt or for time to

hold a meeting of creditors to consider proposals for a CVA. However only a few

weeks will generally be granted.

Should the debt be disputed, the petition is not dismissed but instead it is adjourned

pending judgement on the claim’s validity. It relies on written evidence with a date

by which the defence must be provided to the court, the next date being when the

claimant must have responded, then a date by when the court is to have considered

the evidence from both parties. Following that the court will determine whether there

is sufficient evidence for judgement or a hearing or a full trial.

A WUP is often used as an action initiated out of frustration following attempts by a

creditor to agree terms for repayment of money owed or after repeated attempts to

contact the company have been ignored. Some creditors use WUPs as a means of

debt collection, which can work when a company pays before the hearing.

HM Revenue and Customs (HMRC) regularly uses the petition when its repeated

written reminders and requests for repayment of outstanding PAYE, VAT or tax have

been ignored but the petition can equally be used by private creditors.

Surviving a petition does not always mean that the company will survive. All too often

companies pay the debt but leave themselves without sufficient cash to pay other

bills or even wages. Sometimes directors use personal funds or their pension to pay

the debt, but the debt has purely moved from one creditor to another where

recovering it from the company remains a problem. Too often directors try to deal

with a petition without advice, which is surprising given the high stakes involved.