Set Aside HMRC Winding-Up Petition

The presentation of a winding up petition is the first stage of compulsory liquidation. It means that the petitioner (creditor) is attempting to have the company compulsorily shut down.  If a winding up petition is granted by the Court it will ordinarily signal the beginning of the end for the company.

If HMRC are the petitioning creditor, the Commissioners’ official position is that issuing a winding up petition is seen as a last resort, and would prefer to give directors who are making every effort to pay their tax liability Time To Pay (TTP). If a Time to Pay arrangement cannot be reached, HMRC would then ordinarily seek to use its powers of distraint to take control of goods. In most cases, only if these attempts are unsuccessful will HMRC seek to close a company down.

What if you cannot pay HMRC due to coronavirus?

Because of coronavirus you may be able to delay (defer) some tax payments without paying a penalty. You can:

Will I be able to challenge a Statutory demand from HMRC?

If HMRC have served a statutory demand on you have the right to apply to court to set aside the statutory demand (pursuant to rule 10.4 of the Insolvency Rules 2016). However usually in 18 days you must act to avoid HMRC applying to bankrupt you if you owe  £5,000 or more.

When do I make an application to set aside a statutory demand from HMRC?

When a statutory demand has been served within 18 days an application to set aside the demand must be made from the date the statutory demand was served. This is important as it essentially shows whether it the demand from HMRC has been served validly.

If I was served a statutory demand from HMRC could it still be set aside outside the time limit?

The advice would always be to adhere to the deadline and apply to have the statutory demand set aside within the 18 day window as far as practicable.

However, the Court may consider an application to set aside a statutory demand outside the time limit (note: this discretion only applies if the creditor has not requested for a winding up petition to be issued yet). It is imperative to seek legal advice as soon as a statutory demand is served upon you otherwise you may not be able to set aside the statutory demand in time.

What if I am liable for the debt for HMRC’s statutory demand?

If you agree that the debt is due, tax debtors in that situation may wish to instruct a solicitor experienced in insolvency to negotiate a settlement plan with the creditor (or their solicitor if they have legal representation).

It is important to try and negotiate a settlement plan within the 21 day statutory demand period, some options to consider are (note: these options do not constitute legal advice):

  • instalment plan;
  • consider refinancing or a bridging loan;
  • offer a voluntary charge against your property to secure the debt;
  • obtain a personal guarantee from a relative or friend;
  • negotiate a reduction in the debt to less than £750 (therefore HMRC will then not be able to issue a winding-up petition); or
  • apply for an individual voluntary arrangement (to agree an arrangement to pay your debt in instalments over a defined time period).

How do I apply to have a statutory demand set aside?

1. Ascertain the reason why the statutory demand should be set aside

The Court can set aside a statutory demand if any of the following reasons apply (pursuant to rule 10.5(5), Insolvency Rules 2016):

  • the tax debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;
  • the tax debt is disputed on grounds which appear to the court to be substantial i.e. you believe that HMRC’s tax assessment is factually wrong;
  • it appears that HMRC holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
  • the court is satisfied, on other grounds, that the demand ought to be set aside.

The Court will also consider other reasons to set aside a statutory demand including: the statutory demand has not been issued in the correct manner, you owe less than £5,000 or you have a legal defence to court action being taken against you.

2. Find the right court

The statutory demand should contain the information about where and how an application can be made to set aside the statutory demand. For example, if the statutory demand is from HMRC and the demand states that the petition will be presented in the High Court, then an application to set aside the statutory demand should be made at the High Court.

3. Complete application form IAA

You can download a word version template Form IAA here. Guidance notes can be found here.

It is important to seek legal advice when completing Form IAA because all relevant information must be included such as the grounds for dismissing the statutory demand, the date you became aware of the statutory demand and copies of the demand and any evidence which you have sought to rely on.

4. Draft a witness statement in support of the application

Depending on the facts of your case, a witness statement can be submitted to the Court in support of the application.

Legal advice should be sought when drafting the witness statement, guidance notes on the Civil Procedure Rules states that a witness statement must:

  1. start with the name of the case and the claim number;
  2. state the full name and address of the witness;
  3. set out the witness’s evidence clearly in numbered paragraphs on numbered pages;
  4. end with this paragraph:  ‘I believe that the facts stated in this witness statement are true.’ and
  5. be signed by the witness and dated.

I have received a winding-up petition from HMRC

A winding up petition from Her Majesty’s Revenue and Customs (HMRC) is just the same as from any other creditor. A large number of winding up petitions are often filed by HMRC as a result of unpaid taxes. HMRC presented 5,302 petitions to wind up companies in 2011-12 compared to 3,367 petitions in 2010-11. When HMRC issues a winding up petition it is normally as a last resort, with no other option but to shut the company down. If the company has secured creditors, it is by no means certain that HMRC (who are unsecured creditors) will recover all (if any) of the monies they are owed.

The debt on a HMRC petition will be for a sum of at least £750, and will usually be in the order of tens to hundreds of thousands of pounds. HMRC will generally give the company notice that the amount is now overdue and should be paid as soon as possible. If the amount is not paid, HMRC will serve a statutory demand and the company will then have 7 days to pay its debts to HMRC.

The monies owed to HMRC could be for the following:

  • VAT returns;
  • Unpaid VAT assessments;
  • PAYE payments;
  • Employer’s National Insurance Contributions; and
  • Unpaid corporation tax.

HMRC Winding-Up Petition Procedure

Winding up petitions can be issued by HMRC if they are owed £750 or more and the debt is undisputed. Winding up petitions are likely to be served in the High Court, namely the Chancery Division (Companies Court) based at the Royal Courts of Justice (Rolls Building) in London.  Once a winding up petition is issued by HMRC, it is then served on the company usually by a process server visiting the company’s registered office address or sometimes by first class post.

How is a HMRC winding-up petition advertised?

Once a winding up petition has been served, the company has seven business days from the day on which the petition is served to deal with the petition before notice of petition is placed in the London Gazette by HMRC. Once the petition has been advertised it is likely to come to the attention of the company’s bank, creditors employees, suppliers and customers.

What is a void disposition?

Under section 127 Insolvency Act 1986, where a petition to wind up a company has been presented to the court, any disposition of the company’s property that occurs after the date of presentation will be void if the company is wound up. As a result, any disposal of company property (such as a cheque paid, or an asset sold or transferred) and any transfer of company shares will be of no effect, unless the court orders otherwise. Freezing of a company’s bank accounts ensures that the company cannot gain access to its capital which will have adverse effect on the company’s ability to continue trading.

How do I unfreeze the company’s assets?  

Where the company’s bank accounts have been frozen, an application for an order validating the disposition of the company’s assets (known as a validation order) should be made. Considering the application is successful, a validation order will unfreeze the company’s accounts and allow the company to continue trading. The court must be satisfied that the proposed disposals will be at a proper value.

Instruct Specialist HMRC Petition Lawyers

If you have received a HMRC winding up petition we are able to provide urgent help, advice or representation. We provide expert legal advice from our team of leading HMRC Petition Solicitors or Barristers. Just call or email us now for a free initial consultation; we are waiting to help.

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 serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and 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.

Please note: If you have been warned about your file being passed to HM Revenue & Customs’ Solicitor’s Office or have been served a statutory demand or petition do not delay in contacting us as your matter can be handled more effectively the sooner you contact us. 

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