Are you thinking of closing your Limited Company?

Are you a Company Director unclear about what is a winding up order and petition? Are you looking for a solution to liquidate your company? Oliver Elliot can help you with both an insolvent or a solvent liquidation.

Find out how

Compulsory Liquidation Of A Limited Company, Winding Up Orders and Petitions.

A Compulsory Liquidation of a limited company is when a court has issued a Winding Up Order after a hearing of a Winding Up Petition. Following which the Official Receiver is initially typically appointed as the Liquidator.A Winding Up Order is serious as upon being made will immediately result in your company being placed into liquidation. Hopefully, this page will give you a full understanding of What Is Compulsory Liquidation? but contact us for further information if you need help.

It is an order of the Court typically made by a judge known as an Insolvency and Companies Court Judge (ICC Judge). It can however be made by a local District Judge.

What Is A Winding Up Petition?

A Winding Up Petition is a legal process taken by creditors against a company that owes them a debt. It can also be brought by the company itself through its Directors. A Winding Up Petition will often follow on from a Statutory Demand that has not been satisfied or a Court Judgment. If the debt remains unpaid then a Winding Up Order can follow on from the Winding Up Petition.

How Much Can A Winding Up Petition Be Issued For?

If the company owes £750 or more, the creditor can petition the court for the company to be wound up and placed into compulsory liquidation. The petition will refer to a hearing date and then must be served on the company at its registered office. If the matter is to proceed to a hearing of the petiton at court, it will need to be advertised in London Gazette.

If a winding up order is made, the creditor can seek to appoint an insolvency practitioner as liquidator.

Can A Winding Up Order Be Prevented? What is Compulsory Liquidation?

There are a number of things that you can do to prevent a Winding Up Order from following on from a Winding Up Petition.

  • You can pay the debt due to the creditor and their legal costs for issuing the winding up petition.
  • If you do not think that the debt is due and owing to the creditor then you could dispute the debt but that should only be done if it is a genuine dispute, not merely to seek to buy yourself more time.
  • Negotiate with the creditor to secure more time to pay their debt and have them withdraw the Winding Up Petition, explaining to them the benefits of keeping the company alive so that they can continue to be a customer and have a mutually beneficial trading relationship.
  • Attend the hearing of the Winding Up Petition and provide evidence that the company ought not be wound up and not have a Winding Up Order placed against it.
  • Seek an adjournment of the Winding Up Petition at the Court hearing.
  • You could attempt to seek to place the company into Creditors Voluntary Liquidation but in order to do that you are likely to have to pay the petitioning creditor’s legal costs of the winding up petition.
  • You could attempt to make a Company Voluntary Arrangement with your creditors if the thresholds were to be met by supporting creditors.
  • You could seek to obtain an Administration Order if the company satisfies the statutory requirements:
    • Rescuing the company as a going concern. (Note: this purpose is to rescue the company as opposed to rescuing the business undertaken by the company).
    • Or, achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration).
    • Or, realising property to make a distribution to one or or more secured or preferential creditors.

Winding Up Order Procedure: What Is Compulsory Liquidation?

The procedure for issuing a winding up petition is set out in the Civil Procedure Rules Practice Direction on Insolvency Proceedings.

This is often considered a last resort by creditors. It is not intended as a debt collection process but a matter in the public interest if the company cannot pay its debts when then fall due ie. it is insolvent. The consequential compulsory liquidation that may arise is deemed to be an insolvency class action when creditors are pooled together and share in the recoveries, assuming there are sufficient funds available after the costs of liquidation have been discharged.

Advertisement Of The Winding Up Petition

A creditor that has issued a Winding Up Petition has to advertise the petition. Winding Up Petitions are advertised in The Gazette as public notices. They are a serious matter.A company cannot go about its business normally if a winding up petition has been issued and advertised in particular. It can lead to the company’s bank accounts being frozen. If you dispute the debt then you can apply for an injunction preventing the creditor from advertising the Winding Up Petition in the Gazette.

How To Apply For An Injunction To Restrain The Advertisement

In order to apply for an injunction to restrain the advertisement of the Winding Up Petition you will need evidence to support such a Court process. You may have good reasons to prevent the advertisement of the Winding Up Petition such as the following:

  • The Winding Up Petition related to a disputed debt which is impermissible.
  • There is a counter claim and the company is owed money by the creditor that takes the level of the debt below the £750 threshold.
  • There are procedural defects in the Winding Up Petition documentation or of their service upon the company.
  • It would be unjust for the company to be wound up.

This is a serious legal process and you entering the arena of what is known as a Reserved Legal Activity which is a regulated one under Section 7 of the Legal Services Act 2007. In order to undertake this sort of work you are likely to want to use a lawyer that is experienced in such matters.

The Hearing Of The Winding Up Petition: What Is Compulsory Liquidation?

The hearing of the Winding Up Petition is often a swift affair at a hearing in which many other Winding Up Petitions can be heard at the same time.A great many Winding Up Petitions are typically listed together in special Courts dedicated towards insolvency and similar work. These Courts are commonly referred to as either Insolvency And Companies Courts, District Registries or Chancery Division Courts.

In London for example, there is a list known as the Companies Court Winding Up List and it is usually held on a Wednesday morning at around 10:30am.

In normal trading times ie. not where there are restrictions on the Winding Up of companies due to Covid-19, the list of companies being wound up is a long one. As a result, it is common that an adjournment can often be readily obtained provided there is a genuine and good reason for the same. That will result in the hearing of the Winding Up Petition being delayed until a later date. Whilst an initial first adjournment may be readily granted by the Court, it is unlikely that the Court will do so with the hearings later on without good reasons being provided and evidenced.

