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Winding-up petition:
can the company still borrow?
The short answer is: almost certainly not. Once a winding-up petition is advertised in the Gazette, the company's bank accounts typically freeze and any dispositions of assets can be voided by the court. This guide explains the legal position — and what to do instead.
The legal position on borrowing during a petition
Under s.127 of the Insolvency Act 1986, any disposition of property made after a winding-up petition is presented is void unless a court validates it. This means: if a company borrows money after a petition is presented and is subsequently wound up, the court can declare the transaction void — the lender loses the money advanced.
No responsible business lender will advance money to a company in this position. Banks freeze accounts when a petition is advertised in the Gazette. The company cannot easily access new credit, cannot operate its bank account freely, and is under imminent threat of compulsory liquidation.
The answer to "can we borrow to fix this?" is: the time for that was before the petition was filed. The answer now is: get legal advice.
What to do when a petition has been filed
This is a legal insolvency situation. The options are:
- Pay the petition debt. If the debt is valid and the company can pay it — using existing resources, a director's loan, or a third-party payment made before the petition was advertised — the creditor can withdraw the petition and the company continues. This is the fastest resolution.
- Negotiate with the petitioner. Creditors (including HMRC) often prefer payment to winding up. A viable payment plan agreed before the court hearing can lead to the petition being withdrawn. Time to Pay arrangements with HMRC can be agreed even at this late stage.
- Apply for administration. An administration moratorium halts all creditor action, including the petition. It gives the company breathing room to restructure. This requires an insolvency practitioner and court appointment.
- Apply for a validation order. If the company needs to make specific payments — payroll, essential supplier — a court validation order can authorise specific transactions during the petition period.
All of these require immediate legal advice from a licensed insolvency practitioner (IP) or insolvency solicitor. Acting within hours of a petition being filed — not days — is critical.
How to respond to a winding-up petition
- Identify which stage you are at. Statutory demand (21-day warning, no petition yet) → petition filed (formal action, may not be public) → petition advertised in Gazette (bank accounts freeze, s.127 applies). Each stage has different options available.
- At the statutory demand stage, explore all payment options urgently. This is the window in which prompt action — paying the debt, agreeing a payment plan, challenging the demand if disputed — can prevent the petition. A Time to Pay arrangement with HMRC should be requested immediately if the debt is an HMRC one. Act within 21 days.
- At the petition stage, get insolvency legal advice immediately. Contact a licensed insolvency practitioner or insolvency solicitor within hours. Options include paying the debt (petition withdrawal), negotiating, entering administration, or applying for a validation order. A business lender is not the right contact at this stage.
- For a healthy company, plan proactively before any demand arrives. Credicorp's working capital facilities are for trading companies that need to bridge a short-term cash flow gap — not to resolve tax arrears or respond to creditor action. If the company is financially healthy but has upcoming cash flow pressure, the time to arrange a facility is now, not when a statutory demand arrives. Apply at credicorp.co.uk.
Winding-up petition questions
What is a winding-up petition?
A winding-up petition is a formal application to court by a creditor asking for a company to be wound up (placed into compulsory liquidation) because it cannot pay its debts. The most common creditor to file a winding-up petition is HMRC, for unpaid tax. Once a petition is filed, it is advertised in the London Gazette and heard at court. If the court makes a winding-up order, an official receiver takes control of the company and the company ceases to operate as a going concern.
Can a company with an outstanding winding-up petition borrow money?
In practice, no. Once a winding-up petition has been advertised in the London Gazette, the company's bank accounts are typically frozen by the bank. Any dispositions of company assets made after the petition was presented (even before the winding-up order) can be declared void by the court under s.127 of the Insolvency Act 1986 — meaning the lender who advanced money after the petition was presented could lose it. No responsible lender will advance money to a company in this position. The priority is to deal with the petition, not to borrow more.
What happens to the company's bank account when a petition is advertised?
When a bank sees that a winding-up petition has been advertised against a company (banks typically monitor the Gazette), it will usually freeze the company's bank account. This prevents any money moving in or out without a court order. This can halt the company's operations entirely — no payments out to suppliers or staff, no receipts from customers being accessible. It makes new borrowing effectively impossible to implement even if a lender were willing.
What should the company do if it has received a winding-up petition?
Act immediately. Options are: (1) Pay the petition debt in full — this is the fastest resolution; the creditor can then withdraw the petition; (2) Negotiate with the creditor to agree a payment plan and have them withdraw the petition in exchange; (3) Apply to court for a validation order to allow specific transactions to continue while the petition is live; (4) Apply for administration — which provides a moratorium on creditor action and gives breathing room to restructure. All of these require immediate legal advice from a licensed insolvency practitioner (IP).
Can a company borrow to pay off the debt that triggered the winding-up petition?
Only if it acts very quickly — before the petition is advertised in the Gazette. Once the petition is advertised, bank accounts freeze and lender exposure becomes void under s.127. If a company receives a statutory demand or is threatened with a petition but the petition has not yet been filed, that is the window in which finance to pay the debt might be possible. Once advertised, the time for borrowing has passed and the focus must shift to legal options. This is why early action on overdue tax or creditor debt is critical.
Related guides
For what happens when a company misses a repayment (without an active insolvency process), read what happens if you miss a repayment. For the cash flow gap that sometimes leads to insolvency pressure, read the cash-flow gap, explained. For a guide to short-term working capital to prevent cash flow distress, read how to choose the right business finance. All the guides are on the Learn hub.
Prevention is the only option. Plan before the pressure arrives.
Credicorp is for healthy trading companies bridging a timing gap — not for insolvency resolution. Apply before the crisis.