Jameson Smith & Co Ltd

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Wednesday, 12 February 2014

Winding Up Petitions

When you are helping companies with debt, inevitably, not a week goes past without someone calling saying their company is being threatened with a winding up petition at the High Court for an unpaid invoice. Equally, we are often contacted by directors whose company is owed money and they simply cannot get paid for one reason or another. Again, the winding up question is raised “can I wind the company up if he doesn’t pay?”.

In a surprising number of cases inexperienced lawyers will instigate the winding up action against a company knowing it will bring maximum pressure to bear but are often taking a big gamble. A winding up petition is the forced and compulsory liquidation of a company when the company can no longer pay its debts or chooses not to. We have had several cases recently where directors have been in despair as they have clearly contested debts with creditors yet have still progressed to the High Court. In all the cases there was no legal proof that the debt was ‘real’ in as much as no statutory demand had been presented, or previous court action had proven the debt in law. 

Dealing with Business Debt
One case in particular was all the more odd as the creditor and the debtor were still trading with each other quite happily whilst the lawyer was pursuing the winding up petition. In this particular case the amount of debt was genuinely unknown by either party directly because they were still trading together? Bizarrely the lawyer refused to discuss the matter and is pressing ahead with the winding up petition despite the potential hazard. In principle, the winding up petition is not a debt recovery process, nor a dispute resolution process, it is a process to close a company. Judges do not take kindly to abuse of the system and not following due process. In all likelihood, the judge will make the petitioner bear the court costs for hearing the case (not cheap) and no doubt get a flea in the ear.

The message is a clear one – if you are owed money then always prove the debt beforehand, either by the use of a statutory demand or a CCJ, for example. This proves that the debt is uncontested and you can pursue the winding up petition safely in the knowledge you have followed due processes. 

Written by: Mike Smith

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