Non-payment of an invoice is a serious issue. When all else fails, you may have to consider a winding-up petition, writes Sarah McLennan, an associate at law firm Faegre & Benson.
Non-payment of an invoice is a serious issue. When all else fails, you may have to consider a winding-up petition, writes Sarah McLennan, an associate in the London finance and restructuring practice of law firm Faegre & Benson.
It’s not a situation anyone wants to find themselves in, but if a company owes you money and has neglected to pay you may apply to wind it up by presenting a petition to court. To avoid the unwelcome publicity – and the possibility of being wound up – the debtor company must settle with you before other creditors get involved.
The court will regard a company as being unable to pay its debts if any of the following occurs:
· A creditor who is owed more than £750 serves a “statutory demand” for the money due and it is not paid or secured and a settlement is not agreed within 21 days. Get the necessary forms from the Insolvency Service’s website. The form must be served on the company at its registered office and you must have proof of service (use a process server).
· There is a judgement against the company and execution is unsatisfied.
· The company cannot pay its debts as and when they fall due: for example, no payment is made in response to a letter of demand. In this case, service of a statutory demand is not always necessary: you can simply send a letter demanding payment of an undisputed debt within three working days and, if no response is received, you can use that as the basis for the presentation of the petition and proof that the company cannot pay its debts.
· It is proved to the court that the company’s total debts exceed its total assets.
Before you complete the winding up petition, you will need to make a search at Companies House on 0870 3333 636 or online to check that the company is not already going through the courts.
The procedure is simple, but unfortunately it isn’t free. When you issue the petition you need to make out a cheque to HMCS for £905. This amount includes the court fee to issue the petition of £190, plus the Official Receiver’s deposit of £715. If you withdraw the petition you will get the deposit of £715 back. If you attend the court in person rather than post your documents and fee you will also have to pay the search fee of £12 in London’s Companies Court.
So what are the next steps?
· Engage a process server to serve the petition at the registered office of the company. They can then prepare the affidavit of service.
· File the affidavit of service and advertise the petition in the London Gazette at www.gazettes-online.co.uk no less than seven business days after the petition was served and no more than seven business days before the winding-up hearing.
· File a certificate of compliance with the court at least five business days before the hearing.
· File a list of anyone intending to appear at the hearing with the court the day beforehand.
Traditionally the courts dislike the use of winding-up petitions as a high pressure debt-collecting method and are of the view that where the debtor genuinely disputes the debt the creditor should obtain a court judgement first. The raising of a defence by the company also raises the possibility of costs orders being made for those who pursue a petition in the face of a defence.
You need to consider any defence raised and whether it is likely to prove to be genuine before deciding whether to present or advertise a petition. Some considerations include:
· Is this the first time the defence has been raised?
· Were the invoices never challenged at the time?
· Were any complaints or counterclaims raised before now?
· Has any documentation actually been provided to support the defence?
The courts do not like the idea of having a hand in the winding-up process but they will decide whether or not to accept a defence or allow the petition to proceed. Better still, the presentation of a petition can result in your debt being paid before the company gets dragged into court. Remember, act quickly to be ahead of the game.
Contact the writer.