What Is Meant By The Stay Of Any Action Or Proceeding After A Winding Up Order?

What is meant by the stay of any action or proceeding after a winding up order? The stay of any action or proceedings is the restriction set out in Section 130(2) of the Insolvency Act 1986:

When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.

Waypark Commercial Mortgage 1 Ltd v Vanguard Number 1 Ltd

The question arose in the case of Waypark Commercial Mortgage 1 Ltd v Vanguard Number 1 Ltd [2025] EWHC 1786 (Ch), where the applicant sought a declaration from the court that Section 130(2) did not apply to the sale of a property by a secured creditor exercising its rights under a fixed legal charge.

What Is The Purpose Of The Section 130 Stay On Actions Or Proceedings?

The purpose of the Section 130 stay on actions or proceedings was highlighted by the Court as follows:

As to the statutory purposes informing s 130(2), Michael Green J relied on and cited from the Court of Appeal judgment in Mortgage Debenture Ltd v Chapman:

“12. In the case of liquidation and bankruptcy, the purpose of these provisions is essentially twofold. First, given that the property of the company or individual stands under the statute to be realised and distributed, subject to any existing interests, among the creditors on a pari passu basis, the moratorium prevents any creditor from obtaining priority and thereby undermining the pari passu basis of distribution. Secondly, given that both a liquidation and bankruptcy contain provisions for the adjudication of claims by persons claiming to be creditors, the moratorium protects those procedures and prevents unnecessary and potentially expensive litigation. In circumstances where the potential liability of the company or bankrupt is best determined in ordinary legal proceedings, as for example is often the case with a personal injuries claim, the court will give permission for proceedings to be commenced or continued, but usually on terms that no judgment against the company or individual can be enforced against the assets of the estate.”

Fixed Charge Secured Creditor Position

The Court said that ‘proceedings’, although referring to legal proceedings against the company, have the purpose to ensure that the pari passu principle is safeguarded so that the statutory order of payment in insolvency proceedings is safeguarded.

However, the exercise of a secured creditor’s rights under a power of sale over a property that does not form part of the general creditor pot meant that Section 130(2) would not prevent the sale of the property:

That that is the position is also borne out by Sowman v David Samuel Trust Ltd [1978] 1 WLR 22 in which the court held that a compulsory winding up did not affect the powers of a receiver appointed under a debenture to dispose of company property subject to the charge.