Cancelling a company winding-up order?

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 and its assets and investigates its affairs. Rescinding a winding-up order is a legal process that allows a company to reverse the effects of a winding-up order and continue operating as a going concern. This may occur when the company’s directors or creditors believe that the order was issued in error, or that circumstances have changed since the order was made.

The process involves making a legal application to the court that issued the winding-up order, providing evidence to support the application, and paying any outstanding debts or expenses related to the winding-up. If the court is satisfied that the cancellation is justified, it may rescind the winding-up order and allow the company to resume its operations as if there was no winding-up order.

Factors that affect the Court’s Decision

The Court’s decision to grant the order for cancellation of a winding-up order will be influenced by several factors, including the specific circumstances of the case and the evidence presented to support the application. It is important to note that this jurisdiction is considered exceptional, and the Court will only exercise it in cases where there are compelling reasons to do so. Additionally, simply paying the petition debt after the winding-up order has been made will not usually be enough to justify granting the order for cancellation. Finally, if it is clear that the company is insolvent, it is unlikely that the Court will grant the order for cancellation.

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 [1910] 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.

Who can Apply to Rescind a Winding-up Order?

The ability to apply for the rescission of a winding-up order is granted to three entities: (a) a creditor, (b) a contributory, or (c) the company jointly with a creditor or contributory, as outlined in paragraph 7.2 of the Practice Direction – Insolvency Proceedings. It is important to note that applications made by any other party or solely by the company will not be issued by the Court.

Application must be made within 5 business days

The application must be made within 7 days (see r.7.47 (4)).

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 [2010] 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. 

Philip Marshall QC (Deputy High Court Judge) in Metrocab Ltd (para 17)

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.

Late Applications to Rescind a Winding-up Order

In cases where an application to rescind a winding-up order is not made within the required 7-day timeframe, it is still possible to apply for an extension of time under rule 4.3 of the Insolvency Rules 1986. This involves submitting a fee-paid application, along with supporting evidence explaining the delay in making the application for rescission.

Evidence required to support the Application

In order to support an application for the rescission of a winding-up order, it is necessary to submit a witness statement that outlines all relevant facts that support the application. This statement typically includes evidence of the company’s solvency and financial position, including its assets and liabilities, as stated in paragraph 7.2 of the Practice Direction. If an application to extend time is also being made, the evidence should explain the reason for the delay. It is important to note that the original evidence must be filed and copies must be served, along with a copy of the issued application, to the parties who are required to receive notice. Copy evidence is generally not accepted for filing.

Parties that must be served with the Application and evidence

According to paragraph 7.1 of the Practice Direction, the application and evidence for the rescission of a winding-up order must be served to the Official Receiver, as well as to the petitioner and any supporting or opposing creditors. Evidence of service will need to be provided during the hearing in the event that neither the Official Receiver nor the petitioner attends.

Likely Costs Consequences of the Application

The costs associated with an application for the rescission of a winding-up order will vary depending on the specific circumstances of the case. In general, if the application is unsuccessful, the individual who initiated the application will most likely be required to cover the costs of the Official Receiver and/or the petitioner.

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 listed, 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?

Appealing a Winding-up Order

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.

If a winding-up order has been issued against a company, the company’s directors or shareholders may wish to appeal the order. However, appealing a winding-up order can be a complex and difficult process.

To appeal a winding-up order, the company or its directors would need to apply to the court for permission to appeal. This would involve presenting evidence that the winding-up order was made in error, or that there are grounds for an appeal.

If the court grants permission to appeal, the company or its directors would need to prepare a case and present it to the court. This would involve demonstrating that the winding-up order was made in error, or that there are grounds for an appeal.

If the court decides to overturn the winding-up order, the company can continue to operate. If the winding-up order is upheld, the company will be closed down and its assets will be sold to pay off its debts.

It is important to note that appealing a winding-up order can be expensive and time-consuming. It is therefore important to seek legal advice before pursuing an appeal, to ensure that it is the right course of action for the company and its stakeholders.

How we can help your company

As a leading law firm with a track record of success, you can be assured that your matter is in safe hands. Our success rate is a result of the dedication of our lawyers who will diligently review your matter so it has the best possible chance of success from the outset when it matters the most.

Specialist Lawyers for Winding-up Petitions

Engaging a specialist insolvency lawyer is advisable when facing a winding up petition hearing due to the technical nature of insolvency regulations, particularly in the specialised area of winding up. Mistakes made without expert legal guidance can result in costly consequences for the company. Seeking the advice of a specialist insolvency lawyer is crucial to navigate the proceedings and mitigate potential risks.

We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inn of Court adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules

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We represent clients throughout England & Wales. If you contact us through our contact form, by email or by phone, one of our winding up petition team members will contact you by phone to discuss your matter and assess whether we can help you. Our team will be able to arrange a fixed fee conference with a senior member of our winding up petition team.

Experts in HMRC Winding-up Petition Defence

HMRC is the largest issuer of winding up petitions, and the resultant legal and financial difficulties can be overwhelming for businesses. However, our firm has a dedicated tax disputes team that specialises in addressing HMRC-related claims and navigating Time To Pay Arrangements, providing effective support to companies during difficult times.

We firmly believe that a combined approach is key to saving struggling businesses, and our tax dispute team is renowned throughout the country for their exceptional track record in this area. Led by a former HMRC Tax Barrister who also headed the National Tax teams of two of the ‘Big 4’ accountants, our team possesses the expertise and insight required to achieve optimal HMRC tax dispute outcomes for our clients.

If your business is facing HMRC-related challenges or threats of winding up orders, our HMRC Winding-up Petition Defence team is here to help. Contact us today to learn more about our tailored legal solutions and how we can assist in safeguarding your and your company’s interests.

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