How to Stop a Winding Up Petition

how to stop a winding up petition

Having a winding up petition served on your company is a serious matter. Fortunately, there are various routes your company can take to stop the petition, but it is important that you act quickly and seek legal advice on the matter from an experienced insolvency solicitor.

South Bank Legal provide expert advice on how to stop a winding up petition. We can assist companies in restraining the presentation of, or advertisement of, a winding up petition.

What is a winding up petition?

A winding-up petition is a legal process used to initiate the compulsory liquidation of a company. It is typically filed by a creditor or sometimes by the company itself. The purpose of a winding-up petition is to seek a court order that forces the company to be liquidated, and its assets distributed to creditors to settle outstanding debts.

How to stop a winding up petition

When faced with a winding-up petition, a company may explore various avenues to stop the legal action and avoid compulsory liquidation resulting from a winding up order by the Court.

One option is to pay any undisputed debt mentioned in the winding up petition. Prompt settlement of the debt can lead to the petition being withdrawn. This minimises the risk of it becoming public record and prevents support from other creditors. Acting swiftly and having the means to pay may lead to the withdrawal of the petition within 24 to 48 hours from service.

Another option is disputing the debt. In cases where the debt is disputed, obtaining an injunction to prevent the winding-up petition becomes a viable strategy. This involves seeking a court order – known as an ‘injunction’ – to restrain the creditor from filing a winding up petition. An injunction will usually be granted where there is a genuine dispute or a cross claim that exceeds the amount in the petition. This approach may be deployed to prevent the petition from being issued in the first place, or, is a creditor has already issued the petition in court, to prevent the creditor from advertising the petition in the London Gazette.

Identifying procedural defects in the winding-up petition document is another avenue. If there are violations of the strict rules governing the winding-up procedure and company law, it can lead to the dismissal of the petition.

Negotiating a settlement of the petition debt is also a sensible option. This may lead to the early withdrawal of the petition from court. This avenue should be explored when feasible.

If immediate withdrawal isn’t possible but the company needs to continue trading, applying for a validation order allows ongoing payments to be made in the ordinary course of business, reducing the risk of personal claims against directors later on.

In cases where paying the petition debt isn’t immediately feasible, other avenues, such as company voluntary arrangements or entering administration or voluntary liquidation may need to be explored.

Additionally, guidance on the appropriate insolvency process and measures to avoid future claims from the liquidator or Secretary of State for director disqualification may be recommended when no other alternatives exist.

Restraining the presentation or notification of a petition

If a company anticipates a winding-up petition, it can apply to the court to restrain its presentation. This application involves an injunction, and the Companies Court must be provided with prima facie evidence that the company could successfully establish the proceedings as an abuse of process.

A witness statement must be provided in support of the application. This should include full details of the dispute, efforts made to inform the proposed petitioner, any response received, and potential prejudice to the company.

Several principles will guide the court in determining whether a debt is disputed on substantial grounds.

Timing is critical, especially considering that a winding-up petition can be presented 21 days after serving a statutory demand, or even upon shorter notice where the creditor elects not to use a statutory demand.

An urgent application may be necessary, requiring the filing of a certificate of urgency with the court. If a creditor serves a demand and the company successfully applies to restrain the presentation of a winding-up petition, the creditor may well be ordered to pay the company’s legal costs of the application.

Opposing the notification of a winding-up petition involves establishing clear and persuasive grounds for restraining the giving of notice.

This is exercised sparingly, considering the balance between bringing proceedings to the attention of interested parties and mitigating the serious consequences for the company’s reputation resulting from the petition’s advertisement.

What happens if the winding up petition cannot be restrained?

If a company is unable to successfully stop a winding-up petition, and the court grants a winding-up order, it typically leads to the compulsory liquidation of the company.

When a winding up order is granted, the notice of the winding up order is published in the London Gazette. This publication serves as a public record of the company’s insolvency.

A licensed insolvency practitioner is usually appointed as the liquidator to oversee the process.

The liquidator takes control of the company’s assets and sells them to generate funds. The funds obtained from asset realisation are used to repay creditors in a specific order of priority set by insolvency laws.

Once the liquidation process is complete, the company is formally dissolved, and it ceases to exist as a legal entity.

The directors of the company may face scrutiny during the liquidation process. If there is evidence of wrongful or fraudulent trading, directors may be disqualified from serving as directors of other companies for a specified period.

How can South Bank Legal assist?

If you are the director of a company served with a winding up petition, our dispute resolution solicitors will advise you on how to defend the company whilst giving you pragmatic and commercially aware advice.

Our insolvency and bankruptcy solicitors advise on:

  • company administration
  • receivership
  • liquidation (winding up)
  • individual bankruptcy
  • statutory demands as a means of debt recovery
  • setting aside statutory demands
  • winding up petitions and bankruptcy petitions
  • validation orders
  • pursuing and defending directors in claims for wrongful trading
  • pre pack administration sales
  • transactions at an undervalue
  • petitions to wind up companies on the just and equitable ground under section 122(g) of the Insolvency Act 1986
  • provision of information to liquidators under section 235 of the Insolvency Act 1986

 

For a confidential discussion with South Bank Legal, please get in touch using the form below or call us on 02035765179.

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