How Do I Wind Up a Company?

Your company may be owed money by another company rather than an individual debtor.  It is possible to use a statutory demand to attempt to recover the debt if the debtor is a company and this procedure leads to a winding up petition.

Grounds for Winding Up a Company

Section 122(1) of the Insolvency Act 1986 (the Act) provides seven grounds upon which the court can make a winding up order.  The most relevant ground is Section 122(1)(f) of the Act which states that the court may wind up a company if “the company is unable to pay its debts”.

Section 123 of the Act outlines the circumstances under which a company is deemed unable to pay its debts if:

• You have served a statutory demand (see below) and the company has failed to pay; or
• A judgment has been obtained, enforcement of which has been returned wholly or partially unsatisfied; or
• You have evidence that the company is unable to pay its debts as they fall due; or
• You have evidence that the value of the company’s assets is less than the amount of its liabilities.

Service of a Statutory Demand

A statutory demand is usually sent prior to presenting a winding up petition and may be used as follows:

• The debt is at least £750.
• The statutory demand must be in a prescribed form which is different from that used for individual debtors.
• The demand can be served at the company’s registered address.
• The company has 21 days from the date on which the demand is served to pay the debt.
• If it fails to pay, the creditor can present a winding up petition.

Implications to the Debtor

It is very important to note that the presentation of a winding up petition is very damaging for a company and can result in the following: –  

• Not being able to dispose of any property without obtaining a validation order from the court.
• The company’s bank and financiers are likely to withdraw finance and freeze the company’s bank accounts.
• The presentation of a winding up petition may also be specified as an event of default in supply agreements and leases, which could lead to a repossession of equipment and premises.

There is a strong incentive for a company which is solvent to comply with the terms of a statutory demand and to make payment.

If the company fails to make payment, then once a winding up petition has been presented at court, it must be advertised in the London Gazette. At this point, the petition becomes public knowledge, which will be damaging for the company.

For all these reasons, a statutory demand can be a very effective form of debt recovery and is quick and inexpensive compared with litigation proceedings.

Injunctions Against Winding Up Petitions

There is no procedure for a company to apply to set aside a statutory demand. However, a company may apply for an injunction to restrain the creditor from presenting a winding up petition. Similarly, if the petition has already been presented, the company may apply for an injunction to restrain the creditor from advertising the petition.

Grounds for Granting an Injunction

The court will grant an injunction for the following:

• Genuine and substantial dispute over the debt: If the company can show a legitimate reason why it doesn’t owe the money, or the amount claimed is incorrect.
• Abuse of process: If the creditor is using the statutory demand for an improper purpose other than genuinely seeking to recover a debt.
• Cross-demand exceeding the debt: If the company has a valid counterclaim against the creditor that equals or exceeds the debt claimed.
• Procedural errors in the statutory demand: If the statutory demand does not comply with the strict legal requirements (e.g., incorrect form, insufficient information).

How can Pinney Talfourd help?

Our Commercial Litigation Team regularly act for individual and corporate clients based in Essex, London, Europe and further afield. We can assist with:

• Preparing and serving statutory demands against both individuals and companies if you are owed a debt.
• For individuals, applying to the court to set aside a statutory demand if you have had a demand served on you.
• For companies, seeking an injunction to either restrain the presentation of a winding up petition or stopping advertisement of the winding up petition.

To discuss any of these options further, please contact Nick Hatchett or Emma Hardie on 01277 211 755.