Can you Wind-Up a Company when the Debt is Disputed?

It is a well known and long-established principle that winding-up proceedings should not be used as a debt recovery tool and is not to be commenced where the petition debt is disputed on genuine and substantial grounds. But what constitutes a genuine dispute is not always clear. If you are considering making a petition, it’s a good idea to seek legal guidance on how to do so, as the petition process is complex and needs to be closely followed.

We are leading experts specialising in insolvency proceedings. Our experienced City of London solicitors and barristers regularly assist businesses and individuals looking to prepare and serve a statutory demand; or creditors owed money and considering issuing a winding up petition

The General Rule: Winding-up order will not be made if the debt is genuinely disputed

The longstanding rule is that a winding-up order will not be made against a company is the alleged debt is disputed on genuine and substantial ground. The position was summarised by Lord Justice Hoffmann, sitting as a judge, in the leading case of Re a Company [1992] 2 All E.R. 797 where he exercised his discretion by dismissing the winding-up petition and stated that:

It is an abuse of the process of the court to make a statutory demand or present a winding-up petition based on a claim to which there is a triable defence. Where a statutory demand is made but disputed on reasonable grounds, the creditor may find himself liable to indemnity costs on its dismissal.

Lord Hoffmann, Re a Company [1992] 2 All E.R. 797

Do Courts have any discretion where the debt is disputed?

Although the court will not ordinarily entertain winding-up proceedings in relation to debts which are disputed on genuine and substantial grounds, it does have a wide-ranging discretion under Insolvency Act, s 125 to make any order it sees fit. Section 125 of the Insolvency Act states that:

On hearing a winding-up petition the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make an interim order, or any other order that it thinks fit; but the court shall not refuse to make a winding-up order on the ground only that the company’s assets have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.

Insolvency Act, s 125

The Court may make a winding-up order when the debt is genuinely disputed only in exceptional circumstances

The case of Lacontha Foundation v GBI Investments sets out the factors the court should apply when considering if there are exceptional circumstances. These are:

  1. Does the petitioning creditor have an adequate alternative remedy if the company is not wound up and the winding-up petition is dismissed?
  2. In the event that the Court disregards the petition debt, would the company still be solvent?
  3. What prejudice would the company suffer if the court made a winding-up order against the company?

In Lacontha Foundation v GBI Investments the Courts applied the factors mentioned above and held that:

  1. Due to the complexity of the issues, there was a need for a liquidator to be appointed in order to investigate the circumstances surrounding the disposition of bearer shares, which were considered to be worth a substantial amount. In the circumstances, an adequate alternative remedy was not available to the petitioner.
  2. The debtor company appeared to be insolvent regardless of the petition debt.
  3. The debtor company in question was not a trading entity and as such, its function had come to an end when the shares were disposed of. In the circumstances, the debtor company would not suffer any prejudice if the court made a winding-up order.

If you are considering making a petition on these grounds, it’s a good idea to seek legal guidance on how to do so.

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 a company 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.

How we can help you

Our team is made of highly experienced and tough negotiators that will fight to get the best results for our clients. We have years of experience of negotiating with creditors and debtors alike from large multi-million pound cases to smaller matters with equally large consequences for the person involved.

We represent you at Winding up Petition Hearings

Although we are based in the legal heart of London, operating as the only law firm in the historic Middle Temple Chambers, we provide comprehensive nationwide coverage to represent you at any winding up petition hearing. Our team of solicitors and barristers will prepare grounds of opposition and a witness statement for you.

We will represent you at the winding up petition hearing and will provide our own barristers or external local counsel to any hearing across the country.

Not based in London? We provide nationwide representation

That does not matter, we will represent you no matter where you are based in England or 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.

If we can, we will arrange a conference with a senior member of our winding up petition team. This meeting will take place either in person or using our telephone conference facilities or via Skype if you prefer. Therefore, no matter where you are based in England or Wales we can represent you.

Specialist London Winding-up Petition Lawyers

We’re masters of insolvency dispute litigation. We are a specialist City of London law firm made up of Solicitors & Barristers. We’re based in the Middle Temple Inns of Court (next to the Royal Courts of Justice where the High Court and Central London County Courts are based).  We’re experts in dealing with matters surrounding insolvency in particular our team have unparalleled experience at 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. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529.

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