Can You Enter a CVL After a Winding-Up Petition?
If your company has received a winding-up petition, it may still be possible in some circumstances to place the company into a Creditors’ Voluntary Liquidation (CVL) before the court makes a winding-up order.
The key issue is timing.
A winding-up petition is an application asking the court to place the company into compulsory liquidation.
A winding-up order is the court order that actually places the company into compulsory liquidation.
So, if a petition has been presented but the court has not yet made a winding-up order, there may still be options available.
However, this is a serious and time-sensitive stage.
If your company has received a winding-up petition, call DCA Business Recovery on 01702 344558 for a confidential discussion as soon as possible.
Book a confidential conversation with DCA Business Recovery online.
What is a winding-up petition?
A winding-up petition is a court application asking for a company to be compulsorily liquidated because it cannot pay its debts.
In England and Wales, a creditor can generally apply to wind up a company where it is owed at least £750 and can demonstrate that the company cannot pay the debt.
If the court ultimately agrees, it can make a winding-up order.
At that point, the company enters compulsory liquidation and the Official Receiver will normally become involved initially.
A petition should therefore never be treated as just another debt collection letter.
Received a winding-up petition? Speak to DCA now – 01702 344558
Is a winding-up petition the same as a winding-up order?
No.
This distinction is crucial.
A winding-up petition is the creditor’s application to the court.
A winding-up order is the court’s decision formally placing the company into compulsory liquidation.
Before an order is made, there may still be opportunities to deal with the petition, restructure the position or, in appropriate circumstances, pursue a CVL.
Once a winding-up order has been made, the position changes significantly.
Can my company still enter a CVL after a winding-up petition?
Potentially, yes.
A company against which a petition has been presented may still be able to take steps towards a Creditors’ Voluntary Liquidation before a winding-up order is made.
But the existing petition cannot simply be ignored.
The timing of the CVL, the petition hearing, the position of the petitioning creditor and any court applications all need to be considered carefully.
The directors should therefore obtain insolvency and, where appropriate, legal advice immediately.
Why might directors prefer a CVL?
A Creditors’ Voluntary Liquidation is a formal insolvency process initiated by the company’s directors and shareholders rather than being imposed by the court following a creditor’s petition.
A CVL can allow directors more opportunity to prepare properly for the closure.
For example, there may be time to:
- prepare financial information;
- deal properly with employees;
- provide records to the proposed liquidator;
- identify and protect company assets;
- explain the process to creditors;
- understand director’s loan accounts or personal guarantees; and
- manage the practical closure of the business.
That does not mean a CVL removes scrutiny.
The liquidator still has statutory duties, including reviewing the company’s affairs and the conduct of its directors.
Read our guide to Creditors’ Voluntary Liquidation.
What should I do immediately after receiving a winding-up petition?
Act quickly.
You should establish:
- who presented the petition;
- how much is claimed;
- the petition hearing date;
- whether the debt is admitted or genuinely disputed;
- whether the petition has been advertised;
- whether the company’s bank account has been restricted or frozen;
- the company’s current assets and liabilities;
- whether employees are still working;
- whether the business is continuing to trade; and
- whether payments or transfers have been made since the petition was presented.
A licensed insolvency practitioner can then help assess what options may remain.
Can the petition debt simply be paid?
Sometimes, but extreme care is required.
Government guidance confirms that a petitioning creditor may withdraw a winding-up petition if the company pays the debt or agrees an arrangement to pay it.
However, where a petition has already been presented, directors should not simply make payments from company funds without advice.
Section 127 of the Insolvency Act 1986 can affect dispositions of company property made after the presentation of the petition if a winding-up order is later made.
This means a payment that appears sensible at the time can create complications later.
If funds are available to settle the petition debt, take advice before making the payment.
What if the debt is genuinely disputed?
A winding-up petition should not normally be used as a substitute for resolving a genuine and substantial dispute about whether money is owed.
If the petition debt is genuinely disputed, specialist legal advice may be required urgently.
Do not simply ignore the hearing.
The existence of a dispute does not make the petition disappear automatically.
Can the winding-up petition be withdrawn?
Potentially.
Government guidance states that creditors may withdraw a petition where the company pays the debt or makes an arrangement to pay.
The precise procedure and whether other creditors are supporting the petition may also need to be considered.
If withdrawal is being discussed, make sure the position is properly documented and the court timetable is dealt with.
Can the court adjourn a winding-up petition?
