Winding Up Petition by HMRC or Other Creditor - What is the Procedure?

We are a Scottish registered company and a creditor has threatened a winding up petition. Is the procedure in Scotland different to that in England? Yes. If a creditor issues a winding up petition your options are even more limited than in England. The reason is to do with the advertisement of the petition. To summarise, in England after the Winding Up Petition has been served, advertising cannot take place for seven days. (Please note that for the Petition to proceed it must be advertised no less than 7 days after service and at least 7 days before the Hearing). It is the advertising that can be the end of the company. Banks have a continual watching brief on the Gazette, where it is advertised. Once advertised they will almost certainly freeze the company's bank account, often the end of the company.The reason behind the freezing is logical. If the WUP is ultimately granted, any dispositions which took place after the service of the Petition can be claimed by a liquidator as void, or voidable. This is because the legislation allows the Liquidator to claim back any monies paid out which he or she determines were not in the interest of creditors as a whole. In that event, the bank will be required to repay any such dispositions (payments). The freezing of the account itself is not a legislative requirement as such, it is merely a mechanism used by the banks to protect their position against possible claims by the Liquidator. In Scotland however: The Winding Up Petition (minimum debt in Scotland £10,000) dates from the presentation of the Petition at the court offices; when it is lodged. At this point a First Order is given. This First Order is the authority to serve and advertise. At the same time, it is ‘Walled’. This is the damaging part! Walling literally means the the Notice is pinned to the Court notice board for all to see...including the company’s bank! What do the bank do on spotting the walled petition? Freeze the bank account...immediately!Whilst the respondent has 8 days to lodge defences,  there is NO delay period for advertising- the Petition is advertised at the same time as service and, more damagingly, it is Walled immediately. So in this case, if the bank has spotted this (and they will...remember they hold a watching brief on all wallings) and frozen the bank account, how would a director or board of directors manage to pay staff, pay suppliers for on-going stock, or pay lawyers and advisors to help prepare an answer to the petition and a CVA proposal? Sadly the answer is often, they cannot and the company is fatally damaged by this knock out blow and not even make it to the lodgement of answers resulting in an Interim Liquidator being appointed by the Court, leading to Liquidation.One unfortunate side effect of this loss of grace period is that a petition may be issued maliciously and so damage the company. We advise clients in Scotland to lodge a caveat in both their local Sheriff court and the Court of Session. The effect of the caveat is that the court is required to notify the party who has lodged the caveat of the intention to proceed with the Winding Up. Then a Hearing will be fixed. If it is in a busy Sheriff court then the hope is that the Hearing might be a few weeks off. In a less busy court the opposite is the case.  The important point is that some notice is given which will allow directors the opportunity to prepare answers and a proposal to put to creditors for the repayment of debt over time while the bank account is operational. This is obviously vital for the company to continue to trade during this time. A WUP can be the death knell for any company, especially so in Scotland so it is vital to lodge caveats, as a matter of course, and act quickly if you sense a petition may be about to be served. Often there is a solution – the trick is to apply it before a Petition is lodged.So if you feel under threat then DO NOT DELAY and talk to Eirlys Lloyd our expert advisor on these matters on 0131 242 0081 or 08009700539

A winding up petition is when a creditor, who is owed more than £750, puts forward a legal notice to ask for the court to liquidate the company as they believe the company is insolvent.

We are a Scottish registered company, and a creditor has threatened a winding up petition. Is the procedure in Scotland different to that in England? Yes. If a creditor issues a winding up petition your options are even more limited than in England. The reason is to do with the advertisement of the petition. When can a creditor wind up a Scottish company?A creditor is owed £750 and has failed to pay even after having recieved a statutory demand giving 21 days to pay. The court is satisfied that the company is unable to pay its debts as they fall due, or that the value of the company’s liabilities (including contingent liabilities) exceeds the value of its assetsIf the company has less than £120,000 of share capital the petition is presented at the local Sheriff Court. Winding up petitions against companies with paid up share capital in excess of £120,000 are presented at the Court of Session in Edinburgh.To summarise, in England after the Winding Up Petition has been served, advertising cannot take place for seven days. (Please note that for the Petition to proceed it must be advertised no less than 7 days after service and at least 7 days before the Hearing). It is the advertising that can be the end of the company. Banks have a continual watching brief on the Gazette, where it is advertised. Once advertised they will almost certainly freeze the company's bank account, often the end of the company.The reason behind the freezing is logical. If the WUP is ultimately granted, any dispositions which took place after the service of the Petition can be claimed by a liquidator as void, or voidable. This is because the legislation allows the Liquidator to claim back any monies paid out which he or she determines were not in the interest of creditors as a whole. In that event, the bank will be required to repay any such dispositions (payments).The freezing of the account itself is not a legislative requirement as such, it is merely a mechanism used by the banks to protect their position against possible claims by the Liquidator.In Scotland however:The Winding Up Petition dates from the presentation of the Petition at the court offices; when it is lodged. At this point a First Order is given. This First Order is the authority to serve and advertise. At the same time, it is ‘Walled’. This is the damaging part! Walling literally means the the Notice is pinned to the Court notice board for all to see...including the company’s bank! What do the bank do on spotting the walled petition? Freeze the bank account...immediately!Whilst the respondent has 8 days to lodge defences,  there is NO delay period for advertising- the Petition is advertised at the same time as service and, more damagingly, it is Walled immediately. So in this case, if the bank has spotted this (and they will...remember they hold a watching brief on all wallings) and frozen the bank account, how would a director or board of directors manage to pay staff, pay suppliers for on-going stock, or pay lawyers and advisors to help prepare an answer to the petition and a CVA proposal? Sadly the answer is often, they cannot and the company is fatally damaged by this knock out blow and not even make it to the lodgement of answers resulting in an Interim Liquidator being appointed by the Court, leading to Liquidation.One unfortunate side effect of this loss of grace period is that a petition may be issued maliciously and so damage the company. We advise clients in Scotland to lodge a caveat in both their local Sheriff court and the Court of Session.The effect of the caveat is that the court is required to notify the party who has lodged the caveat of the intention to proceed with the Winding Up. Then a Hearing will be fixed. If it is in a busy Sheriff court then the hope is that the Hearing might be a few weeks off. In a less busy court the opposite is the case.  The important point is that some notice is given which will allow directors the opportunity to prepare answers and a proposal to put to creditors for the repayment of debt over time while the bank account is operational. This is obviously vital for the company to continue to trade during this time.A WUP can be the death knell for any company, especially so in Scotland so it is vital to lodge caveats, as a matter of course, and act quickly if you sense a petition may be about to be served. Often there is a solution – the trick is to apply it before a Petition is lodged.So if you feel under threat then DO NOT DELAY and talk to Eirlys Lloyd our expert advisor on these matters on 0131 242 0081 or 08009700539 

