Directors often ask: can I pay wages during a winding-up petition? Yes, in some cases, but only within strict limits set by the court. Once a petition is presented, the company's bank account is usually frozen, and any payment made without permission can be reversed and challenged later.
That freeze is the bank protecting itself, not a legal requirement to stop all spending. There are lawful routes to keep paying staff and key suppliers while the petition is pending.
This article looks specifically at the payroll-and-suppliers side of a winding-up petition: what puts these payments at risk, why paying without permission is dangerous, and what a validation order can and cannot cover.
Can I pay wages during a winding-up petition? Why payments are suddenly at risk
Once your bank is told a winding-up petition has been presented — usually because it monitors winding-up petitions advertised in The Gazette or is notified directly — it will typically freeze the company account. This happens automatically, often before you have had a chance to explain the situation.
The freeze exists because of section 127 of the Insolvency Act 1986, which says that any "disposition" of company property made after a winding-up petition is presented is void unless the court validates it. A disposition includes:
- Wages and salaries paid to staff and directors
- Payments to suppliers, landlords and contractors
- HMRC payments such as PAYE and VAT
- Any transfer out of the company's bank accounts
Banks would rather freeze everything than risk being drawn into a dispute over a void payment. For directors, that means payroll can stall at exactly the moment staff are relying on it. For background on the wider petition timeline, see our guide to what happens next after a winding-up petition.
The legal danger of paying without permission
It can be tempting to move money before the bank notices, or to pay staff in cash to keep things running. This carries real risk. Under section 127, any payment made after the petition without the court's approval is void — meaning it can be undone, even after the money has left the account.
If the company is later wound up, a liquidator can ask whoever received the money to repay it. That could mean asking staff or suppliers to hand back wages or invoices they were paid in good faith, which is distressing for everyone involved and can damage relationships that matter to the business.
Directors who authorise payments knowing a petition is pending, without seeking validation, can also face personal scrutiny from a liquidator or the court. This is a genuinely technical area, and it is worth understanding whether the company can keep trading after a winding-up petition before deciding how to handle outgoing payments.
How a validation order can cover payroll
A validation order is a court order that permits specific payments to be made, or already made, despite the petition. It effectively asks the court to bless certain transactions so they are not automatically void under section 127.
Directors, or their solicitor, can apply to court for a validation order that covers ongoing essentials such as:
- Staff wages and salaries
- PAYE and National Insurance due on payroll
- Rent, utilities and other costs needed to keep trading
- Payments to key suppliers whose goods or services are essential to the business
The application needs to show the court why continuing to pay is in the interests of creditors as a whole — for example, that stopping payroll would collapse a business that still has a reasonable chance of being rescued or sold as a going concern. Our detailed guide to the validation order process for winding-up petitions covers timing, evidence and cost in more depth.
Priority payments the court is likely to allow
Courts do not validate every payment a director wants to make. They focus on what genuinely protects value for creditors and employees. Payments a court is more likely to allow include:
- Staff wages — particularly where stopping pay would cause staff to leave and the business to collapse immediately
- PAYE and VAT — keeping tax payments current can support an argument that the company is being run responsibly
- Essential suppliers — those without whom trading simply cannot continue, such as a sole supplier of raw materials
- Rent and utilities — where losing premises or power would end trading entirely
Payments a court is far less likely to allow include discretionary spending, payments to connected parties, or anything that looks like it benefits directors ahead of creditors. Each application is judged on its own facts, so this is a decision for a solicitor experienced in this area, not something to assume in advance.
What to tell staff and suppliers in the meantime
While an application is being prepared, honest and calm communication matters. Staff and suppliers generally cope better with a delay they understand than silence they do not. Consider:
- Telling staff there is a temporary delay linked to a banking issue, without overstating the risk to the business
- Giving suppliers a realistic timeframe rather than promising a payment date you cannot guarantee
- Keeping a clear record of who has been told what and when, which may help later if questions are raised
- Avoiding informal cash workarounds that fall outside the validation process
If the company can show it is taking proper legal advice and moving quickly to sort out payments, that generally reassures staff and suppliers far more than silence or vague promises.
Frequently asked questions
Will my staff still get paid during a winding-up petition?
Possibly, but not automatically. Once the account is frozen, wages usually need a validation order or another lawful route before the bank will release them. Many businesses do secure permission to keep paying staff while the petition is resolved.
Can directors take a salary during a winding-up petition?
Director salaries are treated the same way as any other payment under section 127 of the Insolvency Act 1986. They can be included in a validation order application, but a court will look closely at whether continuing to pay directors is justified alongside the interests of creditors.
What about VAT and PAYE while the petition is pending?
HMRC payments are also caught by the freeze on the company's account. Keeping PAYE and VAT current, where possible, can support a validation order application, since it shows the company is being managed responsibly during a difficult period. See HMRC's own guidance on running PAYE as an employer for the underlying obligations.
What happens if I pay wages without a validation order?
The payment is void under section 127 unless the court later validates it. A liquidator can seek to recover the money from whoever received it, which is why most directors take advice before moving funds after a petition has been presented.
How long does a validation order take to arrange?
Timescales vary with the court and the urgency of the evidence, but applications for essential payments like payroll are often prioritised. A solicitor experienced in this area can advise on realistic timing for your circumstances.
This article is general information, not legal, financial or insolvency advice, and every company's circumstances are different.
If you would like to talk through your options, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor who can look at your situation directly — start an enquiry.