Winding Up Petitions Increase, But Are They Being Served Correctly?

Winding up petitions issued by creditors against firms based in Central London increased by 39 per cent in October 2010 compared with 10.5 percent in the rest of the country, a new study has revealed.

The increase is simply a reflection of the government cutbacks and will probably continue throughout 2011.

It’s also evidence that creditors are no longer turning to the county court to recover debts; they’re going straight to winding up because it’s a more compelling method of collection, although it is an abuse of court and legal process.

Winding up petitions can be an effective debt collection tool, but only if they’re served correctly.

An appropriate example came last summer when I was contacted by a client who’d received a winding up petition from a firm of solicitors and was due in court in three weeks.

In order to comply with insolvency rules, proceedings for a winding up petition must be advertised in the London or Edinburgh Gazette at least 10 days before a hearing, which didn’t leave much time for the law firm to act.

I contacted the solicitors on behalf of the client to negotiate payment terms and asked them to discharge the debt and not advertise the petition in the paper on the grounds that once advertised, it cannot be withdrawn and the recipient’s bank accounts will be frozen leaving them without funds to pay the debt.

The law firm agreed, but in doing so broke insolvency rules (the winding up petition must be advertised).

As a result, if the client failed to make any payments before the hearing, the winding up petition was invalid and thus unenforceable; allowing them to pay the debt at a later date and continue trading.

Are you being served? If so, contact Insolvency and Law now for confidential advice and guidance. Call 0207 504 1300.