HMRC want to wind up my company
If your company owes money to HM Revenue & Customs (HMRC), you may receive a winding-up petition. Often considered a last resort in debt collection, a winding-up petition freezes your company’s bank accounts, making it impossible to trade. Unlike many creditors, HMRC doesn’t have to go through the other debt-relief options before filing a winding-up petition, which can have severe consequences for your company, and potentially you as director.
What is a winding-up petition?What is a winding-up petition?
A winding-up petition (WUP) is one of the most severe forms of legal action creditors can take against a company. Once issued and approved by the courts, the petition becomes a winding-up order and the company’s bank accounts freeze, making trading impossible and forcing the company into compulsory liquidation.
It’s vital that you, as director, do not dispose of or sell any assets or the company itself following the issue of a WUP. If a sale is made following a WUP, the liquidator can reverse that sale, and in some cases, they could take action against the director personally.
Why would HMRC issue a winding-up petition?
Typically, creditors can apply for a WUP if your company is behind on its repayments. Most creditors file County Court Judgements (CCJs) or a Statutory Demand (SD) as their first attempts to recover the debts before filing a WUP. Doing so demonstrates to the courts that all avenues to recover the debt have been exhausted.
HMRC are classed as ‘involuntary’ or ‘preferential creditors’, so they don’t need to issue a CCJ or SD before issuing a winding-up petition.
What counts as HMRC debt?
HMRC debts include anything that you would pay as part of your tax bill. These debts include corporation tax, Pay As You Earn (PAYE), National Insurance (NI) or Value Added Tax (VAT).
What happens if you can’t pay your HMRC billWhat are the consequences of a winding-up petition?
After HMRC issues a winding-up petition, it is advertised in the London Gazette, which acts as a public record. Before the advertisement, the creditor must allow seven days following the petition’s serving at the company’s registered office. The advertisement must also get published at least seven days before the date of the hearing. After those seven days, the petition is advertised in the London Gazette, and the following occurs:
- Company bank accounts and assets freeze
Banks and lenders monitor the London Gazette so they will know about the petition. They will typically freeze any bank accounts belonging to the company on the date of (or very shortly after) the advert is published. The banks do this to stop any sale or disposal of company assets, including 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 WUP has been issued may be voided.
This process effectively stops the 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 to get a new bank account operational after it has been frozen is to apply to the court for a validation order. An application for a validation order will be for specific payments, and the judge will need convincing that unfreezing the bank account is in the company’s and creditors’ best interests and that the director will not dilute the assets.
More about frozen bank accounts - Court hearing
If the debt is not disputed or a dispute is dismissed, the court will issue a winding-up order and force the company into compulsory liquidation. If the judge upholds a dispute, the petition will either be dismissed, or payment terms for the debt will be set out. - Compulsory liquidation and investigation
When the court issues a winding-up order, the company enters compulsory liquidation. The Official Receiver (OR) or liquidator the OR passes the case to, will investigate the director(s) activities to ensure 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. - Personal liability
If a director is guilty of wrongful trading, that director may be held personally liable for the company’s debts.
More on personal liability for company debt
How to avoid being wound up by HMRC
If a WUP is issued and becomes a winding-up order, the chances of saving the company are slim. Once you become aware of your company’s insolvent position or you fall behind on your payments to HMRC, you should act immediately to prevent the problems from worsening. Depending on your circumstances, there may be several options available.
If you find yourself behind on your payments or cannot afford them, you should speak to HMRC immediately. They may be able to create an informal arrangement.
If HMRC are unwilling to renegotiate your payment terms, we can speak to them and arrange an informal solution that will allow you to repay your debts in affordable instalments.
- An informal Time to Pay Arrangement
Time to Pay Arrangements (TTP) are informal payment arrangements for sole traders and companies unable to repay corporation tax, Pay As You Earn, National Insurance or Value Added Tax. TTPs tend to last between six months and a year and demonstrates to HMRC you’re willing to repay what you owe.
We have an established relationship with HMRC, putting us in an ideal position to negotiate an affordable arrangement best suited for your circumstances.
More on Time to Pay Arrangements
Sometimes an informal arrangement may not be suitable for your circumstances, and a more formal solution may be required.
- Arrange a monthly repayment plan
If your debts are to multiple parties, you could apply for a Company Voluntary Arrangement (CVA). These are formal repayment arrangements, wherein you repay a portion of your company’s unsecured debt in monthly instalments tailored to what you can afford. The arrangements usually last five years and can include HMRC debt if approved by your creditors.
More on Company Voluntary Arrangements - Restructuring options
Sometimes, a company’s debts may be too severe to warrant simply repaying them. If your company’s debts risk its future, you can put the company into administration. Doing so involves a licensed insolvency practitioner taking control of the company and making the necessary structural changes to remove the unprofitable elements in preparation to sell it.
More on administration - Close the company and start again
If your company’s debts are of such a level that recovery isn’t feasible, closing the company may be the better option. In which case, you can put the company into a Creditors Voluntary Liquidation (CVL). Doing so will close the company in an orderly manner and write off any remaining debt. Once the insolvent company is closed, directors may choose to either walk away from the business, or if they have acted lawfully, they can start afresh in a new limited company.
More on Creditors Voluntary Liquidation
In summary
HMRC will not hesitate to issue a winding-up petition (WUP) when they have debts owed. Without swift action from directors, a WUP becomes a winding-up order, leading 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 courts pass the WUP, and you should act immediately for the best chance of saving the company. After a WUP is passed, it is too late to take any action, and the company will be wound-up.
FAQs
If you believe the petition is unfair and would like to dispute it, you should act as soon as possible. After the petition is advertised in the London Gazette, the company bank accounts will freeze, making it harder to stop the petition.
In some cases, it might be possible to stop the advertisement from being published if the claim is disputed. Disputes can be made through formal negotiations with HMRC or by getting an advertisement restraining injunction. If the petition has been published, the company may be able to call for a hearing adjournment; however, the company needs to give legitimate reasons for doing so.
How to stop a winding-up petition
As a director, you must ensure all your actions are recorded. The company’s assets should be listed, and it’s imperative they’re not disposed of. Ensure documents like bank statements, company accounts, and management records are protected and available to the Official Receiver or liquidator when required. Directors are required to respond to information requests either by the liquidator or by the Official Receiver. Not doing so is a criminal offence. The sooner you take professional advice from us, the better the outcome is likely to be.
View all winding-up petition FAQs
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