Insolvency Winding Up
Process

The Insolvency Winding Up Process

At West London Law, we know results matter. In the winding-up process, we have acted successfully for a diverse range of clients, including prominent entrepreneurs, directors of Fortune 500 companies, and SME owners.

Our founding partner, Gurvir Birang, is recognised as an expert in the field of bankruptcy and winding up law and therefore has a wealth of experience in defending statutory demands and winding-up petitions from creditors.

The legal specialists at West London Law are results-focused and have a vast experience in negotiating robust, favourable settlements for our clients and in successfully setting aside statutory demands and winding up petitions. We have been ranked repeatedly in the legal directories as leaders in bankruptcy and insolvency defence work.

What is a statutory demand?

If a person or a company owes money, the creditor can make a formal statutory demand for the debt to be repaid. A statutory demand is a powerful weapon to wield – as it can be followed up in a mere 21 days with a bankruptcy petition (if served on an individual) or a winding-up petition (if served on a company).

The requirements for issuing a statutory demand are set out in the Insolvency Act 1986.

How should a company respond to a statutory demand?

Under section 123(1)(a) of the Insolvency Act 1986, if a company does not comply with a statutory demand for a sum of £750 or more within three weeks, the petitioner can issue proceedings to wind up the company. This is because the organisation will be deemed, by virtue of its failure to comply with the demand, unable to pay its debts.

If the company accepts that the debt is payable, it should contact the creditor immediately and arrange to pay the debt.

What is a winding up petition?

A creditor can apply to wind up company by serving a winding up petition if the company has not made an application to set aside the demand or it fails in doing so, forcing the company into Compulsory liquidation, also known as winding up. This is a court-based procedure through which the assets of a company are realised and distributed to the company's creditors.   If a winding up order is made, a liquidator is appointed to investigate the company's affairs and the previous financial transactions, including whether the directors acted properly in line with their legal and financial duties, exposing them to personal liability for any wrongdoing.

There are two main situations under the Insolvency Act 1986 in which a company can be wound up:

  • The company cannot pay its debts
  • It is just and equitable for the company to be wound up

The decision as to whether to wind up a company is at the court's discretion.

What if the company disputes the debt?

If a company disputes the debt cited in the statutory demand, it must file an application to set aside the statutory demand. Furthermore, the court will not action a winding-up petition if the debt is genuinely disputed on substantial grounds

To successfully dispute a debt, the company must convince the court that objectively there is a solid reason to argue against liability.

If the company disputes the debt it is crucial to obtain legal advice immediately. Our solicitors will carefully examine the reasons for disagreeing with the liability and advise the organisation on its legal position. We can take several steps in the company's interest, from writing and negotiating with the creditor to applying for an injunction to prevent the presentation of a winding-up petition.

How can a company defend a winding-up petition?

The company needs to put forward a bona fides defence to the amount claimed and/or counterclaim to extinguish the debt or to raise a set off.

What are the consequences of a successful winding-up petition?

The consequences of a successful winding up petition are severe and include:

  • Bank accounts being frozen
  • The company cannot dispose of or place a charge on property or assets
  • Difficulty with entering into a creditor voluntary liquidation (CVL).
  • The company cannot be placed into a prepack administration
  • The directors can be banned from acting as company directors for up to 15 years

The petitioner of a winding-up petition must give notice in the London Gazette. A winding-up petition may not be retracted following notification; it must proceed to court.

The petition will likely catch the attention of the company's bank and creditors as well as possibly others (such as the company's employees, suppliers, and customers). This can lead to the company's bank accounts being frozen and severe reputational damage

We advise directors and shareholders whether they can retain any assets which may belong to them personally. We also establish whether third parties have rights over company assets as they may have paid or contributed towards them or have security over them.

What personal risk do the directors face?

There are potential risks for the directors of the company personally. A director of a company in financial difficulties could face personal liability in respect of:

  • Personal guarantees
  • Fraudulent trading
  • Wrongful trading
  • Misfeasance or breach of duty (including the general statutory duties under the 
  • Where the company is a public company, serious loss of capital
  • Where the company is listed, the Listing, Prospectus, Disclosure and Transparency Rules and the Financial Services Markets Act 2000 
  • Additional offences under the Insolvency Act 1986

How to stop a winding up petition being issued?

To prevent the winding up of the company in a situation where the debt is disputed, a court injunction to prevent the petition being issued can be sought. An injunction application will usually succeed where:

  • The debt is genuinely disputed
  • A cross claim or a right of set off exists which would reduce the debt to below £750
  • The winding-up petition is bound to fail on a matter of fact or law
  • The petition is oppressive or unfair
  • The petition has been presented for a purpose other than to have the company wound up
  • Where the alleged creditor has another, better remedy available to them

 What happens if you cannot pay the petition debt?

The company should think about a company voluntary arrangement (CVA), or applying for administration order “stay” i.e. to freeze the process preventing a winding up order and other court action by other creditors (except with permission of the court).

When it comes to winding up petitions, you should immediately seek expert help from insolvency solicitors to prevent your company’s bank accounts being frozen and your company being wound up. You can have complete confidence that when you engage us, you will receive swift, comprehensive legal advice and have strong, experienced negotiators on your side.

To talk to one of our specialist winding up solicitors, please phone our London office on 020 8434 3508. We treat all enquiries in the strictest confidence.

Please call or email us for a free initial confidential discussion

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