Winding up petitions: High Court guidance


Regulations laid before Parliament yesterday seek to extend the current restrictions on the presentation of winding up petitions to 31 December 2020. However, there will inevitably come a time when these temporary restrictions are lifted.

We recently acted for the successful respondent in an appeal against a winding up petition.  Arnold Ayoo of 23 Essex Street was instructed.

HHJ Matthews sitting in the Business and Property Court in Bristol gave a full judgment.  As well as providing useful procedural guidance, this decision is helpful in confirming that a petition may be founded on a claim for damages and that a creditor does not have to be able to calculate the exact sum due in respect of a debt at the time of presentation, provided that they are able to demonstrate that a debt greater than £750 is owed.  Read our insight for more details.

The status of a creditor able to present a petition to wind up a company is not restricted to those who claim to have a debt in the strict sense.  The High Court has held that a person who has a claim in damages, even unliquidated, is at least a contingent and perhaps a prospective creditor for the purposes of presenting a winding up petition. 

The High Court has dismissed Wolf Rock (Cornwall) Limited’s (the Company) appeal against a winding up order.  TLT acted for the successful respondent in Wolf Rock (Cornwall) Limited v Raila Langhelle [2020] EWHC 2500 (Ch).  The court considered a number of grounds of appeal, two of which will be of particular interest to creditors who may be contemplating presenting a winding up petition.

Moratorium on winding up petitions

Winding up petitions against most trading companies are temporarily prohibited, save where the creditor can satisfy the court that (i) Coronavirus did not cause the debtor’s financial difficulties or (ii) the debtor’s financial difficulties would have occurred independently of Coronavirus.  This moratorium is currently in place in the United Kingdom until 30 September 2020, and will be extended to 31 December 2020 under regulations laid before Parliament on 24 September 2020.   

Background

A petition was presented against the Company by a firm of solicitors.  The solicitors subsequently indicated that they wished to withdraw the petition.  Another creditor (the Respondent), applied to be, and was substituted as petitioner based on claims that:

  • She was owed unpaid salary as an employee of the Company;
  • She had incurred expenses on behalf of the Company and had not been reimbursed; and
  • She had made loans to the Company, which were unpaid.

The Company opposed the making of the winding up order and directions were given as to the service of further evidence.  Ultimately, a winding up order was made on 6 December 2019. 

The Company appealed on a number of grounds.  Amongst those grounds, the Company alleged that the District Judge had been wrong not to admit three further witness statements as evidence, because they were served in accordance with Rule 7.16 Insolvency (England and Wales) Rules 2016 (the Rules).  The Company also argued that the District Judge should not have made a winding up order in respect of the claims made by the Respondent because the precise amounts due were not capable of being ascertained.

HHJ Matthews sitting in the Business and Property Court in Bristol gave a full judgment which sets out useful guidance on the points raised.

Procedural guidance

Rule 7.16 of the Rules sets out the requirements a company must comply with if it intends to oppose a winding up petition.  It requires a witness statement in opposition to be filed with the court and delivered to the petitioner (or their solicitor) not later than five business days before the hearing.  The contents of the witness statement must also comply with this Rule.  Prior to this case, there were no authorities on the construction of Rule 7.16.

The Company argued that this Rule governed the ability generally of companies to adduce further evidence in a contested winding up petition.  The Company had served several further witness statements more than five business days before the winding up hearing; accordingly, it submitted that it had satisfied the procedural requirements and this evidence should have been included for consideration without more.

HHJ Matthews held that Rule 7.16 is concerned with preparation for the first hearing, and does not have a role to play thereafter.  Instead, the parties should look to the timetable set out by the Court in directions for the requirements that need to be satisfied.  He also provided guidance on the concept of implied sanction, which applies to cases where no express sanction is stated and also to cases where there is no intention to create a sanction but which for policy reasons are treated as analogous to an application for relief from sanctions.

Guidance on the nature of the petition debt

The Company argued that the District Judge should not have made a winding up order in respect of the claims made by the Respondent because the exact amounts due could not be ascertained at the date of presentation of the petition.  HHJ Matthews disagreed, and gave the following guidance:

  • A person who has an unliquidated claim in damages is at least a contingent and perhaps even a prospective creditor; accordingly, they may present a winding up petition.  If the company can dispute the claim on substantial grounds the correct course of action would be to apply for it to be struck out.
  • The fact that the Respondent could not state the precise amount due to her at the time of the presentation of the petition did not matter.  HHJ Matthews said “provided that the claim is for a minimum amount exceeding the statutory threshold of £750, it does not matter that the precise amount may not be capable of being ascertained at the time of presenting the petition”. 

What does this mean in practice?

Creditors are currently prevented from presenting a winding up petition unless they can demonstrate that Coronavirus did not cause and did not have an impact on the company’s financial difficulties.  However, there will inevitably come a time when these temporary restrictions are lifted.  As well as providing useful procedural guidance, this decision is helpful in confirming that a petition may be founded on a claim for damages and that a creditor does not have to be able to calculate the exact sum due in respect of a debt at the time of presentation, provided that they are able to demonstrate that a debt greater than £750 is owed.

TLT provides expert advice in all areas of restructuring and insolvency law and practice.  If you would like to discuss any aspect of the issues discussed in this article, please contact a member of our Restructuring & Insolvency team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.


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