Insolvency procedures: winding up part 5, Compulsory winding up

The court has the power to wind up a company. There are a number of different grounds upon which a company can be wound up. There are also various lists of persons who have the ability to apply for the company to be wound up. The key section is section 122 of the Insolvency Act 1986.

However there are also various additional powers. If an institution has been authorised or formerly was authorised under the Banking Act 1987, then under section 92 of that act the Bank of England can petition to wind up the company on the grounds that the institution is unable to pay debts or it is just and equitable to wind it up. Likewise under section 124A of the Insolvency Act 1986 if no winding up by the court is already in existence then the Secretary of State for Trade and Industry can apply to wind up the company on the basis that it is expedient in the public interest that it should be wound up. If the court thinks it is just and equitable for it to be wound up then the order can be made. Exercise of this power applies where the Secretary of State takes this view based on the number of specified statutory sources of information.

The public interest is not restricted to illegal conduct. Nor do such companies have to be insolvent. The common thread of such petitions is that there is some deceit of the public which is intentional and dishonest. For example companies can keep inadequate records and be misleading the public, there could be a fraud in the way the business is being run, the company could be breaching statutory provisions or taking a business line which is misleading the public by suggesting that it was a bona fide business when it was not. The whole point is that the Secretary of State ought to be able to take steps to ensure that the public is protected. However at the same time the court has to scrutinise the matter. A judge has a discretion whether to make a winding up order. On the public interest petition (which obviously has to be taken very seriously) the court will examine the evidence and submissions and weigh up the various factors for and against the making of the winding up order. That order will be made if the court considers that there is a reasonable prospect that the winding up will pursue the public interest.

Whilst there are a whole host of different grounds which can be asserted to give rise to the general power to winding up under section 122, there are two principal ones. The first is that the company is unable to pay its debts, the second is that the court is of the opinion that it is just and equitable the company should be wound up. Inability to pay debts it is the basis of the vast majority of petitions to wind up.

Of course in order to demonstrate that the court has jurisdiction, then it has to be shown that the company is unable to pay its debts. There are a number of ways in which this can be done. Next week we will look at how this is proved for the purpose of compulsory winding up.