Opposing Winding Up Petitions
A Winding up Petition is an extremely serious matter and is often taken as a final option by a creditor, who has been unable to obtain payment from a company.
There is little time available between the court hearing a petition and the claimant’s grounds for bringing the action. If a company does not respond with a strong case for obtaining a stay or an injunction, then the court will issue a winding up order on the same day of the petition hearing.
At that point, the company is in the hands of the Official Receiver and no longer owned by its owners or managed by its directors. There may be grounds, however for preventing the court from issuing a Winding up Order when the petition comes before it for a hearing.
Our litigation team recently successfully opposed a winding petition on the grounds that the claim and alleged debt were disputed.
The procedure to oppose a winding up petition is to file a witness statement in opposition in court not later than five business days before the date of the hearing of the petition (rule 7.16(1) Insolvency Rules 2016). A copy of the witness statement must also be sent to the petitioning creditor or their solicitor not later than five business days before the date fixed for the hearing. It is also likely that a Validation Order will be required and we are experienced in dealing with such applications.
A winding up petition may be challenged by a company on the following grounds:
- The alleged debt owing in the demand is genuinely disputed on substantial grounds by the company.
- The company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
- In certain other limited circumstances such as jurisdiction, the company likely to become insolvent and technical or procedural errors or delay.
The most common reason for successfully challenging a petition is provable doubt over the amount being claimed. It frequently occurs that a counterclaim exists, whereby the claimant actually owes money to the company, as well as being owed by it. In these cases, the chain of communication and paperwork will hold weight and needs to be adequate enough to demonstrate a serious and substantial cross-claim.
The recent decision of the Court of Appeal in the case of LDX International Group LLP v Misra Ventures Ltd reaffirms the position of the court. It was held that even though the purpose of the court on hearing an application restraining the presentation of a winding up petition was not to conduct a ‘mini trial’, the court must however scrutinise the evidence before it to assess whether or not the counterclaim is genuine and substantial. The material before the judge in this particular case however was held to have been wholly inadequate to show a counterclaim that would extinguish the debt.
If the court feels that the company is in a position to repay some or all of the debt to the claimant through a Company Voluntary Arrangement (CVA), it may dismiss the petition. The court may also adjourn the petition if it believes there is benefit to all in granting breathing space to the company. The claimant may also withdraw the petition if it appears that it is not worthwhile proceeding with it and the attendant costs of liquidation.
The ability to fully understand how the process works is crucial, engaging legal help as soon as possible means we will act on your behalf in all dealings with creditors and the courts, which in itself removes a great burden of stress from your shoulders. .
With good support and advice from knowledgeable and experienced solicitors there are always options to be explored, no matter how bleak the prospects may appear.
Involving our litigation team can help avoid the stress and pressure that comes from court action by creditors.
If you have concerns or issues you can contact our litigation team at firstname.lastname@example.org or on 01603 675639.