Application for an injunction to prevent the presentation of a winding up petition

A statutory demand is best thought of as a primer. Once validly served, a creditor’s ability to take certain steps is triggered; namely, in respect of debtor companies, to present a winding up petition. That means that it is not something that should go unanswered or, indeed, late answered.

Time is of the essence in responding to and dealing with a statutory demand. Once it has been properly served, a creditor has three weeks under s.123(1)(a) of the Insolvency Act 1986 until they are able to present a winding up petition to the Court.

What a winding up petition can mean for a company need not be rehearsed. It is bad news. Among the myriad consequences, banks will usually shut down the company’s accounts damaging its creditworthiness and there are potentially far-reaching reputational ramifications. Although not itself the death knell for a company, it can make continued trading debilitatingly difficult.

If a debtor company disputes the debt said to be owing in the statutory demand, and so does not intend to pay it, there are a few steps that need to be taken and fast.

Step 1 is to instruct your representatives to write to the creditor, ideally on the same day as receiving the statutory demand or in as short a period as possible thereafter. Outline the basis on which the debt is disputed and ask for a written undertaking from the creditor that they will not present a winding up petition. This has two purposes:

1. It may avoid the incurred costs of making an application to Court.
2. It protects your position in respect of costs should an undertaking not be forthcoming, in which case an application may have to be made. For this reason, it is helpful to outline potential costs consequences of not providing an undertaking to the creditor.

Bearing in mind the three weeks that the creditor has, give a short deadline for response and, if none if forthcoming or if the answer to the request for an undertaking is “no”, then the debtor company must move quickly to step two.

Step 2 is to make an application for an injunction restraining the presentation of a winding up petition under r.7.24 of the Insolvency Rules 2016. This application enables a debtor company to get on the front foot when it comes to insolvency proceedings and a potential winding up petition.

The usual basis on which an application to restrain the presentation of a winding petition is made is that the debt is genuinely disputed on substantial grounds. That is, the debt is by no means clear cut and the debtor’s case, in essence, is that should the creditor want their money, then they need to bring a claim in the usual way.

Per Etherton LJ in Tallington Lakes Ltd v. South Kesteven District Council [2012] EWCA Civ 443,

“… it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition, and may be reached even if, on an application for summary judgment, the defence could be regarded ‘shadowy’.”

It is not a burdensome obligation, then, to persuade the Court to prevent a creditor from presenting a winding up petition. However, what does need to be done, needs to be done quickly. It is unfavourable to be in the territory of ‘without notice’ and ‘informal notice’ applications because you have allowed the clock to tick past without making the application at the first opportunity.

At 5 Pump Court, we are able to deal with applications in insolvency proceedings and to act quickly. In order to instruct William in this type of case, please contact Rob Johnstone.