What Is A Winding Up Petition By HMRC or Other Creditor
Learn what a winding-up petition is, when it's used, and the legal process involved. Read our comprehensive guide written by licensed insolvency practitioners
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How To Issue A Winding Up Petition Against a Debtor Company
How do I issue a winding up petition. A guide to procedure and costs of issuing a petition on a company to recover debts. When to use it and when not to.
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HMRC Bailiffs and Enforcement Officers – Can They Enter My House?
A Bailiff, HMRC officer or an Enforcement Officer has the power to take control of your goods and possessions in order to satisfy a debt.
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Secured And Unsecured Creditors – What Is The Difference?
I am confused about secured and unsecured creditors. What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors. The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset. This is enabled by a legal document called a charge or debenture. There are two kinds of charge; A Fixed Charge and a Floating Charge. The difference is quite hard to explain in a few words so we have a dedicated page on the differences. Have a read here on fixed and floating charges. A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house. If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves. In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets. This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets. This can be a trade supplier, HMRC, a utility company. Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets" In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down. An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop) such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade. So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority. There is even a handy infographic on there too.
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What is an HMRC Notice Of Enforcement?
Any creditor who is owed money has the power to serve a Notice of Enforcement if they obtain a court order. HMRC or landlords do not need a court order, however they must still obey strict regulations to retrieve debt.
ReadA landlord’s and tenant’s guide to commercial rent arrears recovery (CRAR)
For the better part of 250 years, landlords enjoyed the right to claim ‘distress’ for unpaid rent – meaning that they could seize (distrain) and sell their tenants’ goods to recoup the loss of earnings.The Rent Act 1977 stripped this right from residential landlords1, but commercial landlords continued to be able to exercise distraint until April 2014, when distress laws were replaced with the commercial rent arrears recovery (CRAR) process2, 3. So what exactly is CRAR? Like most archaic UK legislation, distress law was unnecessarily complicated and, many felt, rather unfair. The CRAR rules that supersede them are intended to be simpler and more balanced, with a greater focus on tenants’ rights than their predecessors.CRAR still allows a landlord to collect overdue rent without the need for a court order; however, it applies only to commercial tenancies, and the tenancy must be subject to a written lease. It can only be used to recover rent and any interest and/or VAT payable under the terms of the lease. Landlords: enacting the CRAR procedure Before claiming unpaid rent from a commercial tenant, you must remember the following:The arrears must be at least seven days’ worth or more at the time the notice is served and at the time of enforcement You do not have the right to seize your tenant’s goods yourself; they can only be seized by a certified enforcement agentOnce you have found an authorised enforcement agent, you will need to fill out a Warrant of Control form to enable them to begin enforcement action. The enforcement agent will then take over the process, issuing a seven day notice to your tenant in the first instance.If the rent remains unpaid at the time of enforcement, the agent will enter the property and take control of certain goods located thereon to be sold at public auction. Tenants: your rights under CRAR Firstly, you must remember that a notice of enforcement binds goods to remain on the property, meaning you cannot sell or remove them. You can, however, delay enforcement by applying to court for a delay of execution or a set aside.It is possible to enter a controlled goods agreement in order to repay what you owe over time. Under such an agreement, the goods will remain on the premises, but your landlord’s enforcement agent will be able to remove them if you default on your agreed repayments.If goods are taken, the enforcement agent must provide you with an inventory of everything seized as specified by section 33 of the Taking Control of Goods Regulations 2013.If your lease has expired, your landlord can only use the CRAR process if:the lease ended within the last six months; the lease did not end by forfeiture; the rent was owed by you at the time the lease ended; you still possess some of the goods formerly located on the premises; you occupy the goods under a commercial lease; and your old landlords was, at the time the lease ended, entitled to immediate reversionBeing unable to pay debts, such as commercial rent, when they become due is a warning sign of insolvency. If this described your company’s situation, it is highly recommended that you seek insolvency or turnaround advice from a professional firm.References1. Rent Act 1977, s 147(1)2. Tribunals, Courts and Enforcement Act 2007, s 713. The Taking Control of Goods Regulations 2013, SI 2013/1894
ReadCan HMRC take my house for failing to pay company debt?
