Winding-Up Consequences

Just the fact of presentation (issuing at court) of a winding up petition against a company can cause substantial corporate harm. A petition not only damages the commercial reputation of the company but has additional legal consequences which can be extremely serious and in many circumstances fatal to the existence of the company. To ensure that your company suffers the least amount of damage possible, you must get professional legal advice and help as soon as possible to help you manage the process and negotiate the best outcome.

Need a 2nd opinion on your insolvency litigation? Our insolvency solicitors & barristers can help by assessing your case prospects including winding-up petition advice. Our highly experienced dual-qualified lawyers, can advise you of the best strategy in our first fixed fee meeting.

What are the consequences of a winding-up petition being presented?

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:

  • The company’s bank will freeze its bank accounts so that the company will be unable to make any payments out of its accounts. This is invariably done by banks in order to protect themselves in the event that a winding up order is made against the company. A company’s accounts will usually be frozen shortly after the petition has been advertised, although it can occur at any time after presentation of the petition. Once the accounts have been frozen, the company may find itself unable to pay its employees and suppliers, and so may be forced to cease trading.
  • The fact that dispositions of the company’s property will be potentially void gives rise to real difficulties for the company (and in particular its directors) in determining whether or not the company should enter into transactions or dispose of its assets before the hearing of the petition by the court.

In order to remedy and deal with these difficulties the company will normally have to seek a “validation order” under section 127 of the 1986 Act. Validation orders are not simply rubber stamped by the Court; applying for one is a burden and will involve and application to the court supported by witness evidence and exhibits explaining the financial position of the company in detail and the impact on all creditors (as winding-up is a class action).

Commercial reputation

The presentation and in particular advertisement 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. We are experienced in managing this process and getting clients the best possible outcomes.

Legal action

The company will need specialist legal representation to deal with the petition; while most lawyers know what a petition is, very few actually deal with winding-up petitions on a regular basis and have published successful Companies Court judgments and appeals.

Legal representation involves going on the Court record and dealing with the petitioner’s solicitors and also involves taking legal advice on the petition and instructing solicitors or counsel to attend the hearing of the petition.

We can be instructed to oppose the petition if there are grounds to do so and we have had many petition defence successes where there exists a genuine and substantial dispute. We have also successfully dealt with many abuses of the proper process of the Companies Court by issuing a winding-up petition as an abusive debt recovery tool; see our page on aggressive debt recovery defence. However, 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 official receiver becomes the liquidator of the company (section 136, 1986 Act).
  • The powers of the company’s directors cease (Measures Brothers Ltd v Measures [1910] 2 Ch 248).
  • The 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 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.

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 on the following grounds:

  • That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company;
  • Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or
  • 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.

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The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Click here or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.

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