Keith Tully, partner, explains the process of winding up a debtor company.

Serving a petition to wind up a debtor company is a serious and expensive business. You are effectively signalling the end for another business, and will need the services of a solicitor to prepare the papers and follow the necessary steps laid down in law.

Absolute proof that the debt exists

Existence of the debt in question, assuming it is £750 or more, can be proved if you have issued a 21-day statutory demand for payment. Should this remain unpaid or unanswered within the specified timeframe, the proof is there that the company cannot meet their liabilities, and you become eligible to petition for their winding up.

Existence of the debt can also be proven if any of the following applies:

• A county court judgement has been made against the debtor, and remains outstanding.
• The court is satisfied by other means that the company either cannot pay its liabilities as they fall due, or that its liabilities total more than the assets.

Absolute proof that the debt exists means that a winding-up order can be issued against your debtor. This essentially means the end for their business, with compulsory liquidation following soon after.

Carrying out a search for petitions issued by other creditors

You are obliged to search for any other petitions already issued against your debtor. This can be done on public computers within the Central London County Court, or the Rolls Building of the Royal Courts of Justice.

To search for petitions outside London, you will need to contact the county court where your debtor lives. If a petition has been issued within the last 18 months, it may be cheaper to register as a creditor, rather than issue another petition.

A declaration should be completed, stating that these searches have been carried out and sent to the court, along with the winding-up petition.

Application for a winding-up order

If a statutory demand for payment has been issued and remains unpaid, you will need to confirm that it has been served to your debtor. If this was done in person, a certificate of personal service should be completed. If registered post was used, the required declaration is made using a certificate of substituted service.

A statement of truth is also required by the courts, and accompanies the above declaration and application for winding up. You will need to hand the petition to the debtor’s local county court if they are located outside London, otherwise it should be taken to the High Court.

What happens once a winding-up petition has been served?

A date is set for the court hearing, giving the debtor seven days in which to respond if they want to prevent compulsory liquidation. After seven days have elapsed, the petition is advertised in The Gazette (notice code 2450).

Other creditors, including the debtor’s bank, may take action to protect their interests by freezing the company’s bank accounts, for example. If no action is taken by the debtor during this seven-day period, the court will issue a winding-up order, and the company will be liquidated. 

What are the costs of issuing a winding-up petition?

Costs average around £2,000, which is why this type of legal action is generally used as a last resort, and only to recover large sums of money. Costs include solicitor’s fees for drawing up the paperwork, as well as court costs of around £1,250.

Issuing a winding-up petition may be the culmination of a long period of unsuccessful debt collection, and if agreed by the court, results in the compulsory liquidation of the debtor company.

About the author

Keith Tully is a partner at Begbies Traynor Group and provides expert advice for directors facing financial distress through their specialist director support website, Real Business Rescue.