Who may petition and grounds for winding up
A petition to wind up a company may be presented by the company, the directors, any creditor or creditors, a contributory or contributories, the clerk of a magistrates’ court in the exercise of the power conferred by section 87A of the Magistrates Court Act 1980 (enforcement of fines imposed on companies), any combination of the above parties, the official receiver, the Secretary of State, an administrative receiver or administrator, the supervisor of a composition or arrangement and the Attorney General (in the case of a charitable company) [Note 1] [Note 2] [Note 3].
Case law suggests that a non-administrative receiver can present a petition for winding up in the name of the company and as its agent [Note 4].
The above list is not exhaustive. Some regulatory bodies have the power to wind up their members or persons authorised by them under related legislation e.g. the Bank of England if the company is an authorised institution under the Banking Act 1987.
Where a petition is presented by the directors, they must petition in their own names rather than in the name of the company and, in the absence of a formal board resolution, they must act unanimously [Note 5]. However, if the majority of directors at a board meeting have resolved that the company should be wound up, an individual director may present a petition on behalf of them all [Note 6].
Where a company is already in voluntary liquidation and a petition is presented by a creditor, the court will take into account the wishes of the majority of the outside creditors and may exclude the views of the creditors even if they are also substantial creditors [Note 9].
An assignee of a debt owed by a company has the right to present a winding up petition, even if the assignment is an equitable one [Note 10]. Where the assignment takes place after the presentation of the petition, the court can amend the petition and substitute the assignee as petitioner [Note 11].
On the basis of the decision in Re Pen-Y-Van Colliery (1877) 6 ChD 477, a person having a claim in tort for unliquidated damages could not present a winding-up petition. However, in describing a "liability" in relation to the winding up of a company, r13.12 states that the term includes any liability in tort, and that the company becomes subject to that liability by reason of an obligation incurred at the time when the cause of action arose [Note 12]. It would appear, therefore, that a person having such a claim may be able to present a petition under IA 1986, though the matter has not been tested in the courts.
The legislation sets limits beyond which court action cannot be taken to seek recompenses (see paragraph 40.11), but it does not contain any specific provisions setting limits for the commencement of winding-up proceedings.
The legislation [Note 13] states that an action shall not be brought on any judgment after the expiration of six years from the date on which the judgment became enforceable. The legislation [note 13a] further defines an action as including any proceedings in a court of law.
The court has concluded that winding-up and bankruptcy proceedings are not an action upon a judgment, and are not therefore subject to the six-year limitation period [note 13b].
The court also considered the position of a non-judgment creditor and concluded that a person who is owed a debt under a contract is not entitled to present a petition after the six-year limitation period [note 13c].
In general, a contributory is not entitled to present a winding-up petition unless, either the number of members has fallen below 2, or his shares were originally allotted to him or have been held by him or registered in his name for at least 6 months during the 18 months before commencement of the winding up or have devolved on him through the death of a former holder [Note 14]. However, if a person is a contributory under s76, (i.e. he has had his shares purchased or redeemed by the company out of capital within the 12 months before the commencement of the winding up and would therefore be liable to contribute to the company’s assets in the event of a winding up), he may petition on the grounds either that the company is unable to pay its debts or that it is just and equitable that the company be wound up [Note 15]. A contributory must have a financial interest in the winding up and if the shares are fully paid and there is no surplus after creditors’ claims, that interest usually does not exist but there may be exceptions to this rule [Note 16].
Every person who is liable to pay or contribute to the payment of any debt or liability of a company or to contribute to the expenses of a winding up is deemed to be a contributory in the event of an unregistered company being wound up [Note 17].
The official receiver may petition for the winding up of a company where it is being wound up voluntarily and he believes that the proceedings are being carried on without due regard to the interests of the creditors or contributories. In these circumstances it would also be usual for the official receiver to be appointed provisional liquidator before the hearing of the petition. In exercising its discretion under this provision, the court will have regard to the wishes of the majority in value of the company’s creditors but will not necessarily be bound by this [Note 18].
The effect of advertising the petition is to give constructive notice to the world of its existence. It gives other creditors a chance to support or oppose the petition [Note 19].
If a petitioner [Note 20]:
a. is subsequently found to be not entitled to petition;
b. has failed to comply with the rules with regard to advertising;
c. consents to withdraw the petition, or allows it to be dismissed, or consents to an adjournment or fails to appear at the hearing; or
d. appears at the court, but does not apply for an order;
then the court may substitute as petitioner any creditor or contributor who would be entitled to present a petition and who wishes to do so [Note 21]. A person may be substituted as a petitioner even though he has not previously given notice of his intention to appear if the order is made.
