A winding up petition starts a formal court process to put a company into liquidation on the basis that it is unable to pay its debts as they fall due. Once issued, and particularly if advertised in The Gazette, a winding up petition can have immediate and severe commercial consequences. Banks may freeze accounts, suppliers may withdraw credit and a company’s reputation can suffer significant and lasting damage. Acting swiftly and decisively is therefore critical. This case study highlights how BPE successfully protected a well-known UK business from the consequences of an unjustified winding up petition brought by HM Revenue and Customs (HMRC).
The Background
The Commercial Litigation team at BPE, led by partner Peter Knibbs, acted for a large and well-established UK company, which had discovered that HMRC had presented a winding-up petition against it. The petition related to an alleged substantial unpaid tax liability, which the company said it had already paid.
Given the serious risk posed if the petition was advertised in the London Gazette, BPE took immediate action on behalf of the company to protect the company’s position.
The team urgently drafted and sent a letter to HMRC seeking an undertaking that the petition would not be advertised, and that the petition would be withdrawn, as the alleged liability had been paid in full before the petition was presented.
HMRC failed to confirm when the petition would be withdrawn, and the company’s bank refused to unfreeze its bank account until the petition was either withdrawn or dismissed.
BPE gave HMRC a final chance to urgently withdraw the petition, or consent to the petition being dismissed, otherwise an urgent application to the court to dismiss the petition would be made.
Again, HMRC failed to reply, despite the urgency of the situation, and so BPE prepared and issued an urgent application to the Court seeking the immediate dismissal of the petition.
The Court proceedings
BPE secured an emergency hearing before a High Court Judge within 24 hours of the application being lodged with court. Following submissions, the Court granted the company’s application and dismissed HMRC’s winding up petition agreeing there was no petitioned debt. The company’s bank then immediately unfroze the bank account, saving the company’s business. This was a great victory for BPE’s client.
The Court went further, and at a later hearing awarded the client a substantial costs order against HMRC. In its judgment, the Court stated that HMRC should never have issued the winding up petition and was highly critical of HMRC’s conduct throughout the proceedings.
Key takeaways for businesses
This case demonstrates that companies do not have to accept unreasonable or oppressive conduct by HMRC in relation to disputed tax liabilities. Where a winding up petition is improperly used as a debt recovery tool, or when issued in error, the Courts are willing to intervene robustly and, where appropriate, to restrain HMRC from advertising the petition.
The outcome also underlines the importance of taking a firm and well-advised stance at an early stage. With effective case management and a clear litigation strategy, businesses can not only achieve a successful outcome but may also recover a significant proportion of their professional costs. Where HMRC’s conduct is unreasonable, a carefully prepared costs application, supported by a clear and detailed schedule, can materially reduce the overall financial impact of litigation.
How BPE can help
BPE’s Commercial Litigation team regularly advises companies across Cheltenham, Gloucestershire, the South West and nationally on statutory demands, winding up petitions and insolvency-related disputes, including matters involving HMRC. If you are facing the threat of a winding up petition, or require urgent advice on protecting your business, please contact a member of the team by clicking here to discuss how we can assist.
