Winding Up Petition Has Been Served by HMRC? What You Need To Know

If your company has been subject to a winding up petition, it is understandable for you to feel panicked and unsure where to turn.

The most important thing to remember is that you must not bury your head in the sand and ignore the problem.

Although you may enjoy limited liability, there are instances where the collapse of your company can affect you personally, and the longer you avoid the issue the more likely it is that this will happen.

An example of companies that often find themselves with winding up petitions on their doorstep is those that owe money to HMRC.

Having HMRC as a creditor can become extremely stressful as they are abrupt and become aggressive quickly when following up late payments; however, issuing a winding up petition is their last resort.

This is because they prefer to give directors a chance by offering a Time to Pay arrangement, but of course if you ignore correspondence from them you will be unable to agree upon anything other than the terms they have suggested, which will be demanding the full amount upfront.

What is a personal liability notice? Will it affect my home life?

PLNs (Personal Liability Notices) are becoming ever more widely used by HMRC to secure tax payment: they are often used in support of a winding up petition.

Essentially, a PLN makes it possible to breach the corporate protection of a limited company and make directors (or the employee responsible for control over tax) personally liable for their company’s tax debts.

Recently, PLNs have been used in cases where HMRC suspects the company is insolvent, and cannot or will not pay the amount. The Personal Liability Notice can be made on a joint basis, so several individuals could possibly become liable for the tax debt.

What happens when a winding up order is made?

Once the winding up petition has been approved (after 7 days), a court order is made. The Official Receiver will be appointed, and will liquidate the company’s assets to pay HMRC’s (along with any other creditors’) debts.

They will then investigate director’s actions during the time leading up to the liquidation – this period could be anything up to 7 years prior to the administration.

The Official Receiver is tasked with making claims against the company’s director if evidence of misconduct is found, and they could be banned from acting as a company director for up to 15 years.

Key points that you should be aware of during insolvency

Preferential payments

One of the most common sources of misconduct claims made against directors are due to preferential payments. If a specific creditor is paid before another with the intention of making that one creditor better off than the others.

An easy mistake to make is repaying yourself or your family members for loans made to the company before paying debts to HMRC or other creditors. If the preference is proven, typically, the liquidator will ask for the money to be returned, but if this is not possible, more serious sanctions will be made.

Personal guarantees (PGs)

There are likely to have been many times you have been asked as a director to personally guarantee the amount you have promised that the company will pay. Once these have been signed, the creditor is able to pursue you personally if the debt is left unpaid.

Unfortunately, there are a lot of cases in which the directors are unaware of the guarantees, which can easily be hidden away in the terms and conditions. The creditors also often have the power to demand the money you owe to them with immediate effect.

The best thing to do if you are in this situation is not to panic and simply seek out professional help, to ensure that the guarantee is valid, and negotiate a settlement between yourself and the creditor. This option is often preferable for creditors also, as legal action is expensive and takes time.

Overdrawn directors’ loan accounts (DLAs)

These can be a real cause for concern when it comes to liquidation. Where HMRC is involved, they may object to a CVA (Company Voluntary Arrangement), unless the amount owed by the director is repaid.

This is another easy mistake to make (around 80% of insolvency cases involve overdrawn directors’ loan accounts); as soon as dividends are continually taken when the company hasn’t got enough money to pay its taxes, the damage has been done.

Even in cases where the loan has been written off, most Official Receivers would look to reverse this and ask the director to repay the overdraft in the interest of creditors. Remember that historic cases will be investigated after liquidation, so this is not something that can be swept under the carpet.

If the director is unable to repay the loan amount in full, they may have to file as bankrupt personally.

The main tip to take away from this is to seek professional help before a Winding up Petition is served.

Of course, if it is too late for this, you should act immediately.

Impact on the family

Often, the main concern of directors when considering a winding up petition is the potential impact on their home life; the strain of losing the company you have worked so hard on can be traumatic.

The stress of the situation is key, especially when personal liability ensues, and the loss of the family home becomes a huge concern. If the insolvency process takes a long time, this will almost certainly take its toll, and the family unit is very often the first casualty.

Need some help?

Professional help from an insolvency adviser can do little for personal issues, but it can ease the stress that insolvency brings very quickly; the sooner this process is started, the better for all concerned.

Call our insolvency advisers for a free, no-obligation chat on 0800 975 0380 or email [email protected]

We’ll explore all the options available to you and advise you on what you need to do next.