Case Study: IPS Law Fails to Restrain Advertisement of Winding-Up Petition

The recent High Court decision in IPS Law LLP v. Safe Harbour Equity underscores the importance of clear, well-supported defences for businesses facing winding up petitions. In this case The High Court dismissed an application by IPS Law LLP to restrain Safe Harbour Equity Limited from advertising a winding-up petition based on a £500,000 unpaid facility agreement. IPS argued that the facility had been advanced on the understanding that it would not be enforced and that repayment would be contingent upon future litigation proceeds. Deputy ICC Judge Curl KC rejected those submissions, holding that the alleged assurances were unsupported and that there was no legitimate crossclaim capable of defeating the undisputed debt.

The judgment confirms the high threshold faced by applicants seeking to restrain advertisement of petitions and reinforces the judiciary’s unwillingness to indulge speculative defences or commercially implausible narratives.

Background: The Loan and Project Red Card

The loan originated from a July 2023 facility agreement designed to support IPS’s involvement in Project Red Card a proposed collective action concerning the misuse of athletes’ personal data. IPS maintained that the funding was not a standard loan but instead a form of contingent litigation advance. According to IPS, there was a shared understanding that repayment would only arise if the litigation succeeded. However, no proceedings were ever issued, no damages were recovered, and no documentation existed to record any conditionality as to repayment. Safe Harbour consequently exercised its contractual right to petition for winding-up.

Procedural Context: The Legal Test for Restraining Advertisement

An application to restrain advertisement of a petition is not a full defence trial; it is an interim remedy governed by strict criteria. The applicant must satisfy the Court that:

1. There is a genuine and substantial dispute as to the debt, or
2. There exists a genuine and serious crossclaim exceeding the petition sum, or
3. There is an abuse of process or some other exceptional factor making advertisement unjust.

Mere assertions or unparticularised allegations are insufficient. The burden lies firmly on the applicant to demonstrate that the debt is not presently due or that enforcement would be oppressive. IPS failed to meet this threshold.

Download Judgment Here

IPS’s Grounds for Injunctive Relief

IPS did not deny receiving or utilising the £500,000. Instead, it attempted to characterise the facility as unenforceable based on alleged oral assurances. It also claimed an entitlement to a percentage of future litigation recoveries, which it said would exceed the petition debt. Finally, it attempted to cast doubt on the enforceability of the agreement by raising the issue of independent legal advice. The Court treated all of these defences with scepticism.

Judicial Findings: Assurances Rejected, Crossclaim Dismissed

Deputy ICC Judge Curl KC was critical of IPS’s evidential presentation. He held that no clear or unequivocal representation had been made by Safe Harbour that could give rise to promissory estoppel. Even if discussions had taken place about repayment from future proceeds, such statements fell well short of an enforceable commitment not to pursue repayment.

As to the alleged crossclaim, the Court held that there was no binding contractual entitlement to litigation proceeds. A hypothetical future distribution of damages particularly in circumstances where no proceedings had been issued could not amount to a present crossclaim. The Court also dismissed IPS’s reliance on the absence of independent legal advice, noting that IPS, as a regulated law firm, could not reasonably claim ignorance of contractual risk.

Lessons for Businesses Facing Winding-Up Petitions

This judgment underlines that credibility and evidential depth are decisive in petition disputes. Courts will swiftly dismiss vague or inconsistently presented claims. Defendants should avoid relying on informal understandings or verbal assurances that are not supported in writing. If a dispute is to be raised, it must be clear, documented, and commercially coherent. Likewise, indirect or conditional crossclaims particularly those dependent on uncertain litigation outcomes will not operate as a shield against insolvency proceedings.

Essential Guidance on Winding Up Petitions for UK Businesses

What is a winding up petition?

A winding up petition is a legal action taken by a creditor to close a company and liquidate its assets in order to recover debts owed. If the court grants the petition, the business is put into compulsory liquidation, and its assets are sold to repay creditors. This is usually considered a last resort for creditors.

Who can file a winding up petition?

Any creditor owed £750 or more can file a winding up petition if the debt remains unpaid and uncontested. The creditor must demonstrate that the debt is valid and that other collection efforts have failed.

Can a company oppose a winding up petition?

Yes, a company can oppose a winding up petition if it has a legitimate defence, such as disputing the debt or demonstrating that the creditor has acted improperly. However, any defence must be credible, well-documented, and presented in court.

What happens if the court dismisses a winding up petition?

If the court dismisses a winding up petition, the company can continue its operations, although it may still need to address any underlying financial issues or creditor disputes. A dismissal may also help restore the company’s reputation, as the petition is no longer an active threat to its business.

Can a Winding Up Petition Be Resolved Without Liquidation?

In many cases, yes. Even after a petition is issued, it is still possible to reach a settlement with the creditor before it is heard in court. Companies may be able to negotiate a structured payment plan, agree a reduced lump-sum settlement or enter into a wider restructuring agreement. Creditors often prefer a commercially sensible repayment deal over the time and cost of pursuing liquidation particularly where liquidation might recover little value.

What Alternatives Exist for Companies in Financial Distress?

A winding up petition is not the only outcome for a struggling company. Depending on its circumstances, the business may be able to pursue formal rescue procedures such as a Company Voluntary Arrangement (CVA), which allows debts to be repaid over time under a legally binding agreement. Another option is Administration, where an insolvency practitioner is appointed to protect the business from creditor action while exploring restructuring or sale opportunities. In some cases, securing new investment or refinancing may be sufficient to stabilise cash flow and avoid further escalation.

How LEXLAW Can Help if You’re Facing a Winding Up Petition

At LEXLAW, we specialise in helping businesses navigate complex insolvency and debt disputes. If you’re facing a winding up petition, our team can assist by:

• Assessing Your Defences: We help you develop fact-based arguments that directly address the petition debt.
• Documenting Agreements: We ensure that any agreements or assurances are legally binding and clear, minimizing risks of dispute.
• Managing Creditor Negotiations: Our team can negotiate effectively with creditors, finding possible resolutions that avoid the need for winding up.

Our expertise in insolvency law allows us to guide businesses through difficult disputes and safeguard their financial future. Reach out to us to discuss how we can protect your company’s interests.