The court may adjourn a petition hearing in appropriate circumstances.
An adjournment may sometimes provide time for matters to be resolved or for another insolvency process to progress.
However, an adjournment is not automatic.
The court will consider the circumstances of the case.
If a CVL is being proposed, the company and its advisers may need to explain why the adjournment is sought and what steps are being taken.
How does a CVL work?
A Creditors’ Voluntary Liquidation is available where a company cannot pay its debts and enough shareholders agree to wind it up.
For the winding-up resolution to pass, at least 75% by value of the shares voting on the resolution must support it.
An authorised insolvency practitioner is then appointed as liquidator.
The liquidator takes control of the company’s affairs, realises assets, deals with creditor claims and brings the company to an orderly conclusion.
Read the full DCA guide to CVLs.
What happens to the existing petition if a CVL starts?
The petition still needs to be dealt with.
Starting a voluntary liquidation does not mean the court proceedings simply disappear.
Depending on the circumstances, the petition may need to be:
- withdrawn;
- dismissed;
- adjourned;
- stayed; or
- otherwise dealt with through the court process.
The petitioning creditor and the court should not be ignored.
This is one of the main reasons directors should use both insolvency and legal advice where necessary once a winding-up petition has been presented.
What happens to the company bank account after a petition?
A winding-up petition can have an immediate practical effect on banking.
Government guidance states that a company’s bank account can be frozen when a petition to wind up the company is filed.
Where access to the account is required, a validation order may be needed.
A frozen bank account can quickly affect:
- wages;
- rent;
- utilities;
- suppliers;
- insurance;
- card payments;
- direct debits; and
- ordinary trading.
If the company’s account has been frozen, do not try to work around the restriction without advice.
What is Section 127 of the Insolvency Act 1986?
Section 127 is one of the most important issues once a winding-up petition has been presented.
Broadly, if a winding-up order is later made, certain dispositions of company property made after presentation of the petition may be void unless the court orders otherwise.
This can include payments from the company bank account and other transfers of company property.
The purpose is to help preserve company assets for creditors rather than allowing value to be removed while the petition is pending.
This is why directors need to be particularly careful about payments, asset transfers and continued trading once a petition exists.
What is a validation order?
A validation order is a court order allowing certain transactions to take place despite a winding-up petition.
The court can validate particular payments or other dispositions of company property.
For example, an application might concern payments that are necessary to preserve the business or its assets while the petition is being dealt with.
Obtaining a validation order is a legal process.
The court normally expects detailed evidence about the company’s financial position, the proposed payments and why those payments should be permitted.
If a validation order may be required, specialist legal advice should be taken.
Can the company keep trading after a winding-up petition?
This depends on the circumstances.
A petition does not necessarily mean every company must immediately cease all activity.
However, trading after a petition has been presented can be highly sensitive.
Directors need to consider:
- whether the company can pay ongoing liabilities;
- whether continued trading will worsen creditor losses;
- whether the bank account is accessible;
- whether transactions may be affected by section 127;
- whether employees and customers can be dealt with properly; and
- whether there is a realistic rescue or insolvency plan.
Do not simply carry on as normal because the court hearing is several weeks away.
Should I continue paying suppliers and staff?
Take advice before making payments.
The position is more complicated once a winding-up petition has been presented because section 127 can affect post-petition dispositions if a winding-up order is subsequently made.
Payments that are necessary to preserve value may sometimes be capable of being validated by the court, but directors should not assume this automatically applies.
If wages, essential suppliers or other urgent costs need to be paid, obtain advice immediately.
Can I move company assets after receiving a petition?
Do not transfer, sell or otherwise move company assets without understanding the consequences.
Transactions involving company property after the petition date can be examined closely.
If an asset genuinely needs to be sold or transferred, the company should obtain proper advice and ensure any required court approval is considered.
Moving assets to directors, shareholders or connected businesses in an attempt to protect them from creditors can create much more serious problems.
What if HMRC issued the winding-up petition?
HMRC is a significant petitioning creditor in insolvency cases.
The same urgency applies if the petition has been presented by HMRC.
Directors should establish:
- which taxes are owed;
- whether the amount is correct;
- whether returns are outstanding;
- whether the debt can realistically be dealt with;
- whether the underlying company is viable; and
- whether a formal insolvency process should now be considered.
If the company cannot pay HMRC and has no realistic prospect of recovery, waiting for the winding-up hearing may not be the best strategy.
