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Winding up a Company to Collect a Debt

Collecting a debt by winding up a company

What are winding up proceedings?

In certain circumstances, where it looks like a company which owes you money cannot actually afford to pay up, you can consider initiating winding up proceedings. If successfully followed through, this can eventually result in the company being put into liquidation. If their remaining assets are valuable enough, you may then receive payment on the outstanding debt as a creditor.

Is it worth initiating winding up proceedings?

In general, initiating winding up proceedings against a client which owes you money should be seen as a last resort. Although the threat of a winding up petition can be extremely effective in the right circumstances and may well persuade your client to settle their debt, it should not be attempted unless you can prove that they are essentially insolvent. If you cannot prove this, you may actually be fined by the court, especially if you are perceived to be using this as a debt recovery tactic where no evidence of insolvency exists.

When should I initiate winding up proceedings?

If you are owed more than £750 by a client, you can issue them with a formal request to pay up known as a statutory demand. If they do not respond to this within 21 days - or they agree to payment but subsequently break that promise - this will provide sufficient evidence to allow you to initiate winding up proceedings. If you previously took the company to court for non-payment and won, but you were unable to enforce the judgment, this will also give you grounds to apply for their business to be wound up. Finally, if you are confident of being able to prove to the court that your client is unable to pay its debts - particularly if the amount they owe you is undisputed - you can go ahead and initiate winding up proceedings. But bear in mind that, if the court disagrees with your analysis, you can be subject to a heavy fine.

How do I initiate winding up proceedings?

You will need to deliver the winding-up petition to your client’s registered address. This can be done using registered post or by paying a process serving company. A “certificate of personal service” will be required to prove that the petition was effectively served. At least seven working days before the hearing, you should place an advert in the London Gazette saying the petition has been served and you will need to send a copy of the advertisement and a certificate of compliance to the court at least 5 working days before the hearing takes place. You should also prepare a list of persons appearing at the hearing for the court.

We recommend that if you do wish to initiate winding up a company, you consider the above carefully and take legal advice about whether and how to proceed.

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