Before entering into any transaction involving a company, it is essential to check that no winding-up petition has been presented against it.
Winding-up - or compulsory liquidation - is a court-based procedure ultimately resulting in a liquidator being appointed to realise the assets of the liquidated company. The proceeds are then used to settle the costs and expenses of the liquidated estate and any surplus is distributed to creditors.
Sometimes, a winding-up petition will be presented against a large and successful company, maybe because a relatively small debt remains unpaid. The creditor may have presented the petition as a means of getting the company's attention in order to recover the debt.
Any petition for winding-up needs to be treated with caution, as it should only be used in circumstances where the company is insolvent, usually because it is unable to pay its debts when they fall due.
The Companies Court (part of the High Court) keeps a register of all winding-up petitions that have been presented, including those presented in county courts. Before completing a transaction, it is prudent to ensure that a call is made to the Companies Court Central Index to verify that no winding-up petition has been presented against the company with which you are contracting.
If the winding-up petition results in a winding-up order being made, any disposition made by that company after presentation of the petition will be void.
So the risk is that a transaction that has completed could be unwound on an application by the liquidator. This would mean any property being transferred back to the company, and any claim against the company for the return of any monies paid would, most likely, be an unsecured claim in the liquidation.
If enquiries at the Companies Court show that a winding-up petition has been issued, all is not lost.
It is possible that the parties might wait and see if an order for winding-up is made, or where a transaction is commercially valuable or time critical, an application can be made to court for an order permitting the transaction to proceed on the basis that it will either be beneficial to the company, or will not prejudice the interests of unsecured creditors. These are known as validation orders, and can be made retrospectively.
In practical terms, a contracting party needs to know what it is dealing with at the point of exchange or completion of a transaction in order to achieve a successful conclusion. A last minute check at Companies House can be a valuable safeguard.