When can you wind-up a company when the debt is disputed?
Produced in partnership with Kate Rogers of St Philips Chambers
When can you wind-up a company when the debt is disputed?

The following Restructuring & Insolvency guidance note Produced in partnership with Kate Rogers of St Philips Chambers provides comprehensive and up to date legal information covering:

  • When can you wind-up a company when the debt is disputed?
  • Scope
  • The basic principles applicable to winding-up proceedings based on disputed debts
  • The effect a counterclaim will have on winding-up proceedings
  • How the court addresses winding-up proceedings where the debtor company is balance sheet solvent, but where a debt is due
  • The circumstances where the court will allow winding-up proceedings based on a substantial dispute
  • The typical directions the court will make when faced with disputed winding-up proceedings

It is a long-established principle that winding-up proceedings should not be commenced where the petition debt is genuinely disputed on substantial grounds. Further, it is an abuse of process to seek to use the winding-up court as a debt collection agency.

However, the line between what constitutes a 'genuine dispute', and the circumstances which allow the court to exercise its discretion under section 125 of the Insolvency Act 1986 (IA 1986) to allow the winding-up proceedings to continue, is not always clear. This Practice Note looks at some of the situations that can arise in relation to dispute petition debts and sets out some of the principles that can be drawn from case law.

Scope

This Practice Note covers the following:

  1. the basic principles applicable to winding-up proceedings based on disputed debts

  2. the effect that a counterclaim can have on winding-up proceedings

  3. how the court will deal with winding-up proceedings where the debtor company is balance sheet solvent, but a debt is due

  4. the circumstances in which the court will allow winding-up proceedings based on a substantial dispute to continue, and

  5. the typical directions the court will make on disputed winding-up proceedings

The basic principles applicable to winding-up proceedings based on disputed debts

There is long list of authorities stating that a winding-up order will not be made if the