The simple answer to this common question is, no – so please be reassured. However, if you have been a very negligent or fraudulent director then it could be at riskThey can only take property owned by the company – no hired or rented assets, nor property under your own name.If your company fails to pay its debts to HMRC, they will take enforcement action to get the money they are owed. Only company assets are at risk – not your everyday personal possessions. What enforcement actions can be taken?Taking control of goods Court order Taken through your pension or earnings Debt collection agencies Direct recovery of debtWhen could they take my House? Sole trader or partnership, having unlimited liability. This means creditors like HMRC, can take personal assets of yours, if your business cannot pay what is owed. This is because there is no legal separation between your business and you. If your house is registered in the company’s name. HMRC can force the company into a compulsory liquidation, so that the property’s value can be realised and shared among the company’s creditors, to repay. Likewise, if the house is registered this way, it can be taken and sold, at any point, if you live in it or not. If you have an overdrawn directors account. This is when you, as a director, owe the company money and have what is called an overdrawn directors loan account. This occurs when a profit-making company is advised to save tax by paying directors a small salary from the profit reserves, each month. Then the company has not paid the correct tax amounts, hence HMRC are chasing them up to do so. If the company goes into liquidation, you will be chased personally as this is money owed to the company. Therefore, to pay the money owed, your personal possessions i.e your house or car, may be taken and sold to pay back the company what you owe.If your house was used as a personal guarantee for credit or other purposes, then being unable to pay your debts means your house would be at risk. It is difficult for houses to be repossesed under bankruptcy laws as it depends on lots of things like your dependents etc.If you are worried about losing your house due to company debts then we can advise on the situation so please call us.
ReadWho Are Preferential Creditors In A Liquidation Or Administration?
A preferential (or preferred) creditor refers to a creditor who has the right to payment before others. The priority of secured, preferential, and unsecured creditors is set out in the Insolvency Act 1986. Preferential creditors are prioritised before unsecured creditors in a liquidation but below creditors with a fixed charge on assets such as property.
ReadPressure from Creditors Legal Actions Explained
This is not a legal lesson nor is it comprehensive - rather it is intended to guide you through the maze of actions that a creditor can take against the business and so putting you under pressure.
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How Can I Adjourn A Winding Up Petition?
It is possible to adjourn a winding up petition to give the company more time to pay its debts. This stops any new legal action.
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How Does HMRC Collect Its debts?
HMRC is what is called a “sophisticated creditor” in that they know all the best methods of collecting in overdue taxes. What is more, they have economies of scale that ensure that it is worth their while to chase even the smallest of debts.HMRC will use various methods to ensure that taxpayers pay what is due:Seizure of Goods The use of penalties to deter non-compliance Statutory demands Winding up petitionsHMRC is responsible for all taxes and duties and there is no particular difference in the methods used for collecting taxes, whichever type of tax it is. VAT and PAYE are perhaps pursued more readily as they do make up the largest types of tax that a company pays. VAT in particular as the company in question has in effect collected the tax from its customers and should pass it on to HMRC. The steps that are taken by HMRC - HMRC debt collection process Reminders In the first instance HMRC will start collecting in debts by issuing payment reminders and these can be in the form of letters and even SMS texts. Failure to pay the amount owed may well mean that it is outsourced to a HMRC debt collections agency. HMRC have started to use these debt collection agencies more and more in recent years. The amount HMRC pays to private-sector debt collectors has quadrupled in the past 5 years, suggesting it may be stepping up the pressure on people who cannot pay their tax bills. HMRC debt collection agencies are as follows:1st Locate (trading as LCS) Advantis Credit Ltd Bluestone Credit Management Ltd BPO Collections Ltd CCS Collect (also known as Commercial Collection Services Ltd) Moorcroft Oriel Collections Limited Past Due Credit Solutions (PDCS)These agencies are likely to start sending more reminders in a more aggressive manner threatening legal action or the seizure of goods. Control of Goods As registered bailiffs, the agency may well take action to take control of goods or property at the companies registered address, to then sell on at auction in order to settle the debt. This is known as distraint. For more information on the regulations see here.The officer either from the HMRC, or a certified bailiff contracted by HMRC, is issued with a Writ of Control. They will then send the Notice of Enforcement to the debtor, on 7 clear days’ notice, excluding Sundays and bank holidays.This notice period gives the debtor an opportunity to contact HMRC and either pay in full or request/negotiate payment by instalments.If payment in full is not made within this 7 day period or an instalment arrangement agreed, the officer will attend the debtor’s premises after the expiry of the 7 clear day notice period to take control of goods (formally called seizure). If the debtor doesn't sign a Controlled Goods Agreement (formerly Walking Possession) or make payment in full, the officer can make arrangements to remove goods and sell the goods over which he has taken control (seized).Obviously, in many cases the value of goods belonging to the company is not enough to cover the costs of the debt. However, the threat of removal can focus minds and funds found elsewhere.If the seizure of goods does not yield results then HMRC may as a last resort issue a winding up petition. Winding up petition Please refer to this page for information about the winding up petition process.In essence HMRC will instruct its solicitors to petition the court to rule that the business cannot pay its debts and should be closed and wound up. This means that the debt to HMRC cannot get any worse as the company will stop trading. It is unlikely in most cases that HMRC will get its money except perhaps in the more high profile cases such as with football clubs that are often saved at the last minute when faced with a petition.
