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Disputing a winding up petition: defend it, resolve it, and keep paying wages

Yes, a company can dispute a winding up petition. The court does not let a petition be used to decide a substantial dispute raised in good faith. If the debt is owed, the petition can instead be resolved by paying or agreeing terms, so it is withdrawn or dismissed. Disputing the debt does not by itself unfreeze the bank account. A validation order deals with the payments while the dispute is dealt with. I am Femi Ogunshakin, an insolvency solicitor. Your first 30-minute consultation is free.

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Can you dispute the debt in a winding up petition?

Yes, if the dispute is genuine and substantial. The court does not allow a winding up petition to be used to decide a substantial dispute raised on genuine grounds. The reason is that a petition, and its advert, puts pressure on the company to pay rather than to litigate. A dispute is not genuine if the company is simply holding back money the contract does not let it hold back.

What counts as a genuine dispute

The court looks at the evidence, not at how strongly the company feels about the debt. In one reported case the company's application failed because the evidence did not show a substantial dispute. In that case the judge also asked whether a quantified cross-claim exceeded the undisputed part of the debt.

So the question is practical. What is the dispute, what documents show it, and how much of the debt does it cover? If part of the debt is clearly owed, that part still counts against the company.

What a dispute does not do

Disputing the debt does not stop the clock. The petition stays pending until the court deals with it, and section 127 applies from the day it was presented. Any payment the company makes in the meantime is void if a winding up order follows, unless the court orders otherwise.

That is why a company that disputes the debt may still need a validation order. The dispute goes to the court on its merits. The order keeps wages and suppliers paid in the meantime.

Withdrawn, dismissed or adjourned: how a winding up petition ends

The company cannot withdraw the petition itself. It can settle so the petitioner asks to withdraw, or it can oppose the petition and ask the court to dismiss it.

Withdrawn

Before the advert, the petitioner can ask the court for permission to withdraw. The court can allow it only if the petition is not advertised, no notices supporting or opposing it have been received, and the company consents.

Dismissed

At the hearing the court can dismiss the petition. It may do so where the debt is genuinely disputed on substantial grounds. It may also do so where the petitioner has not given notice of the petition as the rules require.

Adjourned

The court can adjourn the hearing, with or without conditions. An adjournment gives time, for example to complete a settlement. It does not end the petition, and the court can still make a winding up order at the next hearing.

Paying only the petitioner does not always end the matter. If the petitioner consents to withdraw or to dismissal, the court can substitute another creditor as petitioner. A payment to the petitioner after presentation is itself a payment made after the petition, so take advice before you pay.

How to defend or oppose a winding up petition, before and after the advert

The routes depend on whether the petition has been advertised. Before the advert the aim is to stop it appearing. After the advert the aim is to oppose the petition at the hearing while keeping the company paid.

Before the advert: served but not yet in the Gazette

The notice cannot appear until 7 clear business days after service, and must appear at least 7 business days before the hearing. HMRC usually waits until the last permitted date. Other petitioners sometimes advertise as soon as they can.

  • If the debt is genuinely disputed, the company can apply for an injunction to restrain the advert. The application goes to the court where the petition is pending.
  • If the debt is owed, settle or agree terms so the petitioner applies to withdraw before the advert.
  • Either way, consider a validation order now. The company can apply as soon as the petition is presented, so the order can be in place if the advert goes ahead.

Read more on stopping the advertisement, including the business-day countdown.

If you have been served today, get in touch today. The window is measured in business days.

After the advert: account frozen, hearing ahead

Once the petition is advertised, banks usually freeze the account on the day of the notice or within about 48 hours. Withdrawal on a without-notice application is no longer available. Other creditors can give notice to support the petition by 4pm on the business day before the hearing.

  • To oppose the petition, the company files a witness statement in opposition with the court and delivers a copy to the petitioner. The deadline is 5 business days before the hearing.
  • At the hearing the court can dismiss the petition, adjourn it, or make a winding up order.
  • To keep trading until then, apply for a validation order covering wages, rent and suppliers. The order gives the bank what it needs to release the account for those payments.

If the account is already frozen, read company bank account frozen for what the order covers.

If payroll is days away, say so when you call. I will tell you straight away whether the timing works.

A bank card frozen inside a block of ice

Does disputing the petition unfreeze the bank account?

No. The bank freezes the account because of section 127, and that rule applies while the petition is pending, whether or not the debt is disputed. Filing evidence against the petition, or applying for an injunction, does not on its own give the bank cover to release the account. A validation order does. It is the court's order that named payments are not void if a winding up order is later made.

Running the dispute and the order side by side

The two applications do different jobs. The dispute asks the court not to wind the company up on this debt. The validation order asks the court to allow payments out of the bank account while the petition is dealt with.

The evidence for the order includes whether the petition debt is admitted or disputed and why. It also includes a cash flow forecast and a profit and loss projection for the period of the order. The petitioner must normally be given notice of the application. Where HMRC is the petitioner, it rarely objects and usually leaves the judge to decide on the merits.

What the order will not do

The court needs credible evidence that the company is solvent, or that the payments will not prejudice unsecured creditors as a class. Routine trading payments such as wages, rent and suppliers are regularly allowed. Payments to directors or connected companies rarely are.

