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Lewis Nedas Law’s Commercial and Litigation Department have recently posted an article on insolvency litigation in regards to company voluntary arrangement and creditors’ voluntary liquidation. Due to the current status of the economy and uncertainties from the execution of Brexit, we want to share our knowledge on compulsory liquidation with you; particularly on winding-up petitions.

What is a winding up petition?

Under section 122(1)(f) of the Insolvency Act 1986 (IA 1986), a winding up petition is a process for Creditors to recover their debts from companies registered in England and Wales on the grounds that the company is unable to pay its debts. If a petitioner succeeds on the application; the Company’s assets will be sold, any legal disputes will be settled, the Company collects money it is owed and funds will be paid to the creditors in order of priority.

Where to start?

In many circumstances, it is useful to serve a statutory demand on the company before commencing winding-up proceedings. This is because a company that fails to pay a statutory demand for a sum more than £750.00 is deemed unable to pay its debts and this is one of the requirements as per s.123(1)(a), IA 1986. You should also note that the petition must be verified by a statement of truth (rule 7.6(1), IR 2016).

To begin with, the creditor must consider and satisfy the following questions:

  • Is winding up the appropriate procedure? In reality, this should be the last resort for creditors as they must act in the best interests of their class of creditor.
  • Has an insolvency procedure already been started? The petitioner must conduct a search to ensure that no winding-up petition is already pending, otherwise it will be at risk as to costs on indemnity basis. You can also search the companies register at Companies House or check the Central Registry of winding-up petition. 

In addition, you will need to double check whether or not the company had been dissolved before making an application and whether or not you have standing to commence proceedings. Moreover, the court is likely to dismiss a winding-up petition when the debt is a genuine dispute on substantial grounds or the company has a genuine right to set-off or cross-claim.

Notification

Attention should be paid towards the requirement on notice. A petitioner must give notice of a winding-up petition by advertising it in the London Gazette. Such notice must be ‘Gazetted’ not less than 7 business days before the hearing and not less than 7 business days after the petition was served on the company (rule 7.10(4) of the Insolvency (England and Wales) Rules 2016 (IR 2016)). Moreover, the durations of time are calculated as ‘clear days’ as per 2.8 of the Civil Procedure Rules 1998.

Furthermore, a copy must be served on the court as soon as possible after publication and not less than 5 days before the hearing along with the certificate of compliance. If you fail to ‘Gazette’ the notice, the Court may either summarily dismiss the petition or adjourn the hearing on the terms that notice of the petition is ‘Gazetted’. Last but not least, the petition must be verified by a statement of truth (rule 7.6(1), IR 2016).

Certification

The certificate of compliance must also be filed at least 5 business days before the hearing in accordance with the rules relating to service and providing notice of the petition (rule 7.12(1), IR 2016). The Court has discretion to dismiss the petition if the rule is not complied with.

Opposing the petition

However, 5 days before the hearing, a debtor company may oppose the petition by filing a witness statement in opposition and deliver a copy of the statement to the petitioner or petitioner’s solicitor as per rule 7.16(1), IR 2016. Nonetheless, if the company fails to file evidence before the hearing but indicates that it wishes to oppose the petition; the court can still give directions for the company to file evidence in reply.

In practice

As indicated above, there are numerous hurdles to overcome and to be satisfied before a petition can be heard in Court. Therefore, it is common practice for petitioners to instruct counsel to represent them at early stage. Petition hearings can be presented in various Courts. If presented in the High Court, the initial hearing of a winding-up petition in the Royal Courts of Justice will usually take place before an Insolvency and Companies Court Judge. If the hearing is listed in a District Registry of the High Court, it will commence before a District Judge. If presented in a County Court hearing centre then the hearing will normally commence before a District Judge.

A matter of public record

As a general rule, documents on a court file are accessible to the public. Therefore, if you wish to prevent disclosure of any information field in winding-up proceedings then you shall apply for an order under rule 12.39(9), IR2016.

What if I make a mistake?

One must be careful when drafting the application because an error could potentially jeopardise the whole application. Yet, an error in the company’s name may be rectified at the hearing if there is no risk that the error has prejudiced other parties. If the court subsequently refuses to waive the mistake, it may require the petition to be re-served or notice to be gazetted with the appropriate name. However, under para 9.9 of the PDIP; the same mistake above in relation to the name of the company could be rectified by applying for permission to amend to (the Royal Courts of Justice) the court staff in charge of the winding up list or to a District Judge in the High Court or County Court. Nonetheless, the court has sole discretion on the aforementioned wavier of error.

What orders can the Court make?

After the hearing, the Court can do one of the following: dismiss the petition, adjourn the hearing, make a winding-up order, make an interim order and make any other orders it thinks fit. Thus, it is a common practice for the Court to grant a company time to pay the debt if only the company indicates that it will be able to pay the sum due in full within a reasonable period.

Impact on the business of the debtor company

A petition has potential adverse effect on a company. Under s.127 IA1986, there are number of transactions that can be void if made after commencement of the winding-up i.e. any disposition of the Company’s asset, any transfer of the Company’s shares and altering the status of company members. If the outcome is indeed a winding-up order then it is deemed to have started from the time of presentation of the petition.

Liquidation

If a winding-up order is made, the Official Receiver becomes the liquidator (s/he is a civil servant and an officer of the Court.) Subsequently, the liquidator inherits control of the company’s assets and the authority of the directors. Thus, all employers are automatically dismissed. As a result of that, any disposition of the Company’s asset by anyone other than the liquidator is deemed to be void. In addition, all company papers (regardless of the format) and website must state that the company is in liquidation in accordance with s.188 (1), IA1986.

We hope this article have given you a better insight in relation to the nature, requirements and consequences of a winding-up petition.

Hamilton Li
Paralegal

Lewis Nedas Law

Please contact our company and commercial department on 02073872032, or email us at This email address is being protected from spambots. You need JavaScript enabled to view it.

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