The court’s jurisdiction to wind up company and benefits to Insolvency Practitioners

It is, of course, well established that creditors can seek to wind up a company if it is shown to the satisfaction of the court that the company is unable to pay its debts as they fall due under Section 122(f) of the Insolvency Act 1986 (“IA86”).

The most common way of winding up a company is to present a winding up petition to the court under Section 124 IA86 and Part 7 of the Insolvency (England and Wales) Rules 2016 (“IR2016”) with a view to placing the company into compulsory liquidation.

There is, however, a less common method to wind up a company without the need to present a winding up petition and which can avoid the need to incur the costs of the Official Receiver’s deposit, which currently stands at £2,600 along with a court fee of £302 (as of January 2024).

In this blog we consider the court’s jurisdiction to wind up a company absent presentation of a winding up petition, some relevant cases and explore how this jurisdiction may assist Insolvency Practitioners in exercising their functions.

The court’s jurisdiction to wind up companies

In Lancefield v Lancefield [2002] BPIR 1108, Neuberger J considered that:

“First, if one or more of the circumstances in s 122 exist, the court has power- not an obligation, note the word ‘may’ in s 122(1)- to make a winding-up order. Secondly, if a person seeks a winding up, then by virtue of s 124, he has to apply by petition, and has to be within the ambit of that section. However, I do not see why that should mean that where a matter concerning a company is before the court, and the court is quite satisfied that there is jurisdiction to make a winding-up order because one or more of the circumstances in s 122 applies, the court is, in every case, powerless to act simply because nobody has petitioned for the winding-up under s 124(1)… Having said that, I think it would require a thoroughly exceptional case before the court would even consider making a winding-up order in relation to a company where there is no petition…”

Following Lancefield, the court’s authority to wind up has been relied upon in other cases, including:

• RE TM Kingdom Ltd [2007] EWHC 3272 – in support of a winding up by way of creditor’s voluntary liquidation; and
• RE J Smiths Haulage Ltd [2007] BCC 135 ­– regarding the reactivation of a suspended winding up petition following an appointment of administrators under Paragraph 14 of Schedule B1 IA86.

Restrictions on exercising jurisdiction

Despite the court’s jurisdiction to wind up a company absent presentation of a winding up petition, the court will only consider exercising that jurisdiction in exceptional circumstances. Trade creditors cannot generally seek to avoid incurring the associated costs of presenting a winding up petition against a company in respect of unpaid debts by relying on this jurisdiction.

In Richard Paul Rendle (Trustee in Bankruptcy of Peter Thomas Cartwright) v Panelform Ltd [2020] EWHC 2810 the Trustee In Bankruptcy (“TiB”) asked the court to exercise its discretion by winding up the debtor in circumstances where it was not considered the debtor could satisfy its liability under an order made against it in earlier proceedings.

The judge determined that it was not a case in which everyone who might be concerned agreed that the company would inevitably go into liquidation, such that the sooner that happened the better and it could not be said that if a petition was presented there was no real possibility of anyone objecting to the company being wound up.

It follows from the decision in Rendle that caution must be exercised when asking the court to consider winding up a company absent presentation of a petition. Nonetheless, the court’s jurisdiction to do so can have advantages to administrators when seeking to exit an administration by way of compulsory liquidation under Paragraph 79 of Schedule B1 IA86  without having to incur the costs and time delays of issuing a petition.

In Re Graico Property Co Ltd [2016] EWHC 2827 (Ch) following a sale of a freehold property, the principal secured creditor was owed £2,500,000.00, however, negotiations for a sale of a leasehold property had collapsed and the head landlord would not accept a surrender of the lease. Accordingly, the administrators of the company formed the view that the purpose of the administration (making a distribution to secured creditors) could no longer be achieved and that the most practical way to deal with the company’s affairs was to move it into liquidation to allow the liquidators to disclaim the lease.

The administrators presented an application under Paragraph 79 of Schedule B1 IA86, which applies to applications by an administrator to end the administration.

The application was supported by the secured creditor and no creditors opposed the granting of a winding up order. At the hearing, Norris J (as he then was) considered that the wording of Paragraph 79 of Schedule B1 IA86 was sufficiently broad to allow a compulsory winding up order to be made absent presentation of a winding up petition.

Other benefits for administrators seeking a winding up order under Paragraph 79 can include:

1. Where the company’s administration is due to expire imminently, it can save the time and costs of separate applications;
2. It can be quicker than presenting a winding up petition if there are sufficient reasons to justify the application being brought in the interim applications list;
3. A conversion to compulsory liquidation can facilitate the broader range of remedies available to liquidators (such a misfeasance claim under Section 212 IA86) and allow the liquidators to disclaim onerous company property; and
4. Costs benefits including (i) avoiding the need to incur the Official Receiver’s deposit as an expense and (ii) reducing ongoing administrative costs for the officeholders in producing reports to creditors (which are bi-annually in administration and annually in liquidation).

Conclusion

The court’s jurisdiction to wind up companies without the need for a winding up petition to be presented as identified in Lancefield can provide tangible cost and other benefits. However, as highlighted above, the jurisdiction is exceptional and most likely to be sought by administrators or other officeholders where the company is already in some form of insolvency process rather than general trade creditors seeking to obviate the need to proceed by way of petition in the usual way.

Our Restructuring and Insolvency team has considerable experience in advising businesses, directors and individuals facing financial distress. Should you require any assistance, please contact any one of our partners in the Restructuring & Insolvency team. We are experts in this field and are here to help.

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