If your business has received a statutory demand and faces the risk of a winding-up petition, you have the option to approach the court for an injunction to halt the presentation of the petition.
In cases where a winding-up petition has already been presented to you, the High Court can be approached for an injunction to prevent its public advertisement.
These legal actions come with associated costs, so it’s crucial to consult and understand the chances of a favorable outcome.
Before initiating this legal step, an alternative is to formally communicate with the opposing party, detailing the measures you’ll undertake if the winding-up petition is pursued.
The court will only approve an injunction to halt the presentation or publicizing of a winding-up petition if it’s convinced of a genuine and significant dispute regarding the debt. This implies that you must provide substantial evidence to challenge the claimed debt.
To initiate this process, a form accompanied by a supporting affidavit must be submitted to the High Court. This affidavit should comprehensively detail the reasons for disputing the debt, provide supporting evidence, and offer an overview of the company’s financial status
Obtaining an Injunction to Restrain Presentation of Winding Up Petition
Being in receipt of a winding-up petition, regardless of its validity, can place immense strain on a business. There are measures a company can implement to either sidestep the initiation of such a petition by applying for an injunction to restrain a winding-up petition from being publicly advertised.
Responding to a Statutory Demand:
The initial realization for the Company should be the looming threat of a winding-up petition being introduced. Swiftly, the Company must determine if it challenges the debt or possesses a cross claim or counterclaim. If the claim holds merit, settling the debt becomes crucial, considering any cross or counterclaim.
Delaying payment until the petition’s introduction could prove to be an expensive oversight.
Does the Statutory Demand contain Disputed Debts?
When the debt is contested, the Company or its legal representatives should draft a detailed response to the payment request.
The letter should:
- Detail the reasons for disputing the debt or the basis of the cross or counterclaim.
- Highlight that if a petition is initiated, there will be efforts to dismiss it, citing misuse of procedure.
- Point out that the company will pursue its expenses on an indemnity basis if there’s an attempt to dismiss.
- Request the creditor to commit to not initiating the petition without prior notification.
- After dispatching the letter, the Company should actively seek feedback from the creditor promptly.
Obtaining an Injunction to Prevent Presentation of a Winding-up Petition
If the creditor remains determined to initiate a petition, the company can opt to seek the court’s intervention for an injunction to halt the petition form presentation. The court will only consider this request if there’s evident proof of a genuine and significant dispute, cross claim, or counterclaim.
To proceed, an originating application must be submitted to the High Court. The necessary form can be sourced from the Insolvency Service website.
Typically, this application should be accompanied by a witness statement, either from a company director or an employee. This statement should:
- Elaborate in detail the basis for challenging the debt.
- Present supporting evidence, such as prior communications between the two parties and relevant concurrent documents.
- Offer an overview of the company’s financial standing, encompassing the most recent balance sheet, profit and loss statements, and future projections.
While it’s preferable for the application’s review to be scheduled with advance notice, in time-sensitive situations, it can proceed without prior notification.
A method to prevent the initiation of a winding-up petition is by illustrating that the foundational debt for potential proceedings is contested, perhaps by indicating a potential defence against the claim to prevent a compulsory liquidation.
Successful Applications to Restrain Winding-up Petitions
In a notable case, Tallington Lakes Limited versus South Kesteven District Council [2012] EWCA civ 443, Etherton LJ declined the request to challenge Norris J’s decision, which had previously dismissed a request for an injunction to halt the presentation of a winding-up petition.
The rationale was that a judgment debt wasn’t deemed settled until the judgment creditor had access to the cleared funds. Consequently, interest persisted on the outstanding amount owed by the creditor until the cheque payment was fully processed in the company’s account.
This was irrespective of the date the cheque was dispatched to the petitioner. By the time the cheque cleared, the accrued interest surpassed £750.
Obtaining an Injunction to Restrain Advertisement
The Insolvency act requires that a notice of a winding-up petition be publicisied in the London Gazette by the individual filing the petition.
This notification serves to alert other debtors and stakeholders of the company about the insolvency proceedings, allowing them to participate in the court hearing and present their arguments. This notice can be published as soon as seven days post the petition’s service.
Once publicized, retracting a winding-up petition is not an option, and the court must review it. The advertisement will likely catch the attention of the company’s financial institutions, debtors, and potentially other parties like employees, vendors, and clientele.
Such attention can result in the freezing of the company’s financial assets and might severely tarnish the company’s image and fiscal health.
Consequently, a company’s primary focus is often to deter the petitioner from announcing the petition in the London Gazette. Under specific conditions, a company can secure an injunction to restrain the petition’s advertisement.
This action can mitigate some of the adverse effects of such an announcement. Directors should promptly seek legal counsel if they’re considering this route.
What do you need to prove to obtain an injunction?
The court will approve an injunction to halt the advertisement of a petition if the petition is deemed a misuse of the process or is certain to be unsuccessful. Situations where a petition might be seen as a misuse or destined to fail include:
- When the company genuinely contests the debt, for which the petition was filed, on significant grounds.
- If the company has a legitimate counter-claim or a right to offset based on substantial reasons, amounting to either a sum just shy of £750 less than the petitioned debt or a sum equal to or surpassing the petitioned debt.
- If the petition is certain to be unsuccessful, either legally (for instance, if the debt it’s based on is beyond the legal time limit for action) or factually.
- When the petition is deemed unjust or prejudicial to the company.
- If the petition was filed by the purported debtor for reasons other than seeking the company’s liquidation (an ulterior motive).
- If the alleged debtor has another suitable course of action they don’t plan on pursuing.
Procedure for seeking an injunction
The steps to follow for an application seeking an injunction to prevent the advertisement of a winding-up petition are:
- The application should be made in accordance with the guidelines set by the Insolvency Rules.
- It must be drafted in writing and authenticated by either the applicant or their legal representative.
- Supporting evidence is essential for the application. Typically, this comes in the form of a witness statement accompanied by exhibits. This statement should detail the reasons for claiming that the petition is either a misuse of the process or is destined to be unsuccessful.
- The application needs to be scheduled for review by a judge.
Conclusion
In wrapping up, winding-up petition injunctions play an indispensable role in the corporate legal landscape. They act as a protective shield for businesses, preventing the potentially damaging public disclosure of a winding-up petition.
This not only safeguards a company’s reputation but also its financial health. Navigating these legal waters can be intricate, and timely action is often paramount.
Should you need further clarity or guidance on this topic, we strongly encourage you to get in touch and an insolvency practitioner will advice you on the process. Your business’s well-being could hinge on the right advice and action.
David is a Solicitor and Chartered Tax Advisor. David has many years experience of advising clients on Regulatory Fraud matters, involving the smallest to the very biggest cases.
He regularly lectures to the City of London Police on these and related issues. He regularly advises on Confiscation and other consequences that flow from money laundering offences