What does an HMRC winding up petition mean for my business?

If you receive an HMRC winding up petition, what should you do as a business owner? Lucinda Coleman, Business Recovery partner, explains in our latest blog.

We are seeing increasing assertiveness in HMRC collection of tax.

Yes, they are open to extended payment terms if there is a sensible proposal (a time to pay agreement), but if there is a default the next step is likely to be referral to the winding up department for the issue of a petition to liquidate the company.

What does a HMRC winding up petition mean?

A HMRC winding up petition is the first step in the process of getting a court order to put a company into liquidation. A court hearing will be scheduled to decide the matter, usually six to eight weeks after filing the petition.

The key problem caused by a HMRC winding up petition is that (if the company is ordered into liquidation at the hearing) all disposals of assets by the company after the petition are void, so they can be set aside. This can include payments to suppliers – even if they were unaware of the existence of the petition.

HMRC winding up petitions are initially private. They are served on the debtor company but go no further. However, typically two or three weeks before the hearing, winding up petitions are advertised in the London Gazette.

This causes the other major effect of a petition: the freezing of bank accounts. All banks will freeze accounts as soon as they become aware of a HMRC winding up petition, by advertisement or otherwise.

How long does a HMRC winding up petition take?

The process may take a few weeks and although possible to renegotiate, once a petition is issued things get more difficult.

What happens after a HMRC winding up petition is granted?

Don’t ignore it! If the company can make offers to settle the HMRC debt it is always worth trying to negotiate terms under which HMRC will withdraw the petition.

At the same time, directors need to plan the best way ahead consistent with their duty to creditors in the event that the petition remains.

If the company needs to continue trading, perhaps with a view to a going concern sale, it is possible to apply to court for a validation order so that banks will not freeze accounts (thereby effectively forcing an abrupt stop). This is, however, a costly process.

An alternative may be to use the administration process to achieve a better result for creditors than abrupt closure, either by a controlled wind down or as a mechanism for a going concern sale. The appointment of administrators brings the winding up petition process to an end and therefore removes the problem of void transactions.

We have a team of five licenced insolvency practitioners in Cornwall, Devon, Bristol, Somerset and Dorset who are specialists in negotiating with HMRC and dealing with the complex insolvency issues and processes. We can help you minimise risks and optimise the outcome for creditors and other stakeholders.

If you receive a petition from HMRC (or any other creditor) or are being threatened with one, please contact us suing the form below.

Click for more information on winding up orders.