0800 901 2475 Menu

HMRC want to wind up my company

If HMRC is threatening to wind-up your company, this means that they will apply for a winding-up petition which will force the company into compulsory liquidation via a winding-up order.

What is a Winding-Up Petition?

A winding-up petition (WUP) is one of the most serious legal actions which can be taken by any creditor against a company. Either a county court judgment (CCJ) or a Statutory Demand (SD) typically proceeds a WUP in order to show the courts that all avenues have been exhausted in an attempt to recover the debt. However, as HMRC are classed as ‘involuntary creditors’, they do not need to issue a CCJ or SD before issuing a WUP.  You can read about what winding-up petitions are here.

It’s vital that you, as director, do not dispose or sell any assets or the company itself following the issue of a WUP. If a sale is made following the issue of a WUP the sale can be reversed, and in some cases a liquidator could take action against the director personally.

have you received a winding up petition from hmrc?

 

What are the available options when a company is issued with a WUP?

Given the serious nature of a WUP, it’s important for company directors to act as quickly as possible. But what exactly can you do? Much depends on whether you feel that the underlying business is viable and worth saving.

  • If the debt cannot be repaid, or you wish for the business to be closed you can wait for the company to be compulsorily liquidated.
  • If your company is financially able, it can make repayment the debt in full. However, the original debt will have increased due to petitioning costs and legal fees. Also, if the company has other significant debts this might only be a short-term option. It is wise to employ an insolvency practitioner or solicitor to deal with the repayment of a debt associated with a winding-up petition
  • You can ‘defend’ the petition if part or the full amount claimed by HMRC is disputed. Often HMRC will estimate tax owed, especially if accounts have not been submitted to Companies House and the company is behind on its tax returns.

If your company has been issued with a WUP, it is likely to be struggling financially. However, if you don’t wish to close down the company and walk away from it, there are rescue options available to you if your circumstances are appropriate. As experienced insolvency specialists, we can advise on this.

If you have any ambitions to rescue the business, once a WUP has been issued you need to act with the utmost urgency. Once a WUP becomes a winding up order, it is generally too late to take action.

What happens if the company wants to dispute the petition?

If you believe the petition is unfair and would like to dispute it, then it’s important to act as soon as possible. If the petition is advertised in the London Gazette, company bank accounts will be frozen, making it harder to stop the petition. In some cases, it might be possible to stop the advertisement of the petition being published if there is a dispute about the claim. This can be done through formal negotiating with HMRC or by getting an advertisement restraining injunction. In a scenario where the petition has been published, the company may be able to call for a hearing adjournment; however, the company will need to give legitimate reasons for this.

What’s involved with a petition advert?

Before an advertisement can be published in the London Gazette, the creditor must allow seven days following the serving of the petition at the company’s registered office. The advertisement must also get published at least seven days before the date of the hearing.                    

Following the advertisement of the petition

  • Freezing of company’s assets and bank account
    Banks and lenders monitor the London Gazette so they will know about the petition and will typically freeze any bank accounts belonging to the company on the date of (or very shortly after) the advert is published. This is done to stop any sale or disposal of company assets which includes the withdrawal of any monies held in a bank account. Under section 127(1) of the Insolvency Act 1986, when a company is faced with being wound-up, any transfer of shares, the sale of assets or withdrawal of cash from the company’s bank accounts made after the winding-up petition has been issued may be voided. This process effectively puts an end to company trading. Credits can be accepted into the bank, but payments of any kind (direct debits, standing orders, cheques etc) will not be honoured.
    The only way of getting a new bank account operational after it has been frozen is to apply to the court for a validation order. If an application for a validation order is made to the court, it will be for specific payments and the judge will need convincing that unfreezing the bank account is in the best interests of the company and its creditors and the assets will not be diluted.
  • Court hearing
    If the debt is not disputed, or a dispute is dismissed, the Court will issue a winding up order and the company will be forced into compulsory liquidation. If a dispute is upheld by the judge, the petition will either be dismissed or payment terms for the debt will be set out.
  • Compulsory liquidation and investigation
    When a winding-up order is made by the court, the company enters into compulsory liquidation. The Official Receiver (OR) or a liquidator who the OR has passed the case to, will carry out an investigation into the activities of the director(s) to make sure they have acted appropriately and legally. If evidence is found of wrongful or fraudulent trading the liquidator might recommend further investigations, which could result in a director being banned for up to 15 years.
  • Directors may become personally liable for the debts of the company
    In the event a director is guilty of wrongful trading, he or she may be liable personally for the company’s debts.

How do directors protect themselves from being personally liable?

As a director, you must ensure all actions you carry out are recorded. The company’s assets should be listed and it’s imperative they’re not disposed of. Ensure things like bank statements, company accounts, and management records are protected and available to the OR or liquidator when required. Directors are required to respond to information requests either by the liquidator or by the OR, and not doing so is a criminal offence. The sooner you take professional advice from us, the better the outcome is likely to be.

In summary

HMRC will not hesitate to issue a WUP when they have debts owed. Without swift action from directors, a WUP becomes a Winding-Up Order, which then leads to compulsory liquidation. Once a WUP has been issued, then unless it is challenged, the process of liquidating the company will begin. There are only a few ways to salvage the company before the WUP is passed by the Courts; after it is passed, it is too late to take any action and the company will be wound-up.

How we can help

If you believe that HMRC is pushing to wind-up your company, the most important thing you can do is act as quickly as possible. The later you leave issues, the harder it gets to implement a rescue strategy. We have excellent experience negotiating with HMRC and we can walk you through the best recovery options for your company.

Authored by Fiona Grant

Fiona Grant

Licensed Insolvency Practitioner