dismissal of winding up petition account still frozen

Can a Winding Up Petition be Dismissed?

advertising dismissal of winding up petitionA winding up petition being served is a serious problem for the company. Especially if it has been advertised.

Once advertised the bank will freeze the account and this can be the end of the company as suppliers, employees and other creditors will not be paid.

There are a number of considerations with a winding up petition and we can offer practical advice in relation to the winding up petition hearing. We can advise on strategy and arrange legal representation at court hearings, for either adjourning a winding up petition (temporarily suspending the process) or the dismissal of the petition.

However, even if the petition is dismissed the petition still has to be heard. This can pose a problem to a high profile company as it is published on the company court’s list of cases of the day.  So what happens in the event of the petition being heard by the court?

How to get a winding up petitions dismissed

It is possible to withdraw a winding up petition from the court record in the event that the winding up petition debt is paid in advance of the winding up petition court hearing. This is often very sensible to do as it safeguards any money paid to creditor after the winding up petition has been issued.

It helps avoids the unfortunate position of the winding up petition being supported by another creditor of the debtor and being taken over by that creditor who in turn winds up the company. If that happens, any money paid to the original petitioning creditor has to be paid back to the liquidator of the company as it is deemed a preferential payment.

The procedure itself is set out in the Insolvency Rules below. However, a formal application needs to be made to the Court and taken to the right counter with the correct court fee. There also is a requirement for a petitioner to deal with the position of the legal costs and these need to be set out clearly to the court and a letter received from the debtor company with the appropriate wording.

  • The debt has been paid

A winding up petition can be dismissed before the court hearing is held by the petitioning creditor. This will often be the case if the debt covered by the winding up petition has been paid, and the petitioning creditor does not want any other creditor to take over the petition and wind up the company.

  • An agreement has been reached to repay the debt

If an agreement between the petitioner and the debtor has been reached for the debt to be repaid, there will need to be evidence to support this. Verbal agreements are not permissible in court, so assistance will be required from a solicitor or a turnaround practitioner. If evidence of an agreement is produced, the petition can be dismissed.

  • An abuse of process by the petitioner

If the judge believes a petitioner is using the court process to settle a personal score or a dispute or to give their own company a commercial advantage, the petition can be dismissed.

  • The company can repay the debt

A judge may decide to dismiss a winding up petition if they think the company is able to repay a reasonable proportion of the money it owes. For example, if a company voluntary arrangement (CVA) were to be proposed, the judge can leave the majority of the creditors to decide on the company’s fate.

  • The debt is unproven

If it has not been established that the debt, and the value of the debt, is indisputably due, the judge can choose to dismiss the petition. In this case, the judge can award costs to either party. Alternatively, the judge may adjourn the hearing until the debt has been proven

Permission for the petitioner to withdraw

  • (1) The court may order that the petitioner has permission to withdraw the petition on such terms as to costs as the parties may agree if at least five business days before the first hearing the petitioner, on an application without notice to any other party, satisfies the court that—
    • (a) notice of the petition has not been given under rule 7.10;
    • (b) no notices in support or in opposition to the petition have been received by the petitioner; and
    • (c) the company consents to an order being made under this rule.
  • (2) The order must contain—
    • (a) identification details for the company;
    • (b) the date the winding-up petition was presented;
    • (c) the name and postal address of the applicant;
    • (d) a statement that upon the application made without notice to any other party by the applicant named in the order the court is satisfied that notice of the petition has not been given, that no notices in support of or in opposition to the petition have been received by the petitioner and that the company consents to this order; and
    • (e) an order that, with the permission of the court, the petition is withdrawn. 

Does the debt have to be paid in full to get a petition dismissed?

Yes it does have to be paid in full to get a winding up petition dismissed from court, there are a few exceptions, one is a company voluntary arrangement where a percentage it repaid. Case Law : Re Dollar Land (Feltham) & Ors [1995] BCC 740 reported that the court decided that a winding-up order should be rescinded if there was a real prospect that CVA proposals would be approved by the company’s creditors.

This was to basically allow the CVA majority to decide if they will accept a reduce amount in order to settle their debts.

What are the Costs to Dismiss a Winding Up Petition?

In some cases, the mere serving of a winding up petition is enough to convince a company to pay the money it owes. If you decide to pay the debt before the court hearing, it’s important to make sure the winding up petition is withdrawn from the court record.

Having the winding up petition withdrawn in this way prevents the petition from being taken over by another creditor. If the winding up petition was to be substituted by another creditor and the company was subsequently wound up, the payment to the original petitioning creditor would have to be repaid to the liquidator. This is to prevent a ‘preference’ (i.e. one creditor being treated differently to the others) being created.

As stated above, the court has a discretion to make whatever costs order it feels fit. However, the normal costs orders the court would make are as follows:

  • If a winding up order is made, then the court would normally order that the petitioning creditor is awarded their costs out of any assets of the company which the liquidator subsequently collects. This is known as the “usual compulsory order”
  • If a petition is dismissed because the creditor has failed to comply with the various procedural requirements set out in the Insolvency Rules, then they petitioning creditor is unlikely to recover its costs.
  • If a petition is dismissed because a debtor has paid the debt due under the petition, then as long as the petition has been advertised, the petitioner is usually able to recover its costs. In practice, the petitioning creditor will normally insist that its costs are paid by the debtor company before agreeing to dismiss or withdraw the winding up petition.
  • If the winding up petition fails, then the petitioning creditor will normally be ordered to pay the company’s costs.

If the parties cannot agree costs amongst themselves, then they can go to detailed assessment. The court do not generally have time to deal with costs as part of the winding up petition list, so issues in relation to costs will be dealt with at separate hearings.

What happens if the petition is heard by the court?

A winding up petition can also be dismissed by the court. If the judge decides that the company is able to repay a reasonable proportion of the debt due via a Company Voluntary Arrangement (CVA), or an agreement with its creditors, then the petition can be dismissed.

Other grounds for the dismissal of a winding up petition include:

  • Abuse of process by the petitioner – For example, if the petitioning creditor uses the winding up petition to settle a dispute or gain a commercial advantage over a competitor.
  • The debt is not proven – If the petitioning creditor is not able to prove the existence or the amount of the debt. In this case the winding up petition can be adjourned or even dismissed and the judge can award costs to either party.  

What are the costs involved?

This really depends on the particular circumstances of the case. If the winding up petition is dismissed before the court hearing (due to a settlement being reached) then simply having the petition withdrawn will cost significantly less than having the petition heard in court. In this case you will simply need assistance to help draft the application to have the petition withdrawn.  

If you want to dispute the debt in court or believe the petition is an abuse of process, you will require professional legal representation and the costs will rise considerably.  

Are dismissed winding up petitions advertised?

Yes once a court has dismissed a winding up petition on what ever grounds it sees fit, they are advertised in the London Gazette, this will allow banks to unfreeze a bank account.

Need to get a winding up petition dismissed

If you have received a winding up petition and need to get it dismissed please contact us in order for us to answer any questions you may have and offer our qualified business insolvency advice.  Our knowledge of winding up orders is second to none having dealt with thousands of them over the years. Our practical daily experience and expertise means that we can assist whatever the nature of your winding up petition claim.

Frequently asked questions

What does dismissal of winding up petition mean

A judge may decide to dismiss a winding up petition if they think the company is able to repay the money it owed to creditors in full.

What is a dismissal of winding up petition

A dismissal of a winding up petition is when the court has been satisfied that the creditors claim has been settled in full and does not wish to hear a case any further.

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