If a company owes you money and has neglected to pay, you may apply to wind it up by presenting a petition to court.

If the debtor company wishes to avoid the damage caused by advertising a petition and the risk of winding-up, it must settle with the petitioner before other creditors get involved. A winding-up petition or the threat of it can therefore lead to the creditor being paid in full and the petition being withdrawn.

The court will regard a company as being unable to pay its debts if any of the following occurs:

• A creditor who is owed more than £750 serves a “statutory demand” for the money due and it is not paid or secured or a settlement is not agreed within 21 days. You can get all the necessary forms from the Insolvency Service’s website at www.insolvency.gov.uk. The form must be served on the company at its registered office and you must have proof of service. Use a process server to serve the demand.
• There is a judgement against the company and execution is unsatisfied. In other words the bailiff is unable to seize enough assets to clear the debt.
• It is proved to the court that the company cannot pay its debts as and when they fall due, for example, no payment made in response to a letter of demand. Therefore service of a statutory demand is not always necessary. You can simply send a letter of demand demanding payment of an undisputed debt within three working days and, if no response is received or payment is not made, you can use that as the basis for the presentation of the petition and proof that the company cannot pay its debts.
• It is proved to the court that the company’s total debts exceed its total assets.

Before you complete the winding up petition, you will need to make a search at Companies House on 0870 3333636 or online at www.companieshouse.gov.uk.

You have to give the grounds in the petition for winding-up. You need to state that the company has not paid the debt or a specified part of it and that you believe the company is insolvent and unable to pay its debts. You need to state whether the EC Regulation on Insolvency Proceedings 2000 does or does not apply. If the company is registered in England and Wales and mainly carries out business in England and Wales, the EC Regulation will most likely apply and the proceedings will be main proceedings. In other circumstances, you should seek advice.

Costs:

• When you issue the petition you need to give a cheque made payable to HMCS for £905. This amount includes the court fee to issue the petition of £190, plus the Official Receiver’s deposit of £715. If you withdraw the petition you will get the deposit of £715 back.
• If you attend the court in person rather than post your documents and fee you will also have to pay a search fee of £12 in Companies Court in London.

The next steps are:

• Engaging a process server to serve the petition at the registered office of the company. They can then prepare the affidavit of service.
• Filing the affidavit of service and advertising the petition in the London Gazette at www.gazettes-online.co.uk no less than 7 business days after the petition was served and no more than 7 business days before the winding-up hearing.
• Filing a certificate of compliance with the court at least five business days before the hearing.
• File the list of any persons intending to appear at the hearing with the court the day before the hearing.

Traditionally the courts have disliked the use of winding-up petitions as a high pressure debt collecting method and are of the view that where the debtor genuinely disputes the debt the creditor should obtain a court judgement first. The raising of a defence by the company also raises the possibility that costs penalties can be visited upon those who pursue a petition in the face of a defence.

A creditor needs to consider any defence raised by the debtor company and whether it is likely to prove to be genuine before deciding whether to present or advertise a petition. Some considerations include:

• Is this the first time the defence has been raised?
• Were the invoices never challenged at the time?
• Were any complaints or counterclaims raised before now?
• Is the defence good at law and credible?
• Has any documentation actually been provided to support the defence?

The courts do not like the idea of a trial happening in the winding-up process but they will make judgements and decide whether or not to accept a defence or allow the petition to proceed. The presentation of a petition can result in your debt being paid ahead to prevent advertisement and a winding up order. Seek legal advice and act quickly to be ahead of the game.

By Sarah McLennan
Associate in the London finance and restructuring practice at international law firm, Faegre & Benson LLP.