Winding Up Petitions
A Winding Up petition explained
A winding up petition is an application to the court by a party that is owed money against a company that it is owed money from. If the application is successful the debtor company will be “wound up” which is another way of saying that it will be placed into liquidation. A winding up petition is therefore a type of insolvency dispute.
The background to insolvency disputes
Insolvency proceedings are governed by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. This a specialised area of law, and therefore it is always best to seek the assistance of experienced and knowledgeable solicitors. Olliers Solicitors are specialist insolvency and winding up lawyers and deal with winding up petitions on a day to day basis.
When could you be served with a winding up petition?
If a company owes a debt of more than £750 to one of its creditors, those creditors may present at court a document known as a winding up petition. The winding up petition asks the Judge to wind the company up on the basis that it is unable to pay its debts.
The creditor may or may not serve the company with a statutory demand before presenting the Petition.
If you are served with a winding up petition contact Olliers Solicitors as insolvency law experts.
Is it right that I serve a statutory demand on the debtor company?
It is not compulsory to serve a company (at their registered office address) with a statutory demand before presenting a winding up petition, however it is useful to do so in some cases as it may help the debtor and creditor to enter in to negotiations and settle the matter before the expense of the winding up petition is incurred.
An unanswered Statutory Demand creates a presumption that a company is unable to pay its debts as they fall due which is a ground for winding up.
If you need to discuss whether it is in your interests to serve a Statutory Demand call Olliers Solicitors to discuss the matter in full.
When to Set Aside a Statutory Demand
Where a statutory demand is served by the creditor, the debtor has 3 weeks to either pay the debt or make an application to court to restrain the creditor from presenting a winding up petition. The basis of such an application is as follows:
- The company has a cross-claim or right of set-off against the creditor that exceeds the amount claimed in the statutory demand.
- There is a genuine substantial dispute that there is no debt payable.
- The company has a reasonable excuse for not paying the alleged debt.
If you are on the receiving end of a statutory demand and decide to do nothing and then find that a winding up petition has been issued, all is not lost. Where the company disputes the debt, the winding up petition can be defended.
It’s important to act quickly where a statutory demand or winding up petition is served on the company. Don’t bury your head in the sand hoping it will go away, call one of our specialist insolvency solicitors today for assistance.
Other procedural steps
The Petition must be served on the company at their registered office address.
The creditor must also advertise the fact that the Petition has been issued and when the Petition will be heard (at court) in the London Gazette not less than 7 days after the Petition has been served, and not less than 7 days before the hearing. This gives other creditors of the company (if there are any) the opportunity to support the Petition.
Contact Olliers Solicitors to discuss all procedural requirements when presenting winding up petitions.
When the company disputes the winding up petition
In order for the winding up petition to be considered by the court it must be advertised in the London Gazette.
The advertisement of the Petition is likely to cause the company reputational and financial difficulties. Therefore, if the company disputes that it owes the debt it is imperative that an application be made to court to restrain the creditor from advertising the petition, if the creditor will not agree to refrain from doing so in writing.
The advertisement of the Petition will likely lead to the company’s bank accounts being frozen. If this happens, it’s important to obtain a validation order, otherwise the company will not be able to pay its employees and suppliers. Any payments/ transactions made out of the company after the date of the presentation of the Petition will likely be void.
If the company disputes the debt being claimed by the Petitioning Creditor, it should file and serve a Notice of Opposition not less than 5 business days before the hearing.
Where the debt is disputed the Judge will likely set directions to allow both parties the opportunity to file and serve evidence in relation to the debt, before the matter is heard by way of a hearing.
Criteria to bring a winding up petition
In order to succeed the petitioner has to demonstrate that the debtor company is insolvent on either a cash flow basis or a balance sheet basis.
For a full discussion on whether either of these two insolvency tests are met contact Olliers Solicitors for an immediate review.
Can a winding up petition be defended?
This in large part depends upon the basis upon which the winding up petition is brought.
If the petition is brought on the basis that the debtor company cannot pay its debts as they fall due then the petition can be defended on the basis that the debt alleged in the demand is genuinely disputed on substantial grounds by the company.
Alternatively, or in addition the company may have a genuine right of set-off against the creditor which exceeds the amount claimed in the demand. In this situation the petitioning creditor may find that it is liable to the company although the company will have to bring its own petition or proceedings.
There are then a whole range of other potential defences available. For example the court may not have jurisdiction to hear the petition, there may be a problem for the petitioner with limitation or the company may be otherwise solvent.
Olliers Solicitors are specialist insolvency lawyers and can advise you directly about any winding up query you may have.
What if the petitioned debt is paid prior to the petition being heard by the Court? Is that the end?
Not necessarily. If the company pays the debt to the Petitioning creditor or the debt is otherwise resolved, a supporting creditor can substitute the Petitioning creditor and take over carriage of the Petition. If this happens, it can lead to long and protracted proceedings in the insolvency courts.
If you have been served with a winding up petition, or would like to serve a company with a winding up petition, please contact our specialised team of insolvency experts for advice.
Can I make an application to restrain the advertisement of a winding up petition?
Where a winding up petition has been served at the company’s registered office, the petitioning creditor can advertise the Petition in the London Gazette 7 days later.
If the petition is advertised, it is likely the company’s bank and other creditors will become aware of it, and this can lead to the company bank accounts being frozen and the Petition being supported by other creditors of the company. Even if the company successfully ends up defending the petition at court, the advertisement of the petition itself can destroy the company’s reputation.
Therefore, where (1) there is an abuse of process and the petitioning creditor has presented the petition where there is a substantial dispute or (2) the petition is bound to fail; it is important to make an urgent application to restrain the advertisement of the petition.
Contact our specialist insolvency team today to discuss this.
Is it possible to seek an adjournment of a Winding Up Petition?
Adjournments are commonly sought by both parties. Whether an adjournment is granted is entirely at the discretion of the court. Ordinarily, the company should first of all write to the petitioning creditor asking for an adjournment and giving full reasons why an adjournment is appropriate.
If the petitioning creditor refuses then you need to ask the court at the hearing for an adjournment.
Olliers Solicitors have enormous experience of dealing with winding up petitions and the circumstances in which adjournments may either be granted or successfully opposed. Contact us for immediate advice.
Should I apply for a Validation order?
Where the company’s bank has become aware of the existence of a winding up petition, it will likely freeze the company’s bank accounts. This will have an enormous impact on the company as it will be unable to pay its suppliers and employees.
Any payments or transactions made by the company after the presentation of the winding up petition will likely be void if it is wound up by the court.
To enable the company to continue trading as normal, it is important to apply to court for a validation order so that all transactions within the company’s ordinary course of business can continue as usual.
There are a number of hurdles to overcome when making an application for a validation order – please contact our specialist team of insolvency solicitors today to assist you with this.
What are the consequences of a winding up order being made?
If a winding up order is made by the court, this is the end for the company.
The following are automatic consequences of liquidation:
- The Official Receiver is appointed as the liquidator of the company
- The powers of the company’s directors cease with immediate effect
- The liquidator takes control of the company’s assets
- Any disposition of the company’s property by anyone other than the liquidator is void
- All company papers must state that the company is in liquidation
- The winding up order operates as notice terminating the employment contracts of all the company’s employees, who are thereby automatically dismissed
- There is a stay on the commencement or continuation of proceedings against the company except with the permission of the court
For a specialist advice in relation to winding up petitions contact Olliers Solicitors as expert insolvency lawyers.