When deciding whether to issue a winding up petition, it is essential you understand exactly what the process is for. A winding up petition is not designed to be a debt collection tool. The fact is that if a company is wound up, a petitioning creditor like a supplier or HMRC will not get priority and is unlikely to receive much of a return in the liquidation. If the court finds that a winding up petition has been used in this way, it may see it as an abuse of process. Similarly, a winding up petition should not be issued where a debt is disputed or if a counterclaim exists which exceeds the debt detailed in the petition.
If you do decide to issue a winding up petition against a debtor, you must make sure it is made for the right reasons and in the right way. Failure to do so could be found to be an abuse of process by the court, potentially leaving you with a significant order for costs.
When might a winding up petition be an abuse of process?
- Pressurising a company – One of the main factors as to whether the issuing of a winding up petition is regarded as an abuse of process is the motivation behind the petition. A typical case of abuse of process is when a winding up petition is issued not to obtain a winding up order, but to use the threat of the advertisement of the petition and the freezing of company account to pressurise a company to pay.
- Issuing a petition against a competitor – In some cases, a winding up petition can be dismissed by the court as an abuse of process if the petitioning creditor is in competition with the debtor company. In this instance, the court can rule that the motives behind the petition are to further the petitioner’s company by putting a competitor out of business.
- Where the debt is generally disputed – If a creditor issues a winding up petition despite the existence of the debt, or the debt amount, being genuinely disputed, the court may choose to dismiss the petition and award significant costs against the petitioner. For that reason, it is very important that the creditor determines that a debt of at least £750 is undisputed, due and owing before it issues the petition.
Want to Talk?
If a winding up petition has been served on your company, the company is a very serious position and time is of the essence. We are happy to help you with this process, or to advise in situations where a validation order may be an appropriate option – simply call Kevin McLeod on 0208 444 3400.