Read our HMRC debt advice for limited company directors.
What happens if the court makes a winding-up order?
If the court makes the order, the company enters compulsory liquidation.
The Official Receiver will normally take control initially.
Government guidance confirms that once a winding-up order is made, the company’s bank account will usually be frozen and company assets will be dealt with as part of the liquidation.
The directors must co-operate with the Official Receiver and any subsequently appointed liquidator.
At this stage, directors cannot simply choose to replace the compulsory liquidation with an ordinary CVL.
This is why the period before the hearing and before the order is made can be so important.
Is compulsory liquidation worse than a CVL?
Both are formal insolvency procedures and both involve scrutiny of the company and directors.
The difference is mainly in how the process begins and who initially controls it.
A CVL is initiated voluntarily by the company, whereas compulsory liquidation results from a court order.
A CVL may give directors more opportunity to prepare the company’s records, employees and practical affairs for closure.
However, directors should not assume that a CVL allows them to avoid investigation or choose how creditors are treated.
The appointed liquidator still has statutory duties.
What should directors avoid doing after receiving a winding-up petition?
Once a petition has been presented, avoid making rushed decisions.
In particular, do not:
- ignore the petition or hearing date;
- make unusual payments from company funds without advice;
- transfer assets to directors or connected parties;
- pay selected creditors simply because they are applying pressure;
- continue trading without considering creditor losses;
- withdraw significant company funds;
- dispose of company records;
- make promises to creditors that cannot be honoured; or
- assume the petition will disappear if nothing is done.
This is one of the stages where early professional advice can make a significant practical difference.
How quickly should directors act?
Immediately.
A winding-up petition has its own court timetable and delay reduces the options available.
The company may also face practical problems before the hearing, particularly if its bank account is frozen or suppliers and customers become aware of the petition.
The earlier an insolvency practitioner reviews the position, the more time there is to establish whether:
- the company can be rescued;
- the petition debt can be resolved;
- a CVL should be considered;
- court applications are required; or
- compulsory liquidation is now unavoidable.
Speak to DCA Business Recovery after receiving a winding-up petition
If your company has received a winding-up petition, do not wait until the court hearing to take advice.
There may still be options, but the available time can be limited.
DCA Business Recovery can help you understand:
- what stage the petition has reached;
- whether the company is insolvent;
- whether a CVL may still be possible;
- what information needs to be prepared;
- how the company’s creditors should be dealt with; and
- what issues directors need to consider.
Where legal applications or court representation are required, appropriate legal advice may also be necessary.
DCA Business Recovery is an independent, family-run insolvency practice based in Southend-on-Sea, Essex.
Call DCA Business Recovery on 01702 344558 for a confidential discussion.
Book a confidential, no-pressure conversation online.
Frequently Asked Questions
Can a company enter a CVL after receiving a winding-up petition?
Potentially, yes, if a winding-up order has not yet been made. The existing petition and court timetable must still be dealt with properly, so urgent professional advice should be obtained.
What is the difference between a winding-up petition and a winding-up order?
A petition is an application asking the court to wind up the company. A winding-up order is the court decision that actually places the company into compulsory liquidation.
Can I pay a winding-up petition?
The petitioning creditor may withdraw the petition if the debt is paid or an arrangement is agreed, but payments made after presentation of a petition can raise section 127 issues. Take advice before using company funds.
Will my company bank account be frozen?
A bank may freeze a company account once it becomes aware that a winding-up petition has been filed. A validation order may be required to regain access or authorise particular transactions.
Can HMRC withdraw a winding-up petition?
A petitioning creditor can potentially withdraw a petition where the underlying debt is resolved or an arrangement is agreed. The precise position depends on the court proceedings and circumstances.
What is a validation order?
A validation order is a court order permitting specified transactions that might otherwise be affected by section 127 if the company is subsequently wound up.
Can I carry on trading after receiving a winding-up petition?
Possibly, but directors should obtain urgent advice. Continuing to trade and making payments after presentation of a petition can create significant legal and financial issues.
What happens if the winding-up order is made?
The company enters compulsory liquidation. The Official Receiver will normally take control initially and directors must co-operate with the liquidation process.
This article provides general information only and is not legal advice. Winding-up petitions are court proceedings and can have immediate legal and practical consequences. Directors should obtain advice from a licensed insolvency practitioner and, where appropriate, a solicitor before taking action.
