However, receiving a winding up petition from HMRC doesn’t necessarily signal the end of your business.
Usually, petitions are preceded by a lengthy period of warnings, reminders and notices of proceedings, and failing to respond could land you in greater trouble.
But this is not always the case
I was recently made aware of a small firm that did not submit any accounts to HMRC for three years and were eventually served notice for a winding up petition.
A director attended the first hearing unrepresented and asked for more time to reach an agreement to repay the outstanding monies.
He was granted three weeks stay of execution and used the time to hire a business rescue firm such as Insolvency and Law who found him a barrister and began devising a restructuring plan.
The barrister successfully sought a six-week extension to allow more time for the rescue plan, which included a Company Voluntary Arrangement, and the petition was eventually dismissed.
Nine times out of 10, the courts will give a debtor more time to deal with a winding up petition if they are actively planning to rescue the business.
Moreover, HMRC are quite receptive to CVAs because they are likely to receive 30 to 40 pence out of every pound that’s owed compared with nothing if the business is wound up.
The CVA should clearly demonstrate the viability of the business; its ability to repay 30 to 40 pence out of every pound; and that if it were to be wound up HMRC would end up with nothing.
HMRC is supposed to work in the interest of taxpayers and allowing the CVA to go ahead is of benefit to the taxpayer and helps to save jobs.
Once a CVA that’s been put forward makes sense, HMRC will usually, although sometimes reluctantly, accept it.
If you fail to make the payments or the CVA fails for any other reason, you are in breach.
When that happens, HMRC hold the ace card and there is only one available course of action: the company will be wound up.
It’s also worth noting that if a CVA fails, an insolvency practitioner is obliged to wind the company up, HMRC don’t have to.
But it’s always best to tackle such issues quickly by contacting a business rescue firm for advice. Call Insolvency and Law on 020 7504 1300.