If a company owes a debt of more than £750 to one of its creditors, they may present at court a document known as a winding up petition and ask the Judge to wind the company up on the basis that it is unable to pay its debts. The creditor may or may not serve the company with a statutory demand before presenting the Petition.
The Petition must be served on the company at their registered office address.
The creditor must also advertise the fact that the Petition has been issued and when the Petition will be heard (at court) in the London Gazette not less than 7 days after the Petition has been served, and not less than 7 days before the hearing. This gives other creditors of the company (if there are any) the opportunity to support the Petition.
The advertisement of the Petition is likely to cause the Company reputational and financial difficulties. Therefore, if the company disputes that it owes the debt it is imperative that an application be made to court to restrain the creditor from advertising the petition, if the creditor will not agree to refrain from doing so in writing. The advertisement of the Petition will likely lead to the company’s bank accounts being frozen. If this happens, it’s important to obtain a validation order, otherwise the Company will not be able to pay its employees and suppliers. Any payments/ transactions made out of the Company after the date of the presentation of the Petition will likely be void.
If the company disputes the debt being claimed by the Petitioning Creditor, it should file and serve a Notice of Opposition not less than 5 business days before the hearing.
Where the debt is disputed the Judge will likely set directions to allow both parties the opportunity to file and serve evidence in relation to the debt, before the matter is heard by way of a hearing.
If the company pays the debt to the Petitioning creditor or the debt is otherwise resolved, a supporting creditor can substitute the Petitioning creditor and take over carriage of the Petition. If this happens, it can lead to long and protracted proceedings in the insolvency courts.
If you have been served with a winding up petition, or would like to serve a company with a winding up petition, please contact our specialised team of insolvency experts for advice.