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Is it possible for a company to be wound up upon a disputed debt?

Is it possible for a company to be wound up upon a disputed debt?

Even when a debt is disputed, a petition to wind the company up can still be successful. In the recent case of Astra Resources plc v Credit Veritas USA LLC [2015], the claimant (Company A) made an application to Court for an injunction to restrain a creditor (CV) from presenting a petition on the grounds that the debt owed by Company A was disputed on substantial grounds and that the petition would amount to an abuse of process. The Court concluded the petition could still be presented on the basis that part of the debt was genuinely owed by Company A.

Should you receive a statutory demand, you should not simply ignore the matter and hope it goes away as it could lead to the court winding up your company. There are some practical steps that can be taken to mitigate the risk of being wound up, some of which are frighteningly obvious. They are:

- Comply with the demand within the specified time frame (normally 21 days).

- Take steps to negotiate a full and final settlement offer based on your current financial position (we frequently find this will produce a “win-win” outcome for both parties involved).

- Offer to pay in instalments on the grounds that they don’t take any further action. Do remember to be realistic about what you can afford.

- Explore refinance options in order to generate immediate funds. There is often alternative lending available that you may not have previously considered.

- Consider offering a personal guarantee in order to encourage that no further action is taken. However, we would recommend this being the last course of action, as this could have significant consequences on your personal assets, such as your home, in the future.

- Seek third party funding from a relative or a friend, but don’t forget to negotiate on the debt as you would be introducing monies that would not ordinarily have been available to the Company.

- The debt must not be disputed on material grounds to issue statutory demand. Therefore if you consider that the debt is not owed or disputed, you should immediately put the creditor on notice. However, do bear in mind the judgement in Astra Resources, mentioned above.

- Consider whether a counter claim which is equal or greater than the debt owed.

- Seek legal advice on whether there has been a procedural mistake, e.g. invalid service.

- Speak to an insolvency practitioner (we happen to know a few!)

Whatever the situation, you must deal with a statutory demand, or even a CCJ, urgently and treat it as a priority. This is by no means the complete list of how to deal with statutory demand so, should you or your client require our help and guidance, please contact BRI.

This article is not a comprehensive statement of the law – we recommend that expert advice be taken on specific issues arising in practice.