Focus on: Winding Up Petitions

Focus on: Winding Up Petitions

15th December 2014

What is a Winding up Petition?

A winding up petition can be brought by a creditor on the grounds that the company has become unable to pay its debts.

It is also possible for the company’s own directors and shareholders to issue a winding up petition and for other people such as the Secretary of State to present a petition. This article focuses on petitions brought by creditors.

 

Consequences of a Petition Being Presented

  • Any transactions involving company property after the date of presentation of the petition are potentially void if the company is later wound up by the Court. The company may be able to obtain a validation order;
  • The company’s reputation may be damaged and existing creditors may feel compelled to pursue the company for repayment of outstanding debts;
  • The company may find it hard to obtain credit;
  • The company’s bank may freeze its accounts;

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    Procedure for Presenting a Winding Up Petition

    • A winding up petition must be presented to the Court and the petitioner must pay the court fee;
    • The petition is then served on the debtor company;
    • The petition can be advertised in the London Gazette after 7 business days of service of the petition;
    • The petition will record the date for a hearing;
    • The hearing will usually take place around 4 – 6 weeks after the petition has been issued;
    • At the hearing the Court will hear representations made by the petitioning creditor and any representations made by the debtor company.

     

    Opposing a Winding Up Petition

    The company may apply for an injunction restraining the advertisement of the petition. An injunction is likely to be granted before the hearing and the petition itself may be opposed at the formal petition hearing where:

    • the debt is disputed on substantial grounds; or
    • where the proceedings may be regarded as an abuse of process; or
    • where the company has a genuine and serious cross claim or right of set-off for an amount equal to or exceeding the petition debt.

     

    If the debt is not disputed then the company may reach an agreement with the creditor to pay the debt as soon as possible and for the creditor to agree not to pursue the petition any further. The petition can only be withdrawn before the formal hearing of the petition in court in exceptional circumstances.

    The petition may also be challenged on the grounds that the petitioning creditor has failed to follow correct procedure or on the grounds that the English courts do not have jurisdiction.

    The company should file and serve a witness statement not less than five business days before the hearing date setting out the grounds for opposing the petition.

     

    What Happens if the Petition is Successful?

    The Court will make a winding up order which places the company in to compulsory liquidation. The official receiver will become the liquidator of the company and will take control of the company’s assets. The powers of the directors will cease. The company’s employment contracts will be terminated which means that the employees will be automatically dismissed.

    The liquidator’s role is to wind up the company’s affairs and distribute assets to creditors and members. The company will then be dissolved.

    In certain circumstances it may be possible for the company to apply to the court to:

    • Rescind the winding up order;
    • Stay the winding up order;
    • Appeal the order