If the Court makes a winding-up order against a company, an official receiver is automatically appointed as a liquidator of the company and takes control of the company’s assets. However, there are a number of ways in which the company can recommence trading and half the winding-up proceedings.
What are the consequences of a winding-up order?
There are various consequences which occur automatically in the event of a winding-up order:
- An Official Receiver will be appointed as a liquidator of the company (section 136 of the Insolvency Act 1986) in order to deal with the assets of the company for the benefit of the estate creditors (section 144, IA 1986).
- The powers of the directors of the company cease to exist immediately (Measures Brothers Ltd v Measures  2 Ch 248).
- Any disposition of the company’s assets made after the presentation of the petition will be rendered void pursuant to section 127, IA 1986.
- All employment contracts of the company’s employees will be terminated and as such, they will be automatically dismissed (Re Oriental Bank, MacDowall’s Case (1886) 23 Ch D 366).
- All of the company’s official documents including documents filed at companies house should explicitly state that it is in liquidation.
- All existing proceedings against the company will be stayed expect with the permission of the Court (section 130, IA 1986).
The liquidator of the company will review the company’s assets and distribute the same to the company’s creditors and members pursuant to their duty of the company’s creditors and in accordance with the statutory requirement.
How can a company recommence trading?
There are a number of ways by which the company may be able to recommence trading:
- Rescinding the winding-up order.
- Staying the winding-up order.
- Appealing the order.
Rescission of the winding-up order
Pursuant to section 12.59 of the Insolvency Rules 2016, the company may seek the recession of a winding-up order. The Court has helpfully set out the process of recession in paragraph 9.10 of the Practice Direction:
‘9.10.1 A request to rescind a winding up order must be made by application.
9.10.2 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.
9.10.3 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.
9.10.4 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.‘
The application must be made within five business days
The Court has emphasised the importance of making a prompt application within five business days on which the order was made in the case of Metrocab Ltd and another  EWHC 1317 (Ch).
At paragraph 17 of his judgment, Philip Marshall QC (sitting as a Deputy Judge of the High Court) stated the following:
The interests of the administration of justice require any application for rescission of a winding-up order to be made promptly. … a winding-up order affects all creditors of the company and gives the Official Receiver authority to act immediately. Without the requirement for a prompt application a considerable degree of uncertainty would arise for creditors and the Official Receiver and any liquidator thereafter appointed.
In this instant case, the court refused to exercise its discretion to rescind winding-up orders made against two companies on the basis that the circumstances were not significantly different from those at the time the winding-up orders were made and as such, the court was not satisfied that it had been provided with all the material facts.
A court will only rescind a winding up order if the applicant can show that the circumstances of the company are materially different from the circumstances that applied when the court made the winding up order.
Stay of winding-up proceedings
Pursuant to section 147, IA 1986, the creditor, contributory or the liquidator of the company are able to make an application to halt the liquidation of the company and seek a stay of all winding-up proceedings:
1. The court may at any time after an order for winding up, on the application either of the liquidator or the official receiver or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in the winding up ought to be stayed or sisted, make an order staying or sisting the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.
The Court has a discretionary power to grant a stay and will consider the following:
- Is the company solvent? For example, the Court will consider if the company’s creditors have been paid or alternatively, arrangements have been made with creditors for them to be paid.
- Is it in the grounds of public interests to grant a stay of proceedings?
- Is there another jurisdiction more appropriate to deal with the proceedings?
In accordance with paragraphs 52.21(3)(a) and (b) of the Practice Direction, the Court may allow an appeal where the decision of the lower court was:
- Wrong; or
- Unjust because of a serious procedural or other irregularity in the proceedings in the lower court.
How we can help your company
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Why should you instruct a specialist insolvency lawyer at the winding up petition hearing?
The rules surrounding insolvency are technical and it is unlikely that a someone not versed in personal insolvency laws will achieve a successful outcome. Winding up particularly and insolvency in general is a niche practice area – indeed many solicitors in general practice will rarely have experience in this discipline.
Do not underestimate the severe consequences that winding-up order entails. It is likely that seeking the advice of a specialist insolvency lawyer will be of far more benefit to you than ignoring impending proceedings or seeking to conduct the litigation yourself as a layman.
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