Withdrawing a winding-up petition involves the formal retraction of a previously submitted legal request to force the compulsory liquidation of a company.
This step is usually taken when the petitioner, often a creditor seeking unpaid dues, decides to cease pursuing the winding-up process.
The decision to withdraw a winding-up petition can arise due to various reasons, such as reaching an agreement with the company to settle outstanding debts, receiving assurance of payment, or a realisation that pursuing liquidation might not be the most viable course of action.
Withdrawing a winding-up petition requires proper legal procedures and notification to all relevant parties, including the court and other creditors.
It marks a significant shift from the path of dissolution towards potential resolution and recovery for the troubled company
Why withdraw a winding-up petition?
Winding-up petitions initiated by creditors frequently lead to the resolution of outstanding debts, prompting them to seek the withdrawal or dismissal of the petition.
The dismissal process involves a court hearing, where the company should be present through legal representation to secure a favourable outcome, though the risk of substitution by a supporting creditor remains noteworthy. On the other hand, withdrawal necessitates a formal application and strict adherence to the procedural regulations outlined in the Insolvency (England and Wales) Rules 2016 (IR 2016).
The issuance of a winding-up petition often compels debtor companies to settle the petitioned debt following the petition’s service or public announcement. These companies face substantial repercussions, including bank account freezes and challenges with lenders.
Once the petitioner, having potentially recovered costs, sees the debt being paid, they may lose interest in pursuing the winding-up of the debtor company and are likely to opt for petition withdrawal. Alternatively, the petitioner might assess the cost-effectiveness of proceeding further, considering the potential limited returns from liquidation or acknowledging a genuine dispute concerning the debt
How to withdraw a winding-up petition?
Seeking permission to withdraw a winding-up petition involves a formal court application, which the petitioner can initiate only before the final hearing with the court’s consent.
According to Rule 7.13 of the Insolvency (England and Wales) Rules 2016 (IR 2016), permission to withdraw a winding-up petition is granted by the court under specific conditions:
- The application to withdraw must be scheduled for a hearing at least five business days before the petition’s hearing.
- The petitioner should not have already given notice of the petition as per Rule 7.10 (i.e., the advertisement in the London Gazette).
- No notices, either in support of or in opposition to the petition, should have been received by the petitioner.
- The debtor company must agree to the withdrawal of the petition.
The draft order for petition withdrawal must encompass the following details:
- Company identification particulars.
- Presentation date of the winding-up petition.
- A declaration that, following an application made by the applicant stated in the order without notice to any other party, the court is content that notice of the petition has not been issued, no notices backing or opposing the petition have been received by the petitioner, and the company consents to the order.
- A provision that, with the court’s approval, the petition is officially withdrawn.
Documents required to support the Application to Withdraw
The process of applying for withdrawal permission demands a notice to be served on all involved parties, and the application will be evaluated by an Insolvency Judge, who will require the following documentation for review:
- Application Notice: The formal request for withdrawal.
- Draft Order: A proposed order detailing the intended withdrawal.
- Witness Evidence: This includes a statement of truth along with supporting exhibits, confirming several key points:
- No advertisement was made under rule 7.10.
- No notices supporting or opposing the petition have been received.
- Confirmation of the debtor company’s agreement to the withdrawal application.
In addition to the documentation, a court fee must also be paid. This fee falls under the category of an Application within proceedings (with notice) and has recently been increased by the Court from £70 to £155.
The entire process is subject to the scrutiny of the Insolvency Judge, who will evaluate the provided materials to make an informed decision
Process of withdrawal of winding-up petition
The petitioner initiates the application for permission to withdraw by submitting the application at the court. The subsequent steps in the process vary based on the specific court where the winding-up petition was initially filed:
- Royal Courts of Justice: In this scenario, an officer representing the operations manager or chief clerk may handle applications seeking permission to withdraw, as outlined in paragraph 10.1(2) of the Practice Direction on Insolvency Proceedings (PDIP).
- District Registry or County Court: In cases involving the District Registry or a County Court, the application will be presented before a District Judge, following the guidance provided in paragraph 10.2 of the PDIP.
It’s worth noting that the practice in some courts involves addressing these types of applications without a formal hearing. However, the decision on whether a hearing is required or not rests with the court.
If the court is content with the presented materials and satisfied with the circumstances, it will proceed to issue the withdrawal order.
Seeking Petition Dismissal if withdrawal is not available
If any of the circumstances mentioned earlier do not align, the petitioner is ineligible to request permission to withdraw the petition before the final hearing.
In such cases, an alternative course of action is available: both the petitioner and the company can jointly pursue the dismissal of the petition during the subsequent hearing.
However, there exists a significant concern related to dismissals. According to rule 7.17 of the Insolvency (England and Wales) Rules 2016 (IR 2016), any creditor has the right to apply for substitution as the petitioner, thereby assuming the role and continuing the pursuit of a winding-up order.
It’s crucial to note that if the company is eventually wound up, the liquidator possesses the authority, as per section 127 of the Insolvency Act 1986, to demand repayment of the previously settled petition debt and associated costs, particularly if such payments were made without a court validation order.
Conclusion
In the intricate landscape of corporate insolvency proceedings, the process of Withdrawing a Winding-up Petition entails careful adherence to established rules and procedures. From navigating the specific court jurisdiction to satisfying the conditions outlined in the Practice Direction on Insolvency Proceedings, every step is pivotal.
While the option of withdrawal exists under certain circumstances, the prospect of dismissal must be weighed against potential creditor substitution and legal ramifications. To those seeking to navigate this process, it’s imperative to comprehend the nuances and implications associated with each decision.
If you find yourself in a situation where withdrawing a winding-up petition is the appropriate course of action, use our user-friendly online application form. This ensures that your pursuit of resolution adheres to the established legal framework, facilitating a smoother path toward achieving your objectives.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.