Insolvency Litigation and Finding a Better Outcome for a Company that is Subject to an Winding-Up Petition.
If a creditor is not being paid by a company and that debt is undisputed then that creditor has the option of presenting a winding-up-petition against the company. A winding-up petition is used when a company is considered insolvent resulting in that company being compulsorily wound up by the court. However, there are other options available for obtaining a better result for the creditors, which focus on administration. These options are summarised in this article by our insolvency litigation solicitors.
The alternative to a Winding-Up Petition – Administration
In the area of insolvency litigation, even when a Winding-Up Petition has been presented there are options for the company to be put into administration, rather than into liquidation, in order to obtain a better result for creditors. These options include:
- Appoint Administrators. A qualifying floating charge holder (such as a bank) could appoint administrators by filing the correct documents at court; or
- Apply to court. A creditor, either the Company itself or the Company’s directors, could also apply to court that the Company be placed into administration.
In respect of (1) the appointment of an administrator automatically suspends any winding-up petition. In respect of (2), if the Court makes an administration order in respect of a company, it automatically dismisses any winding-up-petition that is pending against the company.
Alternatively, the proposed administrator could agree, by consent and the payment of their costs with the petitioning creditor who is issuing the winding-up petition, to move forward with the administration.
An Application to The Court is the More Likely Route
In our experience as insolvency litigation specialists, it is more common for an application to have to be made to Court to appoint administrators in circumstances where there is an existing winding-up-petition. The Court will take into account a number of factors upon hearing an application. These include:
- Evidence that the Company is insolvent;
- That the administration order is “reasonably likely” to achieve the purpose of administration. That is the Court should be satisfied that there is a real prospect that the purpose of the administration may be achieved; and
- That it is reasonably possible that administration can, in fact, produce a better result for creditors.
The Facts Will Always Be Considered on a Case by Case Basis
The Court’s decision will always be fact specific. For example, if a construction company is threatened with a winding-up order, it could be that it has contracts that require completion to realise retentions which could not be achievable in a liquidation that helps the court decide in favour of administration. Or that the prospect of book debt recoveries is better in administration that in a liquidation.
The Court is looking for a real prospect of an improved outcome for creditors in administration when compared with liquidation, and its decision will always be based on the available facts.
Our Insolvency Litigation Solicitors Have Experience of this Type of Case
We were recently instructed by the directors of a construction company, who were threatened with a Winding-Up Petition, to apply for an administration order. Sometimes such an application can be tricky to bring to the Court, with the strength of the application depending on the the facts of a case. In this case we were successful in obtaining the administration order, with the winding-up-petition being automatically dismissed.
At NDP we are insolvency litigation specialists, so if your company is in financial difficulties, and is being threatened with a winding-up petition or a petition has already been presented please contact us or call us on 0121 200 7040 without delay. The earlier that you speak to us the more likely it is that we can help. No hole is too deep!