If you are owed unpaid debts, you may be researching how to wind up a company. Before proceeding to this stage, you should ensure your have first issued a statutory demand as winding up a limited company should be a last resort.

The ability to wind up a company will be dependent on whether the company is solvent or insolvent.

What does it mean to wind up a company?

The winding up of a company refers to the legal process of bringing a company to an end. This can happen for various reasons, such as insolvency or a decision by the company’s shareholders. The process is governed by the Insolvency Act 1986 and can be initiated voluntarily by the company or involuntarily by its creditors or the court.

There are different types of winding up proceedings, including:

Voluntary Winding Up:

• Members’ Voluntary liquidation (MVL): This is when the company is solvent, and its members (shareholders) decide to wind it up voluntarily. A liquidator is appointed to oversee the process, and the company’s assets are used to pay off its debts before distributing any remaining funds among the shareholders.
• Creditors’ Voluntary liquidation (CVL): This occurs when the company is insolvent, and the shareholders decide to wind it up voluntarily. A liquidator is appointed to realise the company’s assets and distribute the proceeds to creditors.

Compulsory Winding Up:

• This occurs when the court orders the winding up of a company, typically because it is unable to pay its debts. Creditors, shareholders, or the company itself can petition the court for a compulsory winding up.

The process involves appointing a liquidator (usually a licensed insolvency practitioner) who takes control of the company’s affairs, collects and sells its assets, pays off its debts, and distributes any remaining funds to the stakeholders according to a prescribed order of priority.

It’s important to note that the specifics of the winding-up process may vary depending on the circumstances and the type of winding up involved. Legal advice is often sought to navigate the complexities of the process.

How to wind up a company voluntarily

The process for winding up a company varies depending on its financial standing and the decisions of its stakeholders. If the majority of directors or shareholders decide that the company is solvent and wish to initiate a voluntary winding up, they may opt for either a Members’ Voluntary Liquidation (MVL) or a Creditors’ Voluntary Liquidation (CVL).

In the case of MVL, a meeting of shareholders is held, and a winding-up resolution is passed. Subsequently, a licensed insolvency practitioner is appointed to oversee the process, and the company’s financial affairs are submitted to Companies House.

Before this, the directors sign a declaration of solvency, affirming that the company can pay its debts in full within the next 12 months.

On the other hand, if the company is insolvent and the decision is made to proceed with a CVL, a meeting of creditors is convened, and a licensed insolvency practitioner is appointed.

Creditors are then informed of the decision through a statutory demand, and a winding-up petition may be presented to the court if necessary.

How to wind up a company as a creditor

In situations where the company’s financial troubles are severe, and a voluntary approach is not feasible, creditors or the company itself may apply to the courts for a compulsory winding up. This involves a compulsory liquidation process where a winding-up order is issued by the court.

Throughout the winding-up process, the appointed insolvency practitioner takes control of the company’s assets, which may include closing the company bank account, realising assets, and distributing funds in accordance with the statutory order of priority. The goal is to pay off the company’s debts and, if there are any remaining funds, distribute them to the stakeholders.

As a creditor looking to wind up a company, the process typically involves pursuing a compulsory winding-up through the courts. Here are the general steps for winding up a company as a creditor:

Assessment of Debt:

• Determine that the company owes you a debt and ensure the debt is due and payable. It is essential to have clear evidence of the debt, such as invoices, contracts, or other relevant documentation.

Issue a Statutory Demand:

• Serve a formal written demand for payment known as a statutory demand to the debtor company. This is a legal document that specifies the amount owed, provides a deadline for payment (usually 21 days), and warns of potential winding-up proceedings if the debt is not settled.

Check for Payment or Response:

• Monitor the company’s response to the statutory demand. If the debt is not paid or a satisfactory arrangement is not reached within the specified timeframe, you may proceed with the next steps.

Winding-Up Petition:

• If the debt remains unpaid, you can petition the court for a winding-up order. This involves filing a winding-up petition, which is a formal legal document, at the appropriate court. The petition must be accompanied by a witness statement and other supporting documents.

Serve the Winding-Up Petition:

• Serve the winding-up petition on the company, allowing a minimum of seven business days before the scheduled court hearing. Additionally, the petition must be advertised in the London Gazette, providing public notice of the winding-up proceedings.

Court Hearing:

• Attend the court hearing on the appointed date. If the court is satisfied that the company is unable to pay its debts and the winding-up order is justified, it may issue the order to wind up the company.

Appointment of Official Receiver or Liquidator:

• Once the winding-up order is granted, an official receiver or a licensed insolvency practitioner may be appointed as the liquidator to manage the winding-up process. The liquidator takes control of the company’s assets and works to distribute funds to creditors.

How can Expert Commercial Law assist?

If you have any queries on how to wind up a company or the process of issuing a winding up petition, then our panel of solicitors can assist you.

All of the commercial dispute solicitors on our panel have the experience and expertise required to take on your case. Each solicitor is vetted before being allowed onto our panel, and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our solicitors also help with other commercial claims, such as breach of contract and CCJ removal.

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