What is the process of winding up a company in Scotland?

Winding up a company in Scotland: What is the Process and Procedure?

When a company is wound up it means it permanently closes down, and creditors repaid as far as monies allow. The winding up process in Scotland is set out in the Insolvency Act, 1986, Sections 122-124, and involves a winding up petition that is filed at court.

The winding up procedure in Scotland differs a little from that in England, and less time is available for company directors to take action to avert closure. Essentially, it’s a very serious situation if you’re a director in Scotland and a creditor lodges a winding up petition against the company.

Various parties can petition for a company to be wound up, but it’s typically one or more creditors (often HMRC) that take this type of action after several unsuccessful attempts to recover their debt.

What are the criteria for winding up a Scottish company?

If the company cannot pay its debts and the following conditions apply, a winding up petition may be sought:

• The company owes a creditor £750 or more and the company has failed to pay a 21-day statutory demand
• The company has received a charge for payment but has failed to pay within the 14-day time limit
• The court is satisfied that the company is unable to pay its debts as they fall due, or that the value of the company’s liabilities (including contingent liabilities) exceeds the value of its assets

If the company has paid up share capital of £120,000 or less, the winding up petition is presented at the Sheriff Court local to the company’s registered address. Winding up petitions against companies with paid up share capital exceeding £120,000 are presented at the Court of Session in Edinburgh.

What happens when a winding up petition has been filed in Scotland?

Once the court is satisfied that the company is insolvent, a First Order to serve and advertise the petition is given. This means the petition is served on the company, typically by recorded delivery to the registered address, or in-person by sheriff officers.

Crucially, the petition is also advertised at this point, which gives notice to other creditors and the general public of the company’s situation. This is a key point in the process of winding up companies in Scotland, and creates significant difficulty for the company.

Being advertised straight away typically means the company’s bank becomes aware of the insolvency, and the bank accounts are frozen. The winding up petition is advertised in the local paper and the Edinburgh Gazette, and a notice is also placed on the court notice board.

Can a company defend a winding up petition in Scotland?

Companies have eight days to lodge ‘answers’ with regard to the petition. If answers are lodged the court will call a hearing to determine whether a winding up order should be granted.

The rapid process in Scotland can sometimes lead to malicious attempts to close companies down by creditors. If you believe a creditor may do this you can lodge a ‘caveat’ before a petition is made with the court, which gives you some notice of their intention and more time to take pre-emptive action.

How do you appoint a liquidator?

If no answers are lodged within the given timescale an interim liquidator, who must be a licensed insolvency practitioner (IP), is appointed. The IP has to contact the company’s creditors within 28 days of appointment to establish their choice of liquidator, although creditors can nominate to continue with the interim liquidator.

In some limited circumstances the court may deem it necessary to appoint a provisional liquidator to safeguard a company’s assets – if they believe the assets are at risk of being sold or otherwise disposed of, for example.

Seeking professional support to challenge a winding up petition in Scotland

Scotland Debt Solutions are insolvency specialists and can help you challenge a winding up petition against your company if appropriate. We’ll also assess your situation and potential for business rescue, and if possible, recommend steps to protect the company from liquidation.

Please get in touch with our partner-led team to arrange a free, same-day consultation. We operate offices around Scotland and can provide the reliable independent advice you need in this situation.