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Winding-Up Consequences

The consequences for a company of the presentation of a winding up petition against it can be extremely serious.

Dispositions of property are potentially void

Any dispositions of a company’s property which occur after the date of presentation of the petition are potentially void if the company is ultimately wound up by the court (sections 127(1) and 129(3), 1986 Act). The effects of this for a company are two-fold:

In order to deal with these difficulties the company will normally have to seek a “validation order” under section 127 of the 1986 Act. This will involve expense and administrative inconvenience for the company.

Commercial reputation

The presentation of a winding up petition against a company can cause substantial harm to the commercial reputation of the company. The company may, for example, find it more difficult to obtain credit (for example, from suppliers) while the petition is outstanding. Existing creditors of the company may also pursue the company for repayment of outstanding debts more vigorously than would otherwise be the case.

Legal action

The company will incur expense and inconvenience in dealing with the petition itself. This may involve taking legal advice on the petition and instructing solicitors or counsel to attend the hearing of the petition. Further, if the petition is well-founded the company will be obliged to pay the petitioner’s costs of the petition as well as the petition debt itself.

What are the consequences for the company if a winding up order is made?

If a winding up order is made by the court, 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:

The 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.

Exceptionally, a company which is being wound up by the court may come out of liquidation and recommence trading its business. This can occur where the court rescinds the winding up order or grants a stay of the winding up proceedings. 

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