A customer has a winding-up petition: what happens next and what to do

What happens after a winding-up petition is presented?

In England and Wales, a creditor's winding-up petition follows a set path laid down by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016:

1. The petitioner files the petition at court, and the court fixes the date and place of the hearing.
2. The petition is served on the company.
3. The petition is advertised in The Gazette, at least seven business days after it was served and at least seven business days before the hearing. The notice gives the petitioner's name and address, the date the petition was presented, the hearing venue, and the rule that anyone who wants to appear must give notice first.
4. At the hearing the court can dismiss the petition, adjourn the hearing, make an interim order, or make a winding-up order.
5. If it makes a winding-up order, the Official Receiver becomes the company's liquidator and publishes notice of the order in The Gazette.

The detail that catches suppliers out: when the court makes a winding-up order on a petition, the winding up is treated as having started when the petition was presented, not on the day of the order. Everything below about payments flows from that backdating. If you have not yet confirmed the petition exists, our guide on finding a winding-up petition against a company shows where to look.

Is the company's bank account frozen after a winding-up petition?

Expect it to be. Government guidance for directors says: "Your company's bank account will be frozen when someone files a petition to wind up the company." The court's insolvency practice direction treats payments out of the company's bank account, whether the account is in credit or overdrawn, as dispositions of its property that can be caught by section 127 unless the court approves them, and getting access back means the company applying to the court for a validation order (see below).

For you, a frozen account means a customer under petition may not be able to pay you even if it wants to, and a promise to pay "once the bank sorts it out" really depends on a court order.

If the customer pays me now, can the money be clawed back?

Yes, it can. Section 127 of the Insolvency Act 1986 says that in a winding up by the court, any disposition of the company's property made after the winding up started is void unless the court orders otherwise. Because the winding up is backdated to the moment the petition was presented, a payment you receive after that point (even later the same day) is void if a winding-up order is later made, and the liquidator can ask you to pay it back.

• It covers old invoices and new supply alike. A payment for goods you deliver next week is as much a disposition as a payment of last quarter's invoice, so even cash in advance is at risk if no validation order covers it.
• It only bites if an order is made. If the petition is dismissed or withdrawn, there is no winding up by the court and section 127 does not apply to the payment.
• It does not reach payments made before the petition was presented. Other rules can apply to earlier payments once a company is in liquidation, so if a large payment arrived shortly before the petition, take advice before you rely on it.

The date that counts is the date the petition was presented, which the Gazette notice states. It comes before the advert, because the petition has to be presented and served before it can be advertised.

What is a validation order?

A validation order is the court "otherwise ordering" under section 127: an order that particular payments or other dispositions will not be void if the company is wound up. The court's practice direction says the company can apply after the petition is presented, and that the court needs credible evidence either that the company is solvent and able to pay its debts as they fall due, or that the payments will benefit, or at least not prejudice, the unsecured creditors as a class. Where payments essential to keep trading (wages, for example) are urgent, the court may grant limited relief for a short period on less evidence.

If a customer under petition offers to pay you, ask whether it has a validation order that covers the payment, and ask for a copy. Without one, treat the money as at risk until the petition is dismissed or withdrawn.

Should I keep supplying a customer with a winding-up petition?

Only on terms that protect you, and with the section 127 risk in mind. A petition on its own does not trigger the 2020 rule that stops suppliers ending contracts because of insolvency. Section 233B of the Insolvency Act 1986 applies when a company enters a "relevant insolvency procedure", and for a winding up that means when the company goes into liquidation (a winding-up order) or when a provisional liquidator is appointed, which the court can do at any time after the petition is presented. Until then, what you must supply is governed by your contract.

• Read your contract now. If it lets you terminate because of an event before the insolvency procedure starts (some contracts name a petition), section 233B says that right cannot be used once the procedure has begun. If you intend to rely on it, take advice and act before an order or a provisional liquidator.
• Stop new credit. Ask for payment before delivery where your contract allows it, remembering that the payment itself needs a validation order to be safe.
• Use retention of title. If your terms say ownership stays with you until you are paid, the Sale of Goods Act 1979 lets ownership stay with you after delivery until that condition is met. Identify your goods at the customer's premises now, while they are still there.
• Know what changes after an order. Once the company is in liquidation, or a provisional liquidator is appointed, you cannot make paying old invoices a condition of supplying it, and our administration and liquidation guide covers the rules on stopping supply from that point.

Can I support a creditor's winding-up petition?

Yes. Any creditor can tell the petitioner that it intends to appear at the hearing, either to support the petition or to oppose it. This is called a notice of intention to appear, and rule 7.14 of the Insolvency (England and Wales) Rules 2016 sets out what it must contain:

• your name and address, and a phone number and reference for whoever will deal with it;
• the date the petition was presented, and a statement that the notice relates to that petition;
• the date of the hearing;
• the amount and nature of the debt the company owes you;
• whether you intend to support or oppose the petition;
• if a solicitor or other agent acts for you, their name, postal address, phone number and reference;
• the petitioner's name and postal address.

