Winding-up Petition

Should a winding-up petition be used as a debt collection tool?

The court recently struck out a winding-up petition brought against a contractor by its sub-contractor in the case of Breyer Group v RBK Engineering.

In the court’s view, the contractor was not unable to pay its debts. It had arguable defences to the sums claimed, as well as cross-claims, which should be resolved by adjudication or ordinary court proceedings.

A winding-up petition is an expensive option for creditors, and is considered to be a last resort. It is only used when all other approaches to retrieve the debt have failed.

The courts do not view winding-up petitions as a debt recovery process.  A winding-up process is a collective process, where a company is unable to pay its debts and is placed into liquidation.  The process is used to collect in the company’s assets and distribute them amongst creditors pari passu, after secured creditors and costs.

It is a serious process and where there are arguable defences it is unlikely to achieve the desired outcome for the petitioning creditor.  Once the winding-up petition is public knowledge it is likely that the company’s bank accounts will be frozen and suppliers and lenders may want to cease supply, further exacerbating the company’s problems.

If you have any queries regarding winding-up petitions and the implications, please contact us to arrange a free consultation.

This article is for general information only and should not be relied on as advice.  

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