Winding Up Petitions: Rescinding an Order

If your company has been wound up following a winding-up petition, it may be possible to apply to the court to rescind (effectively cancel) the winding-up order so that the company can continue trading. This will largely depend on the reasons why the company was wound up.

It is important to note that there is a strict deadline to make a rescission application. Under Paragraph 9.10 of the Practice Direction on Insolvency Proceedings (the “PDIP”) the application must be made within five business days of the date on which the winding-up order was made. In addition, Rule 12.59(3) of the Insolvency (England and Wales) 2016 (the “Rules”) provides:

‘Any application for the rescission of a winding-up order must be made within five business days after the date on which the order was made.’

If you are unable to make the application within this timeframe, you should also include an application to extend time under Schedule 5 of the Rules.

The Court has the power to grant an extension of time to the five business days deadline, allowing an application to rescind a winding-up order to be made after the five business day deadline has elapsed. Where an extension of time is needed, the rescission application should have, within it, an extension of time application.

The power is provided by CPR r.3.1(2)(a) (the court’s general powers of management). Any extension of time must be justified in evidence and it is important to note that it is a jurisdiction that is very cautiously exercised. There is, consequently, no guarantee that an extension of time will be granted, so you must act urgently.

An application to rescind a winding-up order will only be considered if it is made by (a) creditor, or (b) contributory (such as a shareholder), or (c) by the company jointly with a creditor or with a contributory pursuant to Paragraph 9.10.3 of the PDIP. A director who is not otherwise a shareholder or creditor of the company, is unable to make the application just by virtue of being a director.

The application must be supported by a witness statement which should include details of the company’s assets and liabilities, and (where appropriate) reasons for any failure to apply within five business days. Typically, the application will include evidence as to when the company first became aware of the existence of the winding-up petition and winding-up order, any previous correspondence with the petitioning creditor and evidence that the company is in a position to pay the petition debt and the costs and expenses of the liquidation and any supporting creditor claims.

Paragraph 9.10.2 of the PDIP provides that notice of the rescission application must be given to the petitioning creditor, any supporting or opposing creditors, any incumbent insolvency practitioner and the Official Receiver.

Any appointed private liquidator (or if the Official Receiver is the liquidator) may take a neutral stance on the rescission application – meaning they would not support or oppose the winding-up order being rescinded. However, the liquidator should assist the court on issues such as whether they have discovered any company conduct that requires investigation and whether the directors have co-operated with their investigations. Further, the liquidator will need to have notice of the rescission application and the hearing because they need to ensure that their costs are met as part of the rescission order.

The Court’s Discretion

The court has a wide discretion whether or not to rescind a winding-up order and the burden is on the applicant to satisfy the court that it is an appropriate case in which to exercise that discretion. There is no limit to the factors that the court can take into account when considering to rescind a winding-up order.

Generally, the court will need to be satisfied that the petition debt and liquidation costs can be paid in full and that the company is at least cash-flow solvent. This may require additional evidence, such as a cash-flow forecast, to be included in with the supporting witness statement.

The court will also need to be satisfied that the application has not been presented in a misleading way and that it is in possession of all material facts and that the trading operations of the company have been fair, transparent and do not require investigation.

Where rescission is necessary to correct an injustice

The jurisdiction to rescind a winding-up order is available to correct an injustice. This could include, for example, where there is evidence that the company was not aware of the winding-up petition and thus unable to respond it to prior to a winding-up order being made.

Change of circumstances since the winding-up order was made

It is fundamental to any application for a rescission order, that there is some change of circumstances presented to the court, from those circumstances presented to the Court when the winding-up order was made. This should be presented clearly in the supporting witness statement. Some examples include:

• The company did not attend the winding-up petition hearing.
• Substantial new evidence. For example, evidence of the company’s ability to fund its operations that was not previously made available to the court.
• Mistaken identity. For example, where a winding-up order was made against the wrong company because it has a similar name.

The person applying to rescind a winding order, should include evidence that they have the funds available to pay the costs of the liquidation. These costs include, in summary, (a) the petition debt, interest (if applicable) and the legal costs of presenting the winding-up petition, (b) the debt claimed by any supporting creditors, and (c) the Official Receiver or private liquidator’s costs.

In most cases, the Official Receiver remains the company’s liquidator at the time of a rescission application. The Official Receiver is entitled to retain the winding-up deposit paid by the petitioning creditor towards its costs pursuant to The Insolvency Proceedings (Fees) Order 2016. This will need to be reimbursed to the petitioning creditor as part of its costs of the winding-up petition.

Should the court agree to exercise its discretion and rescind the winding-up order, you will need to serve a copy of the Rescission Order on the Official Receiver or private liquidator, the petitioning creditor and any supporting or opposing creditors. It is also necessary to lodge a copy with Companies House to update their records to reflect that the company is no longer in compulsory liquidation.