A validation order does not decide the petition, settle or dispute the debt, or stop the hearing. If urgent payments such as wages cannot wait for the full evidence, the court may grant limited relief for a short period.

See how a winding up petition works, or go back to the validation order home page.

How quickly do you need to act to oppose a winding up petition?

The advert and the hearing are both fixed by the rules. Count in business days from the day after service.

Empty boardroom table set with a row of blank documents
  1. Petition served The court fixes the hearing date and seals the petition, and the petitioner serves it on the company
  2. Advert window The notice can appear once 7 clear business days have passed since service. This is the time to restrain it or settle
  3. Freeze Banks usually freeze the account on the day of the notice or within about 48 hours. A validation order deals with the payments
  4. Evidence in opposition A witness statement opposing the petition is filed no later than 5 business days before the hearing
  5. Hearing The court can dismiss the petition, adjourn it with or without conditions, or make a winding up order

What will a winding up petition cost the company?

Most pages answer this from the creditor's side. For the company there are four parts: the petition debt, the petitioner's costs, your own legal costs, and any validation order.

The debt and the petitioner's costs

If the debt is owed, settling means paying it. The court's general rule on costs is that the unsuccessful party pays the successful party's costs, though the court can order otherwise.

If the petition is dismissed because the debt was genuinely disputed, the same general rule applies in the company's favour, subject to the court's discretion.

Your own costs

The first 30-minute consultation is free. The fixed fee for a validation order application is £10,000 to £15,000 plus VAT, depending on the size of the petition debt. It includes the court fee. See the full fee breakdown.

Disputing a winding up petition: questions

On what grounds can a company challenge a winding up petition?

The main ground is that the debt is genuinely disputed on substantial grounds, which the court will not decide on a petition. A quantified cross-claim that exceeds the undisputed part of the debt is weighed in the same way. The court may also dismiss a petition where notice of it was not given as the rules require.

What if the company has a counterclaim against the creditor?

The court asks whether the cross-claim is quantified and whether it exceeds the part of the debt that is not disputed. A vague or unquantified counterclaim is unlikely to carry the application.

Can procedural defects get a winding up petition dismissed?

Sometimes. The court may dismiss the petition if the petitioner has not given notice of it in accordance with the rules. The rules fix when the notice can appear and what it must say.

Can a winding up petition be withdrawn after it has been advertised?

Not on the without-notice route. That needs the petition to be unadvertised, no notices supporting or opposing it, and the company's consent. After the advert the petition goes to the hearing, where the court can dismiss or adjourn it.

What is the difference between withdrawal and dismissal of a petition?

Withdrawal is the petitioner asking the court for permission to drop the petition, which is only possible before the advert. Dismissal is the court's decision at the hearing to end the petition. In both cases the court can substitute another creditor as petitioner if one has stepped in.

Does an adjournment stop a winding up petition?

No. The court can adjourn the hearing with or without conditions, but the petition remains pending. If the debt is left unpaid, the court can still make a winding up order at the adjourned hearing.

Does disputing the petition unfreeze the bank account?

No. Section 127 applies while the petition is pending, whether or not the debt is disputed, and the bank freezes the account because of that rule. A validation order is the court's permission for named payments, and it is what gives the bank cover to release the account for them.

What if we dispute the amount HMRC says we owe?

The same rule applies: the court does not let a petition decide a substantial dispute raised in good faith. Bring the assessments and your correspondence with HMRC to the consultation. If a validation order is needed meanwhile, HMRC rarely objects and usually stays neutral. See HMRC winding up petitions for how HMRC runs them.

What is a malicious winding up petition?

The phrase is not a legal term. The concern the court recognises is that a petition puts pressure on the company to pay rather than to litigate. For that reason the court does not allow a petition to be used to decide a substantial dispute raised in good faith.

Who pays the costs if the petition is dismissed or withdrawn?

The court has a discretion. The general rule is that the unsuccessful party pays the successful party's costs, but the court can order otherwise.

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First consultation

Free

A free 30-minute consultation with me to explore your options and protect your business.

What the consultation covers

  • Where the petition is in the process and how many business days you have
  • Whether the debt is genuinely disputed, and which routes apply to your case and who should run them
  • Whether a validation order would help, and whether an application is likely to succeed
  • Whether an adjournment can be sought while you consider how to settle the debt
  • Your other options: a Time to Pay arrangement with HMRC, raising finance to settle the petition debt, or placing the company into voluntary liquidation
  • What happens next if you decide to instruct me

The fixed fee for a validation order application is £10,000 to £15,000 plus VAT, depending on the size of the petition debt. See the full fee breakdown.

Femi Ogunshakin, insolvency solicitor

Who you will deal with

Femi O. Ogunshakin

Solicitor, Tax Adviser and Former HMRC Inspector

Validation order applications are a large part of my practice. Most of the petitions I deal with are brought by HMRC, and my time as an HMRC inspector means I know how the petitioning side builds and runs these cases.

You will deal with me directly rather than with an introducer or a case handler. The work is carried out through Nexa Law, where I practise. The first 30 minutes are free.

Need help with a winding up petition?

If your company has received a winding up petition, it is important to act quickly. Call or email me to discuss how to apply for a validation order from the insolvency courts. I offer a free 30-minute consultation to help you explore your options and protect your business.

07867 795 439

Email femi@loftusstowe.com
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