A winding up order is an order by the court that a company or partnership should be “wound up” and liquidated.  This is usually known as compulsory liquidation.

A validation order is where a company can apply to 'unfreeze' the company's bank account. This is a court order that essentially "validates" transactions going through the account and prevents a liquidator from holding the bank liable for money being withdrawn, whilst there is a winding up petition.

Firstly...what does 'being served a winding up petition' mean? If a company or football club has been served a winding up petition then it usually means that all previous attempts at settling the debt have been unsuccessful. As such the creditor uses the "nuclear option" whereby they say that the club has to be wound up as it simply cannot pay its debts. An application, or petition, is made to the High Court (this is the winding up petition) to ask the court to wind the company up.  Southend United were the latest to feel this action. And the process? An application is made to the high court to ask the court to wind the company up.20-75 days after the petition has been sent to the company and a hearing is arranged in the High Court or Court of Session in Scotland, for the Court to consider whether it should put the company into compulsory liquidation or not.Note, the winding up petition has to be advertised more than 7 days before the hearing. This puts the process in the public eye and gives a very public indication that the club has not paid some of its debts. As expected, this makes everyone worry about the future of the club. Will the players be paid? Will the club continue to play? Will it be deducted points?For most businesses once a winding up petition has been advertised the business is in effect paralysed as the bank will freeze the account in order to avoid any "disposition of assets". Football clubs are not run purely for profit but also for pleasure by their (usually) wealthy owners. As such, the freezing of the bank account of the club does not usually mean that the club has to shut immediately. Money is often forthcoming from other sources connected to the owners. Of course, it is also not unusual for the monies outstanding to be paid personally by the owners to avoid administration. The personal circumstances of the owners are often complex and there are other companies that are involved in the actual running of the club. As such the effect of a winding up petition does not necessarily mean the end of the football club.But the petition pressure and director being worried about wrongful trading can lead to a situation whereby insolvency proceedings are taken by the directors. This usually involves placing the company into administration. The company must then enter a CVA to exit administration usually with a new owner or funder so it can regain its licence to play in the Football League, Premier League or the Scottish equivalents. The club will be deducted at least 10 points.If the CVA is rejected, as happened before in the case of Leeds United when the administrator sells to a new buyer, then a further points deduction is made - often 15 points. This led to two relegations for Leeds.Interestingly the CVA must pay the football creditors (players and leagues) 100p in £1 BEFORE any creditors like HMRC! Otherwise the CVA is not valid and further points can be deducted or the licence to play in the relevant league withdrawn the ultimate sanction. Given that HMRC are now preferential there is unlikely to be any payments for other creditors. HMRCs Involvement In the football world it is usually HMRC who serve the petitions as it is the main creditor (as of December 2020 anyway!).What is more, with the level of players wages, the total PAYE liability of the club is usually very high. Any delay in the payments of these amounts over the HMRC does give the club a cashflow boost. Updates At the most recent Owners’ and Executives’ Conference and AGM, a number of new rules were decided regarding the insolvency process and football clubs. The League’s Insolvency Policy has been changed to include the following:Football clubs are no longer required to enter a company voluntary arrangement (CVA) 12 points deduction for a club going into administration (up from 10 points) Continuing to support the Football Creditors Rule whereby football debt is paid before any other creditor (like HMRC). Administrators must have 21 days at least to market a football club that’s in administration, and meet the club’s supporters’ trust to allow them to put forward a bid. Buyers of football clubs (in administration) must pay back creditors a minimum of 35p in the pound over three years (or 25p if transferred by shares). If this isn’t followed, there will be a 15 point deduction the next season. If an individual buys a club with 10% shareholding or more, he/she must inform the Football League.The League wants to focus on strengthening their insolvency policy to make it fair to employees, supporters and creditors.A possible downside to the 21 days rule could be the club is on the market for a considerable amount of time. This could cause the business to lose value over time if suppliers and customers lose faith.