The notice must be authenticated and dated by you or on your behalf (someone signing for you must give their name, address and authority), and delivered to the petitioner or the petitioner's solicitor at the address in the court records or the Gazette notice. It must reach them no later than 4pm on the business day before the hearing (or before the adjourned hearing, if it has been put back). Miss the deadline and you can appear only with the court's permission. The petitioner then lists every creditor who gave notice, with the amount claimed and whether they support or oppose, for the court.

Supporting the petition does two useful things:

• The court knows you are there. The petitioner must hand the court a list of every creditor who gave notice, with the amount each claims and whether they support or oppose, so if the petitioner has been paid and asks for the petition to be dismissed, the court knows another creditor is still owed. (The quiet route to withdraw, with the company's consent and before the first hearing, is open only while the petition is unadvertised and no notice has been received.)
• It puts you in line to take the petition over, which matters if the company pays off the petitioner (next section).

Opposing is the same notice with the opposite answer. A supplier might oppose if it believes the company can trade through and pay more than a liquidation would. Whichever you choose, the notice says you will appear at the hearing, so for a significant debt speak to a solicitor before you send it.

What happens if the company pays off the petitioner?

Paying the petitioner does not automatically end the case. Under rule 7.17, if the petitioner agrees to withdraw or to let the petition be dismissed, agrees to an adjournment, or fails to turn up in support, the court may substitute as petitioner a creditor who, in its opinion, would have a right to present a petition and wants to pursue it. A supporting creditor at the hearing is the obvious candidate.

The substituted creditor amends the original petition rather than presenting a new one, so the original presentation date normally still counts. If a winding-up order follows, the payment the company made to clear the first petitioner is itself a disposition made after the winding up started, and can be void under section 127 like any other.

How long does a winding-up petition take?

No rule sets a fixed overall timetable. The court fixes the hearing date when the petition is filed, and the rules put at least seven business days between service and the Gazette notice, and at least seven more between the notice and the hearing. From there it depends on the court:

• the court can adjourn the hearing, with or without conditions;
• it can appoint a provisional liquidator at any time after the petition is presented and before an order is made;
• if it makes a winding-up order, the winding up still counts from when the petition was presented.

Throughout that period, however long it runs, the section 127 risk on payments applies, because nobody knows until the end whether an order will be made.

What does it mean if the petition is dismissed or withdrawn?

A dismissal is advertised: unless the court directs otherwise, the petitioner must publish a notice of dismissal, normally in The Gazette, giving the petition and hearing dates. The notice does not say why the petition was dismissed. The rules also let a petitioner withdraw with the court's permission, on an application made at least five business days before the first hearing, but only with the company's consent, and only if the petition has not been advertised and no notice of intention to appear has been received.

Once the petition has gone, section 127 no longer threatens payments you received while it was pending. But think about what it tells you. If the company paid the petitioner, it let a debt reach a court petition before paying it. If it disputed the debt, ask what the dispute was. Either way, ask the customer what happened, keep your own balance low, and keep watching: a company that has had one petition is worth checking again.

What happens if a winding-up order is made?

The Official Receiver becomes liquidator, notice of the order is published in The Gazette, and a copy goes to Companies House. From then on, no action or proceeding can be started or continued against the company without the court's permission, so you cannot sue it for your invoice without that permission. Your unpaid invoices become an unsecured claim in the liquidation: see our guide on what happens to your invoice in administration or liquidation for the proof of debt, retention of title and VAT bad debt relief steps. If the same people start trading again through a new company, our guide on phoenix companies covers what you can do.

This guide describes the law in England and Wales. In Scotland, companies are wound up by the Court of Session or a sheriff court under separate Scottish rules, so the rule numbers here do not apply there, although section 127 itself covers Scotland too. In Northern Ireland, companies are wound up by the High Court under the Insolvency (Northern Ireland) Order 1989 and the Insolvency Rules (Northern Ireland) 1991, so the section and rule numbers here do not apply there either; Article 107 of the Order has the same effect as section 127, and the winding up is likewise treated as starting when the petition was presented (Article 109).

How do I hear about the next step in time?

Almost every decision above turns on dates: when the petition was presented, when the hearing is, whether an order was made. Kestrel Alert emails you when a winding-up petition or winding-up order is published in The Gazette, or a liquidation is filed at Companies House, for a company you watch, with a link to the official record. It reports what has reached the public record; it does not predict what the court will decide.

This guide is general information, not legal advice. Supporting or opposing a petition, and accepting payment while one is pending, can turn on small facts, so for a significant debt speak to a solicitor or insolvency practitioner straight away.