(Amended March 2009)
A company may be wound up by the court if [Note 22]:
a. the company has resolved by special resolution that it be wound up by the court;
b. being a public company which was registered as such on its original incorporation, the company has not been issued with a trading certificate under section 761 of the Companies Act 2006 (requirement as to minimum share capital) and more than a year has expired since it was so registered;
c. it is an old public company;
d. the company does not commence its business within a year of incorporation or suspends its business for a whole year;
e. except in the case of a private company limited by shares or by guarantee, the number of members is reduced below 2;
f. the company is unable to pay its debts;
fa. at the time at which a moratorium for the company under section 1A comes to an end, no voluntary arrangement approved under Part 1 has effect in relation to the company;
g. the court is of the opinion that it is just and equitable that the company should be wound up.
The majority of companies are wound up on the insolvency ground (f).
The circumstances in which an unregistered company may be wound up are [Note 23]:
a. the company is dissolved, has ceased business, or is carrying on business simply to wind up its affairs;
b. the company is unable to pay its debts; or
c. if the court is of the opinion that it is just and equitable that the company should be wound up.
A creditor or creditors will normally petition for winding up on the grounds that a company is unable to pay its debts. A company is deemed unable to pay its debts if [Note 24]:
1. a creditor to whom the company owes £750 or more has served on the company by leaving it at the company’s registered office a written demand in the prescribed form, requiring the company to pay the sum due, and the company has neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor within 3 weeks thereafter
2. execution or other process issued on a judgment debt has been returned unsatisfied in whole or in part; or
3. it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities (including contingent and prospective liabilities) [Note 25].
The most commonly used method of establishing a company’s inability to pay its debts is by service of a statutory demand (the creditor must be owed £750 or more). See part 5 – General procedure statutory demand.
It should be noted that failure to comply with a statutory demand is not the only method available to show that a company is insolvent. Failure to pay an undisputed debt could provide the basis of a winding-up petition even though the creditor has not served a statutory demand for repayment [Note 26].
In Re A Company  BCLC 261 it was held that a company which ultimately pays its debts with money borrowed from other sources is not necessarily unable to pay its debts, yet in Cornhill Insurance v Improvement Services Ltd (1986) PCC 204 Harman J held that a company which was apparently solvent but refused to pay an undisputed debt could nevertheless be viewed as insolvent for the purposes of winding up.
If the petition is based on an unsatisfied judgment or order of the court, a creditor can commence proceedings for winding up with no restriction on the level of liability.
The just and equitable ground for presenting a winding-up petition may be used in several circumstances. It is interpreted flexibly and is not confined to particular instances (see also paragraph 45.33).
For a winding-up order to be made on the petition of minority shareholders, the petitioners must first convince the court that it is just and equitable to do so. This procedure is appropriate where it is no longer practical to continue the existence of small ‘quasi- partnership’ type companies, usually due to a breakdown in the relationship of those running the company [Note 27]. Before the court will agree to a winding up, it must be convinced that the petitioner has a tangible interest in the winding up (e.g. that the company is insolvent), that his loss is as a result of oppressive behaviour towards him in his capacity as a shareholder, that the petitioner is not acting unreasonably in seeking a winding-up order and that there has been no misconduct on the part of the petitioner.
Other circumstances identified by the courts as appropriate to the granting of a winding-up order on just and equitable grounds are:
1. Formation of a company for fraudulent or illegal purposes [Note 28];
2. Oppression of the minority shareholders by a majority. The acts of oppression must be serious and sustained, not isolated acts [Note 29];
3. Grounds which would justify the dissolution of a partnership or where a deadlock has arisen in the management of a company [Note 30];
4. Where a company was formed for a specific purpose, and that purpose has either been attained and completed, or can no longer be attained [Note 31]; and
5. To conclude the affairs of companies which have achieved their objectives as set out in their articles of association [Note 32].
(amended March 2012)
The Secretary of State has the power to appoint inspectors to investigate a company’s affairs and give directions regarding the investigation [Note 33]. This can be instigated by the company itself, by shareholders with 10% of the issued share capital or who are more than 200 in number and shall be supported by such evidence as the Secretary of State may require showing good reason for requiring the investigation.
The Court may also direct by order that a company’s affairs ought to be investigated and in such case the Secretary of State must appoint inspectors to investigate. The Secretary of State may appoint inspectors where it appears that the company’s affairs are being or have been conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner which is unfairly prejudicial to some of its members, that any actual or proposed act or omission of the company is or would be so prejudicial or that the company was formed for any fraudulent or unlawful purpose, where persons connected with the formation or management of a company have been found guilty of a fraud, misfeasance or misconduct towards the company or its shareholders, or that the shareholders have been deprived of information they may reasonably expect to receive.
The inspectors have wide ranging powers of investigation, and anyone who is or may be in possession of information which may be useful to them may be required to produce any documents in their possession or custody, attend before the inspectors and otherwise give all assistance required [Note 34].
Where it appears to the Secretary of State from the reports/information referred to in that section (including those referred to above) that it would be expedient in the public interest that a company be wound up, he/she may (where the company is not already being wound up by the court) present a petition on the just and equitable ground [Note 35].