A winding up petition being served is a serious problem for the company. Especially if it has been advertised. Once advertised the bank will freeze the account and this can be the end of the company as suppliers, employees and other creditors will not be paid. However, even if the petition is dismissed the petition still has to be heard. This can pose a problem to a high profile company as it is published on the court's list of cases of the day. So what happens in the event of the petition being heard by the court?
The court simply has to decide whether a winding up order is to be made and that the company is to be compulsorily wound up. The judge can decide to dismiss the petition if they think that the company is able to pay back a reasonable proportion of the debt i.e. in a CVA or an agreement to pay back over an extended time period.
Other grounds might include: Abuse of process by the petitioner In this case the judge has to be satisfied that the petitioner is using the court to settle a score/dispute or have a commercial advantage ie a competitor.
It can also have regard to the position of the other creditors. Re Dollar Land (Feltham) & Ors  BCC 740 reported that the court decided that a winding-up order should be rescinded if there was a real prospect that CVA proposals would be approved by the company's creditors.
In other words let the CVA majority decide. If the amount of the debt is not proven, it would be a foolish petitioner and indeed a foolish recipient to let it get to this stage without the facts being established. The judge can award costs to either party in this case. Normally, if the debt is not proven an adjournment can be sought. An agreement has been reached and/or the amount has been paid.
The case is simply here that the parties have agreed that the debt is paid or the dispute settled. This is what happened in the Lotus case it seems but as the petition was not actually withdrawn in time so the case had to be heard by the judge. One important thing to remember is when asking a judge to make such a ruling there will be the need for lots of evidence to prove your case. Verbal agreements cannot be enforced here.
Make sure you have instructed a reputable solicitor or turnaround practitioner to help make your case. For advice on how to deal with winding up petitions, including how to dismiss a winding up petition, visit our winding up petition page on company rescue.
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.