A Step-by-Step Guide to Early Dismissal of a Winding-Up Petition

A winding-up petition is a severe threat to your company’s survival. Even if the debt is settled, failing to dismiss the petition promptly can lead to frozen accounts, reputational damage, and further creditor claims. This guide explains how to secure early dismissal and protect your business.

Expert Legal Advice on Winding-Up Petitions

We are leading experts in insolvency proceedings, providing first-class advice on statutory demands and winding-up petitions. Our chancery solicitors and barristers have decades of experience in insolvency and winding-up petition law, having advised on hundreds of cases.

Our in-house insolvency barrister has successfully led cases, including appearances before the Court of Appeal. Our Senior Partner, with experience at KPMG, Goldman Sachs, and ING Barings, is dual-qualified as a Solicitor-Advocate and Barrister. Both senior lawyers regularly appear in and manage winding-up petition cases and will be available to you from the outset, ensuring you receive accurate legal advice when it matters most for developing a sound legal strategy.

What are the Effects of a Pending Winding-Up Petition Hearing?

The damage caused by a winding-up petition often extends far beyond the initial debt. Here’s how a pending petition can negatively impact a company:

• Reputational Damage: The mere existence of a winding-up petition can severely harm a company’s reputation, potentially deterring new clients and partners.
• Trading Challenges: Suppliers may hesitate to provide goods or services on credit, fearing non-payment if the company becomes insolvent.
• Creditor Actions: Existing creditors may take immediate steps to enforce their debts or demand payment, further straining the company’s cash flow.

How to Bring Forward a Hearing and Dismiss a Winding-Up Petition

A debtor company that has settled the petition debt but still faces the looming threat of a winding-up petition can apply to bring forward the hearing and seek dismissal, rather than awaiting a potentially delayed adjourned hearing. In order to seek early dismissal a Debtor must:

• Making the Application: The application should adhere to the format specified by IR 1.35. It must be supported by a witness statement, preferably from a director or officer of the debtor company with comprehensive knowledge of the company’s financial situation. The statement should include a draft order outlining the desired outcome: bringing forward the hearing and dismissing the petition.
• Urgency and Certification: Given the urgent nature of the matter, the application should be marked as urgent. For guidance on handling urgent applications, refer to IR 12.10, paragraph 7 of the Insolvency Practice Direction (“IPD”), CPR 23, paragraphs 3-4 of Practice Direction 23A. Furthermore, paragraph 25.19 of the Chancery Guide stipulates that in an urgent hearing, the applicant’s legal representative must furnish a certificate detailing the urgency of the matter. This certificate must be submitted along with the application.
• Notice to Parties: The petitioning creditor must be notified of the application. Depending on the circumstances, the court may also require notification to be served on any supporting creditors or other relevant parties who would normally receive notice under IR 7.9.
• Abridging Time for Service: Since the standard procedure requires serving the application at least 14 days before the hearing (IR 12.9(3)), an application to shorten this timeframe will likely be necessary. This request will be considered alongside the main application to bring forward the hearing.

What are the Grounds for Early Dismissal of a Winding-Up Petition?

1. Full Payment of the Debt

If the petition debt (including legal costs) is paid in full, the creditor can withdraw the petition. However, dismissal requires a formal court application.

Beware: Other creditors may still intervene to pursue their claims, even after payment.

2. Procedural Flaws

Incorrect service of the petition, errors in documentation, or failure to meet the £750 debt threshold can invalidate the petition.

3. Disputed Debt

If the debt is contested on substantial grounds, the court may dismiss the petition pending resolution.

How to Seek Early Dismissal of a Winding-Up Petition

The evidence in support of an application to bring forward and dismiss a winding-up petition should comply with the requirements in paragraph 9 of the IPD insofar as applicable and practicable. To persuade the court of the merits of your application, you must present robust evidence addressing the following points:

• Creditor Consent: Include written confirmation from the petitioning creditor consenting to the dismissal. If written consent is not available, a statement confirming verbal consent may suffice. It may not be enough for your counsel to inform the judge on instructions that consent has been given.
• Payment of Debt: Provide proof that the debt underlying the petition has been settled and cleared. Ideally, this should be confirmed by the petitioning creditor.
• No Opposing Creditors: Show evidence that no supporting creditors intend to appear at the hearing. This typically involves confirmation from the petitioning creditor, who would have received notices from supporting creditors under IR 7.14. Note that creditors can notify their intention to appear up until a business day before the hearing. The court understands that creditors can give notice up to the business day before the hearing, so even without prior notice, some may still intend to appear.
• Addressing Notices from Supporting Creditors: If a supporting creditor has indicated their intention to appear at the hearing, you must show that they no longer wish to do so. This involves a process similar to obtaining consent from the petitioning creditor.
• Absence of Creditor Action: Ideally, provide evidence demonstrating that no other creditors have issued demands or expressed an intention to call in outstanding debts.
• Company Solvency: Demonstrate the company’s solvency to strengthen your case. If a validation order has already been obtained, include it as supporting evidence.
• Explanation for Default: Offer a compelling explanation for the default that led to the petition, such as seasonal cash flow issues or exceptional market conditions.
• Proof of Notice: Provide evidence that all relevant parties have been notified of the application, as required.

Court’s Discretion in Winding-Up Petitions

The court has ultimate discretion in deciding applications to bring forward and dismiss winding-up petitions. While CPR 3.1(2)(b) provides the power to bring forward a hearing, its application in winding-up petitions has been subject to debate.

Debate on Class Remedy and Concurrent Dismissal: The editors of Bailey & Groves, a leading insolvency text, acknowledge the possibility of concurrently bringing forward the hearing and dismissing the petition (Bailey & Groves, para 14.86). However, they raise concerns about potential conflicts with the nature of a winding-up petition as a “class remedy”, representing the interests of all the company’s creditors.

Judicial Practice and Creditor Scrutiny: In practice, courts, particularly Insolvency and Companies Court judges, seem to accept this jurisdiction. They address concerns by closely scrutinising the position of the company’s creditors to ensure fairness in the process. The court’s decision will ultimately depend on whether it is satisfied that bringing forward the hearing without full notice serves the best interests of all parties involved.

Why Seek Professional Help to Dismiss a Petition?

• Speed: We can be instructed to file same-day applications and liaise with courts to expedite hearings. Acting swiftly and providing the necessary evidence can minimise the disruption caused by a winding-up petition and potentially avoid the severe consequences of insolvency proceedings.

• Risk Mitigation: Errors in documentation or missed deadlines can lead to dismissal refusal.

• Creditor Negotiation: We can be instructed to correspond with the creditor and our instruction can secure faster creditor cooperation.

Expert Representation in High Court and Companies Court

We regularly represent our client companies in the High Court and Companies Court, successfully obtaining adjournments to allow time to negotiate, settle, or defend winding-up petitions. We assist companies in avoiding the freezing of bank accounts by preventing the advertisement of winding-up petition notices. If a notice has already been advertised in the London Gazette, we can obtain a validation order from the Court to unfreeze the company’s bank accounts. With a proven track record of delivering effective legal advice and solutions, we know exactly how to achieve the best results for your business. For bespoke legal advice call ☎ 02071830529 or email ✉ [email protected]