Director Deadlock: Effective Authority in Winding Up Petitions

In the recent case of Rushbrooke UK Ltd v 4 Designs Concept Ltd  [2022] EWHC 1110 (Ch) the High Court struck out a company’s application for an injunction to stop a winding-up petition. The court held that a deadlock between the directors precluded effective authority and that, unless the company’s Articles of Association allowed for it, one of the directors could not instruct solicitors on his own to oppose the winding-up petition. 

We are leading experts specialising in insolvency proceedings. Our experienced City of London solicitors and barristers regularly assist companies facing a winding up petition; individuals who have been served a statutory demand; or creditors owed money and considering issuing a winding up petition.

The Facts

The case concerned a company, Rushbrooke UK Ltd (Rushbrooke), which had made an application to restrain the presentation of a winding-up petition brought by a creditor. Instructions to do so, however, were only given by one of the two directors of the company. The second director, whose relationship had broken down with the instructing director, had not agreed to opposing the winding-up petition and went as far as writing to “de-instruct” the solicitors.

The Judgement

The High Court struck out the application seeking to restrain the presentation of the winding-up petition. It found that it was unreasonable for the solicitors to have acted on the basis of instructions from one director when it was known that the two had fallen out. In such circumstances, and with regards to the company’s Articles of Association, no steps could have been taken to oppose or carry out any proceedings in relation to the winding-up petition without the consent of the other director; the acting director did not have the relevant authority.  

Whilst the High Court issued a wasted costs order against the solicitors’ firm for negligence and found them jointly-liable with the company under Section 51 of the Senior Courts Act 1981, it had initially ordered only the company to pay the respondent’s costs incidental to the application, amounting to £7920.

The Importance of Authority 

Rushbrooke stresses the importance of companies resolving any matters of directors finding themselves in a deadlock. When it comes to opposing winding-up petitions, doing so effectively is an even more pressing pressing matter. Winding-up petitions are issued as a last resort by creditors and can result in the compulsory liquidation of a company to pay off any outstanding debts. Failing to agree on next steps promptly could serve to jeopardise your company’s existence and strike off any avenues that could have been actionable in the first place. The judgement underlines the need for both companies and solicitors to be absolutely clear on the presence of effective authority to deal with winding-up petitions before pursuing the same. Failure to do so risks ineffective, time-wasting action that could be costly to your case. 

It is important to note that whilst Rushbrooke is precedent for companies whose articles of associations do not permit a director to act alone, this may not be the case, where a company’s articles allow authority to be delegated to a managing director. 

Download the Judgement

How can we help you oppose a winding up petition?

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case, and can assist you in opposing winding up petitions and negotiating with creditors.

If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition on the following grounds: 

1. That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company;
2. Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or
3. In certain other limited circumstances (for example such as jurisdiction, technical or procedural error or delay).

To oppose a winding-up petition, you will initially need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing.

Your company is entitled to appear at the petition hearing so as to oppose the making of a winding-up order. It is a routine matter for companies to instruct solicitors and/or barristers to appear on their behalf at the hearing.

Instruct Specialist Winding Up Lawyers

We provide a no cost initial case review to establish whether or not we can help you. 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.