Creditor winding-up petitions |
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| Management | |
| Written by Sarah McLennan, associate at law firm, Faegre & Benson LLP | |
| Friday, 16 October 2009 | |
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Practical Tips: give a petitioning creditor the upper hand. If a company owes you money and has failed to pay you may apply to wind it up by presenting a petition to court. Winding-up is designed to be a remedy for creditors as a whole, resulting in an even distribution of assets but it can give a petitioning creditor the upper hand. If the company wishes to avoid the damage caused by advertising a petition and the risk of winding-up, it must settle with the petitioner. A winding-up petition or the threat of it can therefore lead to the creditor being paid in full and the petition being withdrawn.The court will regard a company as being unable to pay its debts if any of the following occurs: • A creditor who is owed more than £750 serves a “statutory demand” for the money due and it is not paid or secured or a settlement is not agreed within 21 days. Obtain the necessary forms from the Insolvency Service’s website at www.insolvency.gov.uk. The form must be served on the company at its registered office and you must have proof of service. Use a process server to serve the demand. • There is a judgement against the company and execution is unsatisfied. In other words the bailiff is unable to seize enough assets to clear the debt. • It is proved to the court that the company cannot pay its debts as and when they fall due, for example, no payment made in response to a letter of demand. Service of a statutory demand is not always necessary. You can simply send a letter of demand demanding payment of an undisputed debt within three working days and, if no response is received or payment is not made, you can use that as the basis for the presentation of the petition and proof that the company cannot pay its debts. • It is proved to the court that the company’s total debts exceed its total assets. Before you complete the winding up petition, you will need to make a search at Companies House on 0870 3333636 or online at www.companieshouse.gov.uk. You have to state the grounds in the petition for winding-up. This will mean including details of the debt. You need to state that the company has not paid the debt or a specified part of it and that you believe the company is insolvent and unable to pay its debts. You need to state whether the EC Regulation on Insolvency Proceedings 2000 does or does not apply. If the company is registered in England and Wales and mainly carries out business in England and Wales, the EC Regulation will most likely apply and the proceedings will be main proceedings. In other circumstances, you should seek advice. To issue the petition you need: • The original petition and 3 copies. • The original affidavit/witness statement. • A cheque made payable to HMCS for £905. This amount includes the court fee to issue the petition of £190, plus the Official Receiver’s deposit of £715. If you withdraw the petition you will get the deposit of £715 back. The next steps are: • Engaging a process server to serve the petition at the registered office of the company. They can then prepare the affidavit of service. • Filing the affidavit of service and advertising the petition in the London Gazette at www.gazettes-online.co.uk no less than 7 business days after the petition was served and no more than 7 business days before the winding-up hearing. • Filing a certificate of compliance with the court at least five business days before the hearing. • File the list of any persons intending to appear at the hearing with the court the day before the hearing. Generally the courts dislike the use of winding-up petitions as a high pressure debt collecting method and are of the view that where the debtor genuinely disputes the debt the creditor should sue and obtain judgement first. A defence raises the possibility of a costs award being made against the petitioner or its advisers and serious costs penalties can be visited upon those who pursue a petition in the face of a defence. Therefore a creditor needs to consider any defence raised by the company and whether it is likely to prove to be genuine before deciding whether to present or advertise a petition. Typical considerations include: • Is this the first time the defence has been raised? • Were the invoices never challenged at the time? • Is the defence good at law and credible? • Has any documentation actually been provided to support the defence? The courts do not like the idea of a trial occurring in the winding-up process but they will decide whether or not to accept a defence or allow the petition to proceed. The presentation of a petition can result in your debt being paid ahead to prevent advertisement and a winding up order. Seek legal advice and act quickly to be ahead of the queue. Sarah McLennan is an associate in the London finance and restructuring practice at international law firm, Faegre & Benson LLP. She can be contacted at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or on +44(0)20 7450 4533.
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