The process and purpose of winding up can be summarised as a process ‘to make equable and rateable distribution of all assets of a company … amongst all creditors of the company without favour or preference’ (Ince Hall Rolling Mills Company Ltd v Douglas Forge Company).
How do I wind up a company in Scotland?
The presentation of a winding up petition to the Court of Session in Edinburgh is the first stage of the winding up (or, as it is also known, compulsory liquidation) process. It means that the petitioner is attempting to have the company compulsorily put into liquidation by the court. Alternatively, if the company has less than £120,000 share capital, the petition should be presented to the local Sheriff Court.
The reasons why a person might seek to have a company wound up are broad ranging. The most common reason is that the company has become unable to pay debts owing to its creditors (see section 122(1)(f), Insolvency Act 1986 (1986 Act)).
However, winding up proceedings are not restricted to situations where companies have become insolvent. For example, where a dispute arises between the shareholders of a company, one or more of the shareholders may seek to have the company wound up on the ground that it is “just and equitable” to do so (section 122(1)(g), 1986 Act).
When can I wind up a debtor company in Scotland?
Typically a creditor asks a solicitor to wind the debtor company up to recover debts which exceed £750, or to stop the company making its debts worse.
An application is made to the Court of Session (this is the petition) to seek an order to wind the company up. Directors should react when a petition is received; the consequences are that you could lose control and/or even face personal liability for the debts.
The Court of Session will grant a hearing date to “hear” the petition. If the company does not respond, or if no defence is mounted, then its usually a matter of the judge issuing the order to wind up.
Can I oppose a winding up petition in Scotland?
Where the grounds to challenge the petition exist it would be sensible to oppose the winding up petition. A winding up petition may be challenged by a company on the following grounds:
- The debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the company.
- The company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
- In certain other limited circumstances (for example such as Jurisdiction, Company likely to become insolvent, Technical or procedural error or Delay).
What are the consequences for the company if a winding up order is made in Scotland?
If a winding up order is made by the Court of Session in Edinburgh, this will ordinarily signal the beginning of the end for the company. The following consequences occur automatically on the making of a winding up order against a company:
- In Scotland, there is no official receiver, and instead an insolvency practitioner will be appointed to act as interim liquidator.
- The powers of the company’s directors cease (Measures Brothers Ltd v Measures  2 Ch 248).
- The interim liquidator takes control of the company’s assets (section 144(1), 1986 Act).
- Any disposition of the company’s property by anyone other than the liquidator is void (section 127(1), 1986 Act).
- All company papers must state that the company is in liquidation (section 188(1), 1986 Act).
- The winding up order operates as notice terminating the employment contracts of all the company’s employees, who are thereby automatically dismissed (Re Oriental Bank Corporation, MacDowall’s Case (1886) 23 Ch D 366).
- There is a stay on the commencement or continuation of proceedings against the company except with the permission of the court (section 130(2), 1986 Act).
The interim liquidator of the company will seek to wind up the company’s affairs, get in all the company’s assets and then distribute those assets to creditors and members in the statutory order of priority. Once this has been done the company will usually be dissolved by the liquidator.
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.
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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.
Specialist Winding-up Petition Lawyers
If you are owed more than £750 by a company and the debt is undisputed (for example a judgment debt) or you are a company facing a winding-up petition, we can negotiate on your behalf and advise you through the insolvency and Companies Court process.
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.