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Can A Winding Up Petition Be Withdrawn?
A winding up petition is a legal notice put forward to the court by a creditor who is owed more than £10,000 and has not been paid for more than 21 days. In essence, the creditor is informing the court that the company is insolvent and is asking to have it put into compulsory liquidation.Of course, when such a notice is received, the company will do all it can to repay the creditor or mitigate the damage of the petition by claiming that it is not insolvent or it can be rescued. When can a winding up petition be withdrawn? If the debt can be repaid, the winding up petition can be withdrawn, removing any further threat of liquidation.The creditor must obtain written permission from an officer of the company they have served the notice against, to settle the debt out of court. In this written permission letter should be the creditors intention to withdraw the petition if the debt is paid. A settlement should be agreed between the debtor and creditor. Once the payment has been received, the creditor should notify the debtor in writing that the payment has settled the debt and that they intend to withdraw the petition. The debtor applies to the court for permission to withdraw the winding up petition. Note: It must be at least five days in advance of the petition hearing and the petition must not yet be advertised. Proof will be needed to support your application, to demonstrate that the petition has not yet been advertised, that there has been a settlement and there is intent to withdraw. Once the court has given its permission for the petition to be withdrawn, a letter should be sent to the court. This letter should also be copied to all involved parties (debtor, creditor, court) as proof that the winding up petition has been withdrawn.Are there any other cases when a petition can be withdrawn? Yes. The winding up petition can also be withdrawn if the creditor decides that it is no longer worth it to continue with the process. This can be done to avoid the creditor paying the full cost of the winding up proceedings, if it is looking unlikely that the company can actually pay. What happens if the winding up petition isn’t withdrawn? It can be adjourned So long that there is good reason for it, the court can adjourn winding up proceedings. Usually it is on the grounds that the company can convince the court that it can pay the debt and continue to trade. Adjourning the petition simply means giving the company breathing space it needs to collect monies owed and figure out how it will go about throwing itself into an insolvency procedure. It can be disputed The petition can be dismissed by the court if there is proof that it is invalid, following the company disputing its accuracy. When this occurs, the court orders hefty costs against the petitioning creditor. It can be dismissed via a CVA If the court decide that the company can repay some of, or all of, the debt through a company voluntary arrangement (CVA), then the petition can be dismissed. A CVA creates a payment plan to pay back the debt to the creditors over a period of between 3-5 years. For more information on this process please look read our guide It can simply be paid When a company pays the funds required, the petition can be dismissed by court and removed from the court record. Being removed from the court record prevents the petition being taken over by another creditor. if another creditor replaced the original creditor who issued the petition, the payment to the original creditor would need to be repaid to the liquidator, to avoid preferential payments from the petitioning creditor becoming more beneficial compared to all remaining creditors.If none of these actions are taken, within eight to ten weeks, the court will grant a winding up order and the company is placed into compulsory liquidation with the official receiver distributing any remaining assets to creditors.For further guidance and expert advice contact us today on 0800 970 0539.
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