Disputing a Winding Up Petition

A winding up application against a company is only available if the debt is in excess of £750.

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• How do I issue a winding up petition?

  In order to serve a winding up petition, a creditor must first make an application to the Court. In order for the application to be successful, the creditor will need to show the Court that the debtor is unable to pay their debts. Generally, this is done by the creditor serving a statutory demand on the debtor and then allowing them 21 days to pay the debt following service.

  If the debtor fails to pay the debt or they do not dispute the statutory demand after it has been served on them, this will act as evidence that the company is unable to pay its debt. The creditor can then commence with an application to the Court for a winding up order.

  In some instances, a creditor may be able to commence with their application to the Court to wind up the company without first having served a statutory demand on the debtor, instead of relying on other evidence which highlights that the company cannot pay its debts.

  If the Court approves the application made by the creditor, then a winding up petition will be issued against the debtor and the Court will list a hearing date that is typically around eight weeks from the date the petition has been issued.

  During these eight weeks, the winding up petition will be served on the debtor and also advertised. The Insolvency (England and Wales) Rules 2016 states that the winding up petition must be advertised in the London Gazette seven days after it has been served. This will most likely lead to the debtor’s banks freezing all of their business accounts. The advertising of the petition may also lead to other creditors coming forwards who could support the issuing of a winding up order.

  At the hearing, the Court will decide whether it will issue a winding up order against the debtor, which would mean that it would have to cease business operations.

  What should I do if a statutory demand or winding up petition is made against my company?

  All companies should have in place internal systems which ensure that statutory demands and winding up petitions are dealt with as quickly as possible when they become aware of them. If they are not, then it could have devastating consequences for the company. Such consequences could include:

  • As previously mentioned, the freezing of all company bank accounts;
  • Cause significant damage to the public perception of the company which could impact future commercial opportunities;
  • It may lead to the business being unable to secure credit from its suppliers;
  • Any outstanding business debts could be pursued more aggressively by other creditors; and
  • It could also impact existing commercial contracts which include clauses that permit for the agreement to be terminated if insolvency proceedings are commenced.

  If a business is issued with a statutory demand or a winding up petition in respect of a debt that is not a disputed debt, then the business should either pay it off as soon as it can (preferably prior to the winding up petition being advertised in the London Gazette) or enter negotiations with the creditor for a payment arrangement. Once the debt has been paid off or an agreement has been reached, the debtor must ensure that the creditor withdraws the petition (with the permission of the Court) or that it is dismissed at the hearing, and preferably, that it is not advertised in the London Gazette.

  However, even if the debt has been paid in full, the Court will not dismiss the winding up petition if a different supporting creditor has come forward and taken conduct of the petition. In such instances, the Court will substitute the supporting creditor for the original creditor, if the supporting creditor would independently have had the right to present a winding up petition against the debtor.

  However, if the debtor disputes any of the debts alleged by any creditors, they will need to defend the winding up petition.

  How do I challenge or defend a petition?

  If there is a dispute in respect of the debt, then the debtor will need to defend the winding up petition. Disputing the winding up petition can be done if there is a genuine disagreement as to whether the debtor owes the creditor money, or if the debtor is able to set off the debt, which would cancel out the amount owed to the creditor, or, alternatively, would reduce it to less than £750.

  In order to provide that there is a genuine disagreement in respect of a debt, the debtor will need to provide the Court with sufficient proof (not just purely an honest belief) that they are not liable to pay the debt.

  Once a debtor becomes aware of a winding up petition, it should write to the creditor to confirm that they are disputing the debt and seek immediate legal advice. The debtor should request that the creditor does not proceed any further with the winding up petition but should the creditor refuse to do this, then the debtor should either attempt to obtain an injunction to restrain the winding up notice being advertised in the London Gazette, or inform the creditor that they will oppose the petition at the Court hearing on the basis that they are disputing the debt.

  The laws in respect of winding up petitions and insolvency proceedings are generally complex, so it is vital that legal advice from a specialist team of insolvency solicitors is sought at the earliest point.

• What should I do if a statutory demand or winding up petition is made against my company?

  All companies should have in place internal systems which ensure that statutory demands and winding up petitions are dealt with as quickly as possible when they become aware of them. If they are not, then it could have devastating consequences for the company. Such consequences could include:

  • As previously mentioned, the freezing of all company bank accounts;
  • Cause significant damage to the public perception of the company which could impact future commercial opportunities;
  • It may lead to the business being unable to secure credit from its suppliers;
  • Any outstanding business debts could be pursued more aggressively by other creditors; and
  • It could also impact existing commercial contracts which include clauses that permit for the agreement to be terminated if insolvency proceedings are commenced.

  If a business is issued with a statutory demand or a winding up petition in respect of a debt that is not a disputed debt, then the business should either pay it off as soon as it can (preferably prior to the winding up petition being advertised in the London Gazette) or enter negotiations with the creditor for a payment arrangement. Once the debt has been paid off or an agreement has been reached, the debtor must ensure that the creditor withdraws the petition (with the permission of the Court) or that it is dismissed at the hearing, and preferably, that it is not advertised in the London Gazette.

  However, even if the debt has been paid in full, the Court will not dismiss the winding up petition if a different supporting creditor has come forward and taken conduct of the petition. In such instances, the Court will substitute the supporting creditor for the original creditor, if the supporting creditor would independently have had the right to present a winding up petition against the debtor.

  However, if the debtor disputes any of the debts alleged by any creditors, they will need to defend the winding up petition.

• How do I challenge or defend a petition?

  If there is a dispute in respect of the debt, then the debtor will need to defend the winding up petition. Disputing the winding up petition can be done if there is a genuine disagreement as to whether the debtor owes the creditor money, or if the debtor is able to set off the debt, which would cancel out the amount owed to the creditor, or, alternatively, would reduce it to less than £750.

  In order to provide that there is a genuine disagreement in respect of a debt, the debtor will need to provide the Court with sufficient proof (not just purely an honest belief) that they are not liable to pay the debt.

  Once a debtor becomes aware of a winding up petition, it should write to the creditor to confirm that they are disputing the debt and seek immediate legal advice. The debtor should request that the creditor does not proceed any further with the winding up petition but should the creditor refuse to do this, then the debtor should either attempt to obtain an injunction to restrain the winding up notice being advertised in the London Gazette or inform the creditor that they will oppose the petition at the Court hearing on the basis that they are disputing the debt.

  The laws in respect of winding up petitions and insolvency proceedings are generally complex, so it is vital that legal advice from a specialist team of insolvency solicitors is sought at the earliest point.

How we can help

At Nelsons, our team of specialist insolvency solicitors in Derby, Leicester and Nottingham has many years of experience in advising businesses involved in insolvency proceedings and can provide specialist assistance if you have received a statutory demand or been served with a winding up petition that you oppose.

Our team fully understand the legal procedures involved and by contacting us as early as possible, we can provide you with advice regarding your situation and assist you in all dealings with creditors and the Courts.

The team is recommended by the independently-researched publication, The Legal 500, as being one of the top teams of experts in the country.