In the third of a series of articles, Siobhan Kenny of Frank Murphy Solicitors looks at how a creditor can petition to Court to wind up an insolvent company – Section 569 of the Companies Act 2014.
Section 570 states that a company shall be deemed to be unable to pay its debts if:
Section 569 provides that one of the circumstances in which a limited liability company may be wound up by order of the Court is where the Court is satisfied that the company is unable to pay its debts as they fall due (Section 569.1 (d)).
This provision is not new – it has been a part of company law since at least 1963 (Section 214 of the Companies Act 1963). The provision is intended to provide a means whereby an insolvent company can be wound up by the court in an orderly fashion. It was never intended to be a means of debt collection and the courts do not readily tolerate its use for such purpose. This means that if a petition is issued, served, and published the courts will rarely permit the petition to be adjourned and will be keen to bring the petition to a conclusion expeditiously through, if appropriate, the appointment of a liquidator.
The first step in the process is the service of the demand. From the date of service, the company receiving it has a period of 21 days in which to respond and pay the demand. If it does not do so, it is open to the court to conclude that the company is unable to pay its debts – and can therefore be wound up.
Any notice of this description received has to be dealt with on an urgent basis. The best strategic response is to indicate to the claimant that the claim is disputed, and that if the notice is not withdrawn, injunctive relief will be sought. Do not ignore any such notice. On expiry of the 21-day notice period, the next step available to the creditor is to petition to court for the winding-up order. This process involves a number of steps including the issue of court papers and the publication of carefully worded notices. Proceeding by way of petition to wind up is not however to be
It can be expensive – it involves legal and other costs, court attendance, and a substantial investment of time. The petitioner will, for example, have to identify and secure the co-operation of a proposed liquidator before going in to court. The risk or cost has to be weighed against the potential return – and one of the first questions that needs to be asked is whether or not the debt in
question is a secured debt. If not, having taken the trouble and incurred the costs of presenting the petition, the creditor may well find himself involved in a liquidation where all available assets of
the debtor are claimed by secured or preferential creditors.
This Business Support article featured in the January/February 2017 edition of The Hardware Journal.