So how is it proved that the company cannot pay its debts?
The court will regard a company as being unable to pay its debts if any of the following occurs:
A creditor who is owed more than £750 serves a 'statutory demand for the money due and it is not paid or secured, or a settlement is not agreed, within 21 days. The completed form must be served on the company at its registered office. The creditor must have proof of service. However, the company can dispute the statutory demand and apply to court for an order restraining the creditor from presenting a winding up petition.
A creditor obtains judgment against the company and execution is unsatisfied; in other words the sheriff or bailiff is unable to seize enough assets to clear the debt.
It is proved to the court that the company cannot pay its debts when they fall due; for example, no payment is made in response to a letter of demand
It is proved to the court that the company's total debts exceed its total assets.
To ensure that all legal requirements are met a solicitors usually issues a petition. The winding up process is not simply a matter of completing a petition and presenting it to the court. A court hearing can result in costs being awarded against either party. For example, costs may be awarded against the creditor if the court believes it has used the winding up procedure inappropriately where the company has good reason for saying it does not owe the money.
Advertising the petition
The creditor must advertise that a petition has been issued no sooner than 7 business days after the petition was served and no later than 7 business days before the winding up hearing.
What happens at the hearing?
The procedure for the hearing is likely to differ depending on the court in which you apply for a winding-up order. The court will look at all the facts and will decide on whether a winding up order is to be granted.
What happens after the winding-up order is made?
Usually, the official receiver (who is both a civil servant employed in The Insolvency Service and an officer of the court) will be appointed liquidator of the company on the making of a winding-up order. The official receiver has a duty: as official receiver to investigate the affairs of the company and to establish the cause of its failure (by obtaining information from the directors of the company and from third parties, such as the company's bankers, accountants and solicitors); as liquidator – to collect and realise all assets and pay all creditors. The official receiver may call a meeting of creditors to appoint an insolvency practitioner as liquidator in his or her place
