Litigation Team Secures Dismissal of a Winding-Up Petition

28th Jul 2020

The litigation team has recently secured the dismissal of a winding-up petition for almost £180,000 that had been issued against a company.

Personal Litigation and Dispute Resolution

Under s. 122 of the Insolvency Act 1986 (“the Act”), a company may be wound up by the Court if, amongst other reasons, it is unable to pay its debts. s. 123 of the Act defines what is meant by “unable to pay its debts” and this definition includes where a company has been served with a Statutory Demand “requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor”. This is what had happened in this case.

Under s. 125 of the Act, “on hearing a winding-up petition the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make an interim order, or any other order that it thinks fit”.

The debt claimed was disputed on substantial grounds and this dispute is currently ongoing. The company’s position was therefore that it was not appropriate to make a winding-up order at this stage as it was able to pay its debts; the debt had simply not been paid because the company disputed that it was due.

It was of particular importance in this case that the petition was dismissed rather than the case being adjourned, because the company was in the process of securing finance for a development project. The lender would not release the funds whilst there was an outstanding petition registered against the company and the matter needed to be dealt with urgently as there was a very limited time for which the lender was willing to keep the funds available for the company.

After negotiations with the creditor we were able to persuade them to agree to the dismissal of the petition at this stage. However, the lender required evidence that the petition had actually been dismissed by an order of the Court, their reasoning being that even if the parties had signed a consent order, the Court could for whatever reason decline to endorse it.

We made an application to the County Court dealing with the petition for the consent order that had been agreed to be approved. However, in light of the current pandemic Courts are working at limited capacity and prioritising cases that they consider to be urgent. The Court was therefore unable to confirm whether they would be in a position to seal the order before the lender’s deadline. We were therefore required to make an urgent application to the High Court for the case to be transferred up to that Court and for an order to be made in the terms that had been agreed. Counsel was instructed to proceed with this on a Friday afternoon, the following Monday we were advised that the order had been approved by an Insolvency and Companies Court Judge and we had the sealed order the following day. This enabled the company to proceed with its funding.

We are able to advise on insolvency procedures for both companies and individuals, whether you are a creditor looking to recover monies owed to you or a debtor who is being pursued. Please contact Peter Hastings or myself (Elizabeth Gibson) in the Dispute Resolution team at Rogers & Norton for further information.