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Bankruptcy & Winding Up

Our bankruptcy services aim to help clients understand their options and navigate the bankruptcy process effectively,and provide a cost saving alternative to services provided by solicitors and barristers.

Glossary:

 

What is Insolvency?

Insolvency is the term used when a limited company, sole trader, partnership or individual cannot pay its debts on time or in full, or in the future.  Cases are dealt with under the Insolvency Act 1986 here, (amended) Insolvency Act 2000 here. 

 

If you or your company find you are unable to pay your debts you are classed as insolvent (in financial distress). 

What is a Statutory Demand?

A statutory demand is a formal written demand for payment of a debt within 21 days. If the debtor (the person who owes the money) does not pay within the 21 days and either fails to apply to have it set aside (where the debtor is an individual), or fails to apply to restrain the creditor from presenting a winding-up petition (where the debtor is a company), the creditor can use the statutory demand as grounds to present a petition to the court for a bankruptcy order or winding-up order.

A statutory demand can be used to support bankruptcy and winding up petitions because non-payment of a statutory demand within 21 days may be deemed evidence of the debtor's inability to pay their debts. This evidence is provided if the sum demanded (or several sums if more than one demand has been served) exceeds £750 for company debtors (section 123(1)(a), Insolvency Act 1986) or equals or exceeds £5,000 for individual debtors (section 267(4), Insolvency Act 1986).

Bankruptcy - Individuals

Winding-Up - Companies only

Bankruptcy petitions relate to individuals and starts with the issuing of a statutory demand.  The threshold for a bankruptcy petition is £5,000.   Once a Bankruptcy Order has been made there is action that can be taken for this to be annulled

There are certain grounds under which a Bankruptcy Order can be annulled. The most common of which are as follows:  

  • that on any grounds existing at the time the order was made, the order ought not have been made

  • to the extent required by the rules, the bankruptcy debts and expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court

  • under section 261, where the creditor’s meeting summoned under section 257 approves the proposed voluntary arrangement and the debtor is an undischarged bankrupt, the court shall annul the bankruptcy order on an application made by the bankrupt or, where the bankrupt has not made an application within the prescribed period, by the official receiver

 

If a company is unable to manage its cashflow this can cause it to become insolvent.  To avoid the threat of liquidation which could arise from a creditor taking action to Wind-Up a company, the only way to avoid this is to talk with the creditors and if that fails, advice should be taken on company administration. Administration is a process of putting the business finances on hold to give time to create a plan to get the business out of debt, this is where a licensed insolvency practitioner will help.

The issuing of a Winding-Up petition is not an action that should be taken lightly and if you are on the receiving end of such a petition, you need to act quickly and within 7 days.  Before the petition has been served upon the company a statutory demand would have been served which provided 21 days to respond, this is why the petition is required to be responded to within 7 days.  Any creditor who is owed £750 can issue a Winding-Up petition.  If you are contemplating issuing a Winding-Up petition, you should take legal advice before doing so.  There may be other options available to you that you have not explored, and that may not be as costly.  You may even be able to recover the debt that is owed to you with expert assistance from a lawyer who has experience in debt recovery. See our Debt Recovery service here.

 

If your company receives a Winding-Up petition, we can assess your situation, advise on the best course of action and help to prevent your company from being liquidated which would mean an end to your business.  A Winding-Up petition cannot be ignored, it is the first step in a compulsory liquidation of the company and the liquidator can realise the company's assets and distribute the proceeds to the company's creditors.   Compulsory liquidation is the liquidation of a company commenced by a Winding-Up order made by the court. The other mode of liquidation is where the members of the company voluntarily liquidate the company. 

 

If the money is owed, it is always better in the long run to talk to the creditor/debtor; if there is a any dispute the money is owed, again it is always better practice to talk with the creditor/debtor.  We can do that for you, because we know how difficult these conversations can be.  Liquidation is very public, the petition is advertised, and once this occurs the bank accounts are likely to be frozen by the banks which will stop the company trading.  Liquidation usually results in the company being dissolved and no longer able to trade.

 

If however you have done all that you can to avoid the presentation of the Winding-Up Petition, and there is an unreasonable or unrelenting insistence on the part of the Creditor, then it is still possible to apply to court for an injunction to prevent the presentation of the Petition.  In order to obtain an injunction from the court to prevent presentation of the petition, you will need a  comprehensively drafted response to the statutory demand for the debt, which should set out the grounds for dispute. Your response should demonstrate reasonable and substantial grounds of dispute.

 

We can assist you in taking steps to obtain an injunction to restrain the presentation of the Winding-Up petition and we can help you decide the best way to dispute the debt.  These matters should always be dealt with swiftly, and if money must be paid, it should not be left until presentation of the Winding-Up Petition.  You should be aware that a court will only consider an application for an injunction if you can present solid evidence of a genuine and substantial dispute of the debt or of the fairness of the Winding-Up Petition.

Other options we can consider in our response to the creditor is to request an undertaking not to present or advertise the petition without prior notice, and if not, to provide warning that if a petition is presented then an application will be made to strike it out as an abuse of process.

There are prescribed forms which must be used under the Insolvency Rules.  You would also need to support any applications with a witness statement by an officer of your company.  We can assist you with drafting and completing any forms, to ensure that you include full details of the grounds upon which the debt is disputed; all evidence such as correspondence between the parties and a financial summary of the company, including the balance sheets, forecasts etc.

The most common grounds on which a debt can be disputed and an injunction granted are that:

  • The Petition is an abuse of process

  • The Petition is bound to fail

  • Your company has a genuine counterclaim that would reduce the debt to less than £750

  • The Petition is unfair

  • There is an ulterior motive behind the Petition other than for the purposes of genuinely seeking winding up

 

​The Insolvency Rules require forms (where available) and evidence to be filed at the court before the hearing date of the Petition and there are strict timescales to be adhered to.   The 2016 Insolvency Rules do not have standard application forms, however under Rule 1.35 they do require specific wording which must be included in any court application.  In addition, it is a requirement that a copy of the evidence for the opposition be sent to the creditor who presented the Petition, and this must be done within a reasonable time.

 

Only Directors of the company are entitled to appear at the petition hearing in order to oppose the creation of a winding up order.   We can represent you at the hearing and make out your case on your behalf.

We can assist you and your company throughout the proceedings whether it be making urgent applications or if the matter has progressed we can help you to make sure you have submitted all your evidence before a hearing.

 

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