From Paul Marmor representing Sherrards Solicitors

When faced with a debtor who is a limited company, with no genuine dispute to the debt, the threat of insolvency proceedings frequently assists a creditor in obtaining payment.

A Statutory Demand or Insolvency Notice threatens insolvency proceedings should the debtor not make the required payment within a stipulated period of time. This often proves to be an effective tool to extract payment from a debtor, largely through their fear of having their limited company wound up.

If the demand does not provoke payment, a creditor may then wish to consider presenting a Winding Up Petition against the limited company debtor. There are seven grounds upon which a company can be wound up, with the main ones being:-

• Non compliance with a Statutory Demand;
• An unsatisfied Judgment;
• Other evidence of inability to pay debt as and when they fall due,
• Evidence that the company is insolvent from its balance sheet

Before deciding whether to present a Winding Up Petition, it is worth establishing what the debtor company’s financial situation is. If they are successfully trading with assets, it is likely that they will want to avoid their company being wound up at all cost. In such situations, the threat of insolvency proceedings can be a useful way of getting payment. Alternatively, if the company is struggling financially, with little or very few assets, the creditor will need to consider whether it is worth pursuing the company in this way, if there is little or no prospect of a dividend being paid out to yourself or other creditors.

If the creditor decides to present a Winding Up Petition, that Petition will be registered at the Central Index of Petitions, which can be searched. The Petition will need to be personally served upon the company, normally at its registered office address. Following service, it must then be advertised in the London Gazette not less than seven business days following service. Before this, the debtor company can:-

1. Pay the outstanding debt, or indeed come to an arrangement with the creditor.
2. If it is unable to pay, it may decide to simply do nothing.
3. If the debt is disputed, the company may seek an undertaking that the petition will not be advertised or perhaps obtain an injunction to restrain the advertisement of the petition. An injunction will only be granted if it appears to the Court that there are genuine grounds for disputing the debt and the company has some prospects of defending that claim.
4. Defend the petition at the hearing. However, by this stage, the Petition has already been advertised, which will have an extremely damaging effect upon the debtor company’s financial reputation and ability to trade.

At the hearing, the Court will determine whether the Winding Up of the company is to be made. If this is achieved, the company will cease trading, and the liquidator will act as an agent of the wound up company to realise assets for the benefit of the creditor, and any other creditors, with a view to paying a dividend, if there are sufficient monies.

The above provides a general guide. However, each situation is unique and different considerations may apply in your case. We would therefore recommend that you consult a solicitor, about your specific circumstances.

If you have any questions about the matters discussed above, please contact the Commercial Litigation team:-

Karen Dobson – kd@sherrards.com
Barney Laurence – bjl@sherrards.com
Gemma Newing – ggn@sherrards.com

Telephone: 01727 832830