Any presentation of a winding up petition (whether merited or not) can put a business under extreme pressure but there are steps a company can take to either avoid the presentation of a petition or to prevent a winding-up petition being advertised.
Responding to a Statutory Demand:
The first thing the Company ought to realise is that it is now at risk of presentation of a winding-up petition being presented. The Company needs to quickly decide whether it disputes the debt, or has a cross claim or counterclaim. If the claim is valid it is important to pay the debt, if possible, taking into account any cross or counterclaim.
It may be a costly error to wait until the presentation of the petition to pay the debt.
Does the Statutory Demand contain Disputed Debts?
If the debt is disputed the Company or it’s lawyers should write a comprehensive letter of response to the demand for payment. The letter should:
- Set out the grounds upon which the debt is disputed or the grounds of the cross or counterclaim.
- Explain that if a petition is presented an application will be made to strike it out as an abuse of process.
- Indicate that the company will seek its costs on an indemnity basis if an application is made to strike out.
- Ask the creditor to give an undertaking not to present the petition without prior notice.
Once the letter has been sent the Company should push for a response from the creditor as soon as possible.
Obtaining an Injunction to Prevent Presentation of a Winding-up Petition
If the creditor still intends to present a petition then the company has the option of applying to the court for an injunction to restrain the presentation of the petition. The court will only grant the application if there is prima facie evidence of a substantial and bone fide dispute, cross claim or counterclaim.
The application is made by originating application to the High Court. A form is available from the Insolvency Service website. It will normally need to be supported by a witness statement from either a director or an employee of the company. The statement should:
- Set out clearly and comprehensively the grounds upon which the debt is disputed.
- Exhibit evidence in the form of correspondence between the parties and contemporaneous documents.
- Contain a summary of the financial affairs of the company and include the latest balance sheet, profit and loss accounts and forecast.
- Ideally the hearing of the application should be on notice. If there is insufficient time it is possible to be without notice.
One way by which a party can seek to restrain the presentation of a winding up petition is to show that the debt underlying the possible winding up proceedings is disputed, possibly by showing that there is a possible defence to the claim.
Successful Applications to Restrain Winding-up Petitions
In a recent case, Tallington Lakes Limited –v- South Kesteven District Council  EWCA civ 443, Etherton LJ refused permission to appeal the decision of Norris J dismissing an application for an injunction to restrain the presentation of a winding-up petition. Since a judgment debt was not paid or satisfied until the judgment creditor was in possession of cleared funds, interest had continued to run on the outstanding liability owed by the creditor until the cheque payment had not cleared through the company’s account (and not the date on which it was sent to the petitioner), by which date the interest due exceeded £750.
Lord Justice Etherton provided useful guidance as to when such an application may succeed:
“I have to emphasise, however, in this context that it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition and may be reached even if, on an application for summary judgment, the defence could be regarded “shadowy”.”
This is usefully guidance to parties defending or enforcing debts by means of statutory demands and winding up petitions in circumstances where it is possible that the debtor may have a defence, albeit a weak defence, in respect of the claimed debt. It is also useful guidance for parties seeking to restrain the presentation of winding up proceedings.
Obtaining an Injunction to Restrain Advertisement
If the petition has already been presented the company still has the option of applying to the court to restrain the advert which is to appear in the London Gazette and which will likely result in the business banking facilities being frozen.
Our Winding-Up Experts are able to give specialist legal information and advice relating to applications for injunctions to restrain winding-up petitions and the advertisement of the same. To contact one of our Solicitors or Barristers please click here or call 0845 8622 529.