Publication of winding up petitions: can the company be the last to know?

The increasing accessibility to information and recent case law casts doubt on the protection afforded to a company by restricting the advertisement of a winding up petition.

Once a winding-up petition has been served, it can be advertised in the London Gazette seven business days thereafter. Advertisement of a winding up petition is often viewed as being catastrophic for the debtor company as the advertisement will notify the company’s bank (generally leading to the immediate freezing of the company’s bank account), as well as its other creditors that the petition has been presented. Therefore, the advertising of the petition itself can do substantial damage to the commercial reputation of the company.

Since the decision of Re Signland [1982], it has been the court’s usual practice to dismiss a petition where the provisions relating to advertisement of the petition are not complied with. In particular, where the advertisement is made prematurely. This is on the basis that the company is entitled to the benefit of the seven- day period stipulated in the Insolvency Rules 1986 in order to consider its position.

If the creditor attempts to publicise the petition by alternative means, for example, by informing the company’s bank directly, the courts have held this amounts to an abuse of the process of the court by placing unfair pressure on the company (Re Bill Hennessey Associates Limited [1992]).

However, in the recent case of Re a Company (2012) (unreported) the creditor’s solicitors sent a copy of the petition to the company’s bank prior to service of the petition. The company argued that this was, as above, an abuse of process. However, the court held that it was not an abuse of process as it determined that the creditor’s solicitors had merely been over enthusiastic in seeking to protect the creditor’s interests.

This is certainly an interesting decision in light of the relevant case law and it is not clear whether the court would have arrived at an alternative decision if the company’s cross claim against the creditor had had any reasonable prospect of success. In this case, the court was not satisfied that the company’s cross claim had a reasonable prospect of success and therefore the creditor had standing to bring the petition.

Creditors would be ill advised to rely on this judgment and seek to prematurely inform the company’s creditors of a petition.  However, given that certain credit reference agencies and other third party search providers now confirm the existence of a winding up petition, even if it is not yet advertised, it is conceivable that a company may, by the time that the seven day period has expired,  find that many of its creditors, including its bank, are already aware of the petition by these indirect means. Thereby eroding any protection afforded to it by the relevant advertisement restrictions.