HMRC’s aggressive use of winding-up petitions to recover unpaid tax debts: How can you protect your company from insolvency?

New government data indicates that HMRC‘s Enforcement Office have recently been far more proactive in seeking the winding-up of companies that owe the Revenue unpaid tax. The Commissioners’ litigious and aggressive approach has forced many businesses to liquidate in 2019 than at any point over the past four years. In 2018, 4,073 winding up petitions were issued by the HMRC which has risen in 2019 to 4,308 petitions, the highest figure recorded since 2015.

Winding up petitions are issued by HMRC to pursue any outstanding tax payments including corporation tax, PAYE and VAT from businesses, which results in the closure of businesses and liquidating any assets held.

A presentation of a winding up petition can be extremely serious and can signal the beginning of the end for a company. If HMRC have issued a winding-up petition or served a statutory demand upon you or your company it is imperative to seek legal advice as soon as possible, as you only have a short window of time in order to successfully set aside a statutory demand or challenge a winding-up petition. Our team of Insolvency expert lawyers have years of experience and can offer any solutions and advice to any related problem or question that you may have.

How are winding up petitions issued?

A winding up petition can be issued by any creditor who is owed at least £750 and are most often deployed by Her Majesty’s Revenue & Customs (HMRC). Ordinarily, HMRC will first serve a statutory demand. You must act quickly (usually 18 days) when you receive a statutory demand if you hope to avoid the creditor bankrupting you or applying for a winding up petition.  In the case of Her Majesty’s Revenue & Customs (“HMRC”), it is inevitable that unless action is taken the demand will eventually lead to the presentation of a winding up or bankruptcy petition.

Why are HMRC issuing more winding up petitions than ever before?

HMRC have recently demonstrated a far more aggressive and tough approach to debt collection against companies that owe tax. It is well established case law that a winding up petition or statutory demand should not be utilised as a debt recovery tool to place the pressure of insolvency on a debtor to pay a tax debt. In circumstances where a company disputes the debt owed, it is important to present this information and the reasons for dispute as soon as possible. Indeed, HMRC state the following:

“We only initiate winding-up action as a last resort, where we believe this is the best way to protect both the interests of other taxpayers and creditors.”

HMRC Spokesman

Therefore, according to HMRC, the increase in last resort debt recovery action is some sort of statistical anomaly. This cannot be the case. HMRC have taken a far more proactive debt recovery approach. If you are a company director, the chances are that you will not be well versed in the intricacies of insolvency law. There is a natural inequality of arms in any dispute with HMRC and the increased use of winding up petitions only serves to demonstrate the increasingly aggressive approach HMRC are taking in terms of debt recovery.

Company directors are advised to protect their company’s assets and seek legal advice as soon as possible. We regularly dispute both the quantum of tax owed in consultation with our HMRC tax disputes team and also any statutory demand or winding up petition.

Warning to company directors: From April 2020 HMRC will increase the number of winding up petitions issued

It is inevitable that HMRC will increase the number of winding up petitions issued from April 2020. This is because from that date, in the case of insolvent liquidations, HMRC will become a secondary preferential creditor (whereas at present only employees are the preferential creditors).  HMRC being secondary preferential creditors will mean that they are only preferred creditors in relation to certain types of taxes.

How can my company oppose a winding up petition from HMRC?

Where the grounds to challenge the petition exist it would be sensible to oppose the winding up petition.  A winding up petition may be challenged by a company on the following grounds:

  1. The debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the company.
  2. The company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
  3. In certain other limited circumstances (for example such as Jurisdiction, Company likely to become insolvent, Technical or procedural error or Delay).

The procedure to oppose a winding up petition is to file a witness statement in opposition in court not less than five business days before the date of the hearing of the petition (rule 4.18(1), Insolvency Rules). A copy of the evidence must also be sent to the petitioning creditor as soon as reasonably practicable (rule 4.18(2), Insolvency Rules).

The company is entitled to appear at the hearing of the petition and to oppose the making of a winding up order. It is usual for a company to instruct solicitors and/or counsel to appear on its behalf at the hearing.

If the company chooses not to instruct legal representatives, any director is entitled to appear at the hearing on the company’s behalf, but other agents (such as the company’s accountant) cannot.

Where a petition is opposed by the company on grounds which require the consideration of evidence (for example, where the company disputes the petition debt) the practice of the Registrars of the Companies Court at the Royal Courts of Justice is to adjourn the hearing to allow for the issue to be argued before the Registrar in Chambers.

How we can help directors faced with a winding-up petition from HMRC

As a leading law firm you can be assured that your matter is in the safe hands. Our success rate is a result of the dedication of our solicitors and advocates whom will diligently review your matter so it has the best possible chance of success from the outset of when it matters the most.

We have a strict procedure in place to ensure every matter undergoes a thorough initial assessment. Typically we do the following:

  • Assess the risks/merits of a petition
  • Gather all relevant documents needed
  • Complete all paperwork
  • Negotiate and correspond with your opponent
  • Manage the entire petition process
  • Go on the record and represent you at the Companies Court

Our team of Winding-Up Petition solicitors and barristers have years of experience and can offer solutions to any related problem or question that you may have.

Unlike many other specialist insolvency law firms, members of our team are experienced litigators with professional negligence experience and in particular when it comes to claims for negligent insolvency advice which can be from either an insolvency practitioner, solicitor or barrister.

Specialist City of London Winding-up Petition Lawyers

We provide a no cost initial case review to establish whether or not we can help you. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.

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