29 Nov 2022
by Menzies

Is a petition a good idea? Pro's and Con's of Petitions

Menzies and Shoosmiths, take a look at the increased petition levels and whether they are a good idea.

Insolvencies are on the rise. If we compare them to August 2019 stats to reflect on a pre-pandemic scenario, they are up by some 42%, although bankruptcies are 58% lower. The trend continues when Insolvency statistics from 2023 have shown an increase in petitions.

Compulsory liquidations remain lower than pre-pandemic levels of August 2019, but there were four times as many in August 2022 compared to the same period a year ago.

Your options when it comes to petitions

  • Security:
  • Legal Charge.
  • Personal Guarantee.
  • Debt Claim.
  • Letter Before Action.
  • Petition for bankruptcy or winding up of a company.

A petition may cause the following issues:

  • It is likely to sever any potential future trade with the debtor.
  • Once advertised, a bank may freeze bank accounts.
  • No disposition of assets, i.e. the company will not be allowed to pay any debts.

Before you use a petition:

Before you consider using a petition, you should consider a few things first.

  • What is the level of debt? It must be over £750 for winding up a company or £5,000 for a bankruptcy.
  • Is the debt disputed?
  • Serve the statutory demand – which makes formal demand of the debt and sets out the circumstances as to how the debt arose.
  • Service at a company’s registered office / personal service – process server – proof of service.
  • Time limits – 18 days to dispute statutory demand or 21 days to pay the sum stated in the demand.

Issuing a petition at Court:

  • After 21 days of serving the petition – a winding up / bankruptcy petition can be presented in Court.
  • There is no prescribed form of petition, but it must contain the information set out in the relevant rules of the IR 2016.
  • A winding-up search must be carried out immediately before a winding-up petition is presented and a search of IIR before a bankruptcy petition is presented.
  • Court fees – Winding up petition fees: £302 and Official Receiver deposit is £2,600, bankruptcy petition fees £302 and Official Receiver deposit of £1500.
  • Winding up petition presented to relevant Court (for winding up petitions High Court) for bankruptcy petitions (High Court or County Court).
  • Once the Court returns a sealed copy of the petition, which will contain the hearing time and date, it must be served on the company/individual at least 14 days before the hearing. A process server can be instructed to undertake this task.

Procedural steps to take prior to the hearing:

  • Instruct a barrister.
  • Winding up petitions:
  • the petitioner must give notice of the petition by advertising it in the Gazette. At least 5 business days before the hearing, the petitioner must file at Court a certificate of compliance, certifying that the rules relating to service and notice have been complied with.
  • For bankruptcy hearing: prepare a certificate of continuing debt, file certificate of service at Court.
  • For both type of hearings: the petitioner must prepare and file at the Court a list of appearances and hand over the list on the day of the hearing.

The hearing:

  • Hearings may be dismissed, adjourned, a winding up order / bankruptcy order may be made by the Court.
  • Official Receiver will be appointed as liquidator if winding up order is made or Trustee if bankruptcy order is made.

Depending on the size of the creditor claim in the liquidation or bankruptcy estate, you may be able to influence who deals with appointment as Liquidator / Trustee. If over 25% then a decision process can be requested or if over 50%, a Secretary of State appointment can be requested.