If a company that owes you money has debts so extreme that there’s no possibility of payment, you can apply to the courts to have it wound up. This is a drastic measure and usually a final one — once the winding-up order is granted, it normally means the company is finished.
Exceptionally, however, you might change your mind. It’s possible to apply to have the order rescinded, but the process is complicated, and you have to get it exactly right.
Rescinding a Winding-Up Order
A winding-up order can be rescinded, but there are strict limits on how it should be done. For one thing, the application must be made by the creditor, not by the company. In practice, this is only likely to happen if the company’s circumstances have suddenly changed, leaving them in a position to pay the debt in full.
So why would that be in your interests as a creditor? Well, if the company is wound up, the liquidator will decide how to distribute its assets. Your claim will be one among many, and the chances are that you’ll only receive partial payment. If the company is once more in control of its finances, though, it has the option of paying you in full.
What Is Required for Rescinding a Winding-Up Order?
However, the court won’t grant your request to rescind the order unless a range of conditions are met. The most important of these are that:
- The company should be in a position to pay the debt in full, not piecemeal.
- The company should be in a position to begin trading again.
Crucially, though, there’s a time-limit to apply of five business days after the order was made. This isn’t long, so it’s vital to act quickly if you do change your mind. If you want to apply after that deadline, you’ll have to prove that there’s new evidence which wasn’t available at the time, or there’s a good reason why evidence wasn’t presented.
Why Might the Application Be Refused?
Your application could be refused if it fails to meet any one of the conditions. In a recent case, for example, (Sarjanda Ltd (In Liquidation) v Aluminium Eco Solutions Ltd & Anor [2021] EWHC 210 (Ch)) the application was made two years after the order. Although it was argued that this due to a combination of negotiations with creditors, illness affecting a Director and the effects of Covid-19, the judge didn’t accept this was sufficient reason for such a long delay.
It also became clear that Sarjanda Ltd was not, in fact, in a position to continue trading, but wanted to realise its assets and distribute them among its shareholders. For these reasons, the application was rejected.
An application to rescind a winding-up order needs to be handled with great skill, but even better is to negotiate with your debtors in the first place and find out if there’s a viable alternative to a winding-up order. Give me a call if you want expert help with this process.
