Using winding-up petitions to recover debts

James Robbins, senior associate solicitor in Harrison Drury’s insolvency and business recovery team, looks at instances where it might be useful to consider a winding-up petition to recover a debt.

When a company or partnership owes you money, one of your options may be to issue a winding-up petition.

The effect of a winding-up order being made will be the appointment of a liquidator and, ordinarily, the closure of the business.

A winding-up petition can therefore be a very effective debt recovery tool, and winding-up proceedings can, in many cases, also be quicker and more cost-effective than seeking a county court judgment.

They are not appropriate in all cases, however, and the following pitfalls could apply:

• The debt must not be subject to a genuine dispute or cross-claim. If it is, you could face an injunction and/or the dismissal of the petition, together with a significant costs order.
• Once third parties become aware of the existence of the petition (usually after it is advertised), the debtor’s bank accounts will typically be frozen and it will find it difficult to trade, which could further reduce its prospects of paying the debt.
• If other creditors become aware of the petition, they could file notices in support and ask to take over carriage of the petition in the event of you no longer wishing to proceed. This could make agreeing a settlement not only more difficult, but also riskier. This is because if a winding-up order was made, a liquidator could seek to ‘unwind’ the payment and recover it from you.
• If a company is genuinely unable to pay its debts, a winding-up order could be made and you may not receive anything at all (only your costs would be paid ahead of other creditors).

Winding-up petitions can therefore be very effective, but it is important that they are only used in appropriate circumstances and with the benefit of proper advice.

James Robbins is a dual-qualified solicitor and insolvency practitioner. He advises insolvency practitioners, creditors, distressed companies and company directors with contentious and technical insolvency matters. To speak to James about any debt recovery matter call him on 01772 258321.