Can I Sell My Company’s Assets After a Winding-Up Petition Has Been Presented?

A winding-up petition changes what a company and its directors can safely do. If you need to sell equipment, stock, property or intellectual property to raise cash, pay a creditor or keep trading, the law imposes strict limits from the moment the petition is presented. Get this wrong and the sale can be unwound, a buyer can lose what they paid for, and directors can face personal exposure.

This guide explains the rules, the role of a validation order, the key case law and the practical steps that protect the company and its directors. It is written by the City of London insolvency team at LEXLAW, who deal with these applications in the High Court on a regular basis.

Short Answer: Yes, But the Sale May Be Void Without Court Approval

A company is not legally frozen once a petition is presented, and nothing in the law stops it selling assets. The difficulty is section 127 of the Insolvency Act 1986. If a winding-up order is later made, any disposition of the company’s property after the petition was presented is void unless the court has ordered otherwise.

A sale made after presentation is therefore provisional. It stands if the petition is dismissed, withdrawn or paid off. If the company is wound up, the sale is void unless it was validated, and the liquidator can recover the asset or its value. That is why the question matters so much for any company facing a petition from HMRC or a trade creditor.

ALWAYS OBTAIN SPECIFIC GUIDANCE & ADVICE

The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Request a legal assessment or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.

What Section 127 Says and When It Bites

Section 127 makes void any disposition of the company’s property, any transfer of shares and any alteration in the status of its members made after the commencement of the winding up, unless the court orders otherwise. Under section 129(2), where a petition leads to a winding-up order, the winding up is treated as starting when the petition was presented, not when the order is made.

The effect is retrospective. There may be several weeks between presentation and the hearing, and every transaction in that window is at risk. This applies whether or not the petition has been advertised in the Gazette and whether or not the buyer knew about it. Our guide to the consequences of a winding-up order explains what follows once the order is made.

What Counts as a Disposition of Company Property?

The term is wide. It covers the sale of land, buildings, vehicles, plant, stock and intellectual property, the assignment of book debts, the transfer of shares and investments, and the grant of security over company assets. It also covers payments out of the company’s bank account, including payments to creditors.

That last point catches many directors out. In Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555, the Court of Appeal confirmed that payments out of a company’s bank account are dispositions, which exposed the bank to repayment. This is why companies often find their accounts frozen once a petition is advertised, a problem addressed in our guide to restraining petition advertisements.

Validation Orders: How to Sell Assets Safely

The solution is a validation order under section 127. It is a court order confirming that a particular sale, or the company’s trading generally, is valid even if a winding-up order follows. It is the standard route for any company that needs to sell an asset or keep operating while the petition is pending. Our pages on validation orders and our practice guide to validation orders set out the process in more detail.

The leading authority is Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711. The central question is whether the disposition is likely to benefit the company’s creditors as a whole, or at least not prejudice them. The court is protecting the principle that a company’s assets are shared rateably between its creditors. A sale at a fair price, to an unconnected buyer, made in good faith and in the ordinary course of business, is the kind of transaction the court tends to validate.

In practice, a strong application is built on evidence. The court will expect an independent valuation showing the price is at or near market value, evidence of marketing or a competitive process where appropriate, a clear commercial reason for the sale and how the proceeds will be used, and confirmation that the buyer is unconnected with the directors or shareholders. The petitioning creditor will usually be notified and may attend. Where HMRC is the petitioner, our HMRC and tax dispute team work alongside the insolvency team. Retrospective validation is possible but uncertain, so the safe course is to apply first.

Risks for Directors and Buyers

A buyer who acquires an asset after presentation may have to return it, or account for its value to the liquidator, even if they paid a fair price and acted in good faith. Any competent buyer should insist on a validation order, or at least on contractual protection if the sale proves vulnerable.

Directors face a different set of risks. A liquidator will scrutinise any sale made after a petition, and several statutory claims may follow. Transactions at an undervalue (section 238) and preferences (section 239) can be challenged if made within the relevant period before insolvency, while transactions defrauding creditors (section 423) carry no fixed time limit. Wrongful trading (section 214) and misfeasance (section 212) can lead to personal contribution orders, and unfit conduct can result in disqualification under the Company Directors Disqualification Act 1986.

Selling assets to a connected party, or to a creditor who then gains an advantage over the others, is particularly dangerous. Overdrawn director’s loan accounts are another area where liquidators look closely. Our guides on risks for directors and post-insolvency claims against directors explain how these claims arise and how the exposure can be reduced.

Alternatives to Selling Assets in a Hurry

A forced sale is often the wrong response to a petition, particularly if it means selling below value. If the debt is disputed on substantial grounds, or the company has a genuine cross-claim, the better course may be opposing the petition, and in some cases the original statutory demand can be set aside. Where the debt is genuine, negotiating payment and seeking an adjournment or time to pay can give the company breathing space, and a settlement allows the petition to be withdrawn. A formal rescue such as a company voluntary arrangement or administration may also be appropriate, and we discuss these routes as part of our insolvency advice.

What to Do Before You Sell: A Practical Approach

If you are considering a sale, the first step is to establish whether a petition has actually been presented, not merely whether it has been advertised, because section 127 runs from presentation. Pause any sale or significant payment until you have taken legal advice. Obtain an independent valuation and keep a written record of the commercial reasons for the sale. Apply for a validation order before completing, with the buyer and the petitioner notified, and keep the proceeds in a separate, traceable account to be used only as the court permits. Throughout, avoid paying connected parties or favouring individual creditors, since a liquidator will review those decisions later.

How LEXLAW Can Help

Our qualified team of solicitors and barristers at Middle Temple advises companies, directors and buyers on exactly these issues: defending winding-up petitions, applying for validation orders, and providing advocacy at petition hearings in the High Court. We also act for creditors in debt recovery and, where a liquidator or former client pursues a claim, our professional negligence team can advise, including on claims involving insolvency practitioners and lawyers. You can read more about our experience and results.

If a petition has been presented and you are thinking of selling assets, speak to us before you sign anything. Complete our case assessment form, contact our team or call +44 20 7183 0529 (Monday to Friday, 9am to 6pm). Our winding-up petition solicitors will tell you where you stand and what can be done.

ALWAYS OBTAIN SPECIFIC GUIDANCE & ADVICE

The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Request a legal assessment or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.