How To Unfreeze The Company Bank Account

Once a winding up petition has been issued any disposition of the company’s property is void without validation by the court by virtue of Section 127 of the Insolvency Act 1986. This presents the company with a practical difficulty in continuing to trade, without a Validation Order authorising certain of the company’s transactions to take place.

The Insolvency Proceedings Practice Direction has within it a strict procedure which can be deployed to apply to court for a Validation Order so that trading might be able to continue in some way and for the bank account to be utilised.

You will need to inform the creditor that has issued the Winding Up Petition that you are seeking a Validation Order and you are undertaking this course of action. At Oliver Elliot Contact Us as we can help you with the same.

Applying For A Validation Order

In order to apply for a Validation Order you need to support the application with a Witness Statement by a director or officer of the company who is properly aware of the company’s affairs and financial circumstances. If appropriate, supporting evidence in the form of a witness statement from the company’s accountant should also be produced.

Witness Statement To Support The Validation Order Application

The Witness Statement in support of a Validation Order application needs to have the following information as a minimum:

  1. when and to whom notice has been given to the creditor who has issued the Winding Up Petition;
  2. the company’s registered office;
  3. the company’s capital;
  4. brief details of the circumstances leading to presentation of the petition;
  5. how the company became aware of presentation of the petition;
  6. whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;
  7. full details of the company’s financial position including details of its assets (and including details of any security and the amount(s) secured) and liabilities, which should be supported, as far as possible, by documentary evidence, e.g. the latest filed accounts, any draft audited accounts, management accounts or estimated statement of affairs;
  8. a cash flow forecast and profit and loss projection for the period for which the order is sought;
  9. details of the dispositions or payments in respect of which an order is sought;
  10. the reasons relied on in support of the need for such dispositions or payments to be made prior to the hearing of the petition;
  11. any other information relevant to the exercise of the Court’s discretion;
  12. details of any consents obtained from the creditor that issued the Winding Up Petition (supported by documentary evidence where appropriate);
  13. details of any relevant bank account, including its number and the address and sort code of the bank at which such account is held, and the amount of the credit or debit balance on such account at the time of making the application.

Outcome Of The Validation Order Application

In order for the Validation Order Application to be successful the Court will need to see that the company is solvent and has a viable future. Alternatively, the Court may be persuaded to grant the Order if it can see that in doing so there will be a benefit to the creditors of the company.

If your application for a Validation Order is successful then you may be permitted to make certain payments from the company bank account which may enable you for example to complete an order held up by insufficient raw materials. This might give you the necessary breathing space to obtain sufficient funds to pay off the creditor that was winding up the company. Alternatively, you might obtain an order to sell a valuable asset to release sufficient cash to the company so that you can properly continue trading normally.

The Winding Up Order Has Been Made But Can It Be Rescinded?

A Winding Up Order is capable of being rescinded but you have got to move very quickly otherwise a Court Application to rescind will likely fail as arose in the case of Preston v Green [2016] EWHC 2522 (Ch)
In order to apply to rescind a Winding Up Order you need to adhere to the following rules:A request to rescind a winding up order must be made by application.

The application must be made within five business days after the date on which the order was made, failing which it should include an application to extend time pursuant to Schedule 5 to the Insolvency Rules. Notice of any such application must be given to the petitioning creditor, any supporting or opposing creditor, any incumbent insolvency practitioner and the official receiver.

An application to rescind will only be entertained if made by a (a) creditor, or (b) contributory, or (c) by the company jointly with a creditor or with a contributory. The application must be supported by a witness statement which should include details of assets and liabilities and (where appropriate) reasons for any failure to apply within five business days.

In the case of an unsuccessful application, the costs of the petitioning creditor, any supporting or opposing creditor, any incumbent insolvency practitioner and the official receiver will normally be ordered to be paid by the creditor or the contributory making or joining in the application. The reason for this is that if the costs of an unsuccessful application are made payable by the company, those costs will inevitably fall on the general body of creditors.

Who Is The Official Receiver?

The Official Receiver (“OR”) is a government official who is employed by a government executive agency known as the Insolvency Service. Upon the making of a winding up order creditors can either leave matters with the OR to be the liquidator or alternatively attempt to appoint an Insolvency Practitioner (“IP”) to be the liquidator instead of the Official Receiver.

A Director whose company has gone into compuslory liquidation will have to attend on the Official Receiver and complete a very detailed questionnaire and narrative statement. This will assist in the understanding as to the reasons for the company’s demise.

Appoint An Insolvency Practitioner

There are two ways in which creditors can appoint an Insolvency Practitioner to be the Liquidator. If not less than 50% of creditors by value make a request of the OR then they can appoint an IP. Alternatively, creditors if they represent not less than 25% of creditors by value they can requisition a Decision Procedure to vote on the appointment of an IP to be the liquidator instead of the OR.

As Director and or Shareholder you can still use this approach to liquidate your company also but you will have to deal with the investigation of the Company’s affairs through the Official Receiver.

Covid-19 Suspension

There is currently a temporary suspension of the hearing of Winding Up Petitions until March 2021 to attempt to address the effect of Covid-19 on the UK economy.

What Next? Expert Advice Is Just A Click Away

If you have any questions about What Is A Winding Up Order And Petition? then Contact Us as soon as possible for advice. Our expertise is at your fingertips.

Disclaimer

This page: What Is A Winding Up Order And Petition? is not legal advice and should not be relied upon as such. This article What Is A Winding Up Order And Petition? is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.