7
May
2024

What is the legal process of a Winding-up Order?

Winding up a company is a measure of last resort and if the debtor doesn’t actively challenge a petition or pay their creditor, the ensuing winding-up order forcibly closes the business down.

Chris Bristow | Business Debt Expert

A winding-up order may be issued by the court after a winding-up petition is presented by a company creditor. As one of the most serious steps a creditor can take, this typically occurs after many failed attempts have been made to collect a debt. 

Winding up a company is a measure of last resort and if the debtor doesn’t actively challenge a petition or pay their creditor, the ensuing winding-up order forcibly closes the business down. 

The background to a winding-up order can be complex, but a creditor must be owed at least £750 to make a petition and also have issued a 21-day statutory demand that remains unpaid.  

What is a winding-up order? 

A winding-up order is an instruction from the court to wind up a company’s affairs, liquidate its assets, and permanently remove it from the official register at Companies House. It’s a measure commonly used by larger creditors, such as banks and HMRC, to prevent further losses rather than to obtain repayment of their debt. 

The debtor company typically suffers severe financial decline and carries unmanageable debts in the months leading to a winding-up order. If there’s a long history of unpaid debt, the court might also believe that it’s in the public interest to forcibly close the business down. 

What is the winding-up order process?  

The legal process of a winding-up order starts with the creditor’s petition: 

  • The creditor seeks legal assistance to obtain a winding-up order and a winding-up petition is presented in court 
  • The court ‘hears’ the petition and grants the order if no defence is provided by the debtor company or they ignore the proceedings 
  • A winding-up order is issued to the insolvent company and a liquidator is appointed – this is typically the Official Receiver in cases of compulsory liquidation 
  • The company’s assets are liquidated and creditors repaid as far as funds allow 
  • An investigation takes place into the reasons behind the company’s failure 
  • The company name is removed from the official register of companies and ceases to exist 

What does the liquidator do when a winding-up order is granted? 

The Official Receiver is appointed initially, but a private liquidator may ultimately conduct the liquidation. Briefly, the legal process surrounding this involves accepting or rejecting creditor claims and selling the company’s assets at a liquidation auction.  

This generates funds to repay creditors as far as possible, but a key part of the legal process once a winding-up order is acted upon is the liquidator’s investigation into why the company failed. 

This can have serious repercussions in law for the company’s directors and may leave them at risk of personal liability for their business’s debts if instances of misconduct are found – for example, wrongful trading, or paying unlawful dividends. 

Can a winding-up order be stopped? 

It’s possible to stop a winding-up order from taking effect but action needs to be taken within five working days by the debtor business. The legal process can be stayed, either temporarily or permanently, on application to the court: 

  • By the company for reasons that the court didn’t have all the necessary information at the hearing to make a decision or that the company’s situation is now materially different  
  • By a stakeholder, the liquidator, the Official Receiver, or a creditor – if they believe the debt will now be repaid, for instance 

The legal process of a winding-up order can be carried out very quickly from the presentation of the petition to the company’s closure and liquidator’s investigation. It’s designed to prevent additional financial losses for the insolvent company’s creditors but it also serves to protect the public at large. 

Chris Bristow is a business debt expert at Real Business Rescue, company rescue, restructuring and liquidation specialists with a wealth of experience in supporting company directors in financial difficulty. 

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