Home Knowledge Claim that Company Can Survive as Going Concern Not a Defence to Winding-Up Petition

Claim that Company Can Survive as Going Concern Not a Defence to Winding-Up Petition

The High Court has granted a creditor’s petition to wind-up a company, notwithstanding the claim that the company could survive as a “going concern” following a restructuring, on the grounds that such a claim should have been advanced by way of application for examinership: In re Heatsolve Ltd IEHC 399.

The Revenue Commissioners issued a winding-up petition against Heatsolve Ltd on foot of a demand seeking €149,134.59 for arrears of tax, including VAT and employee PRSI contributions.  The company subsequently paid a portion of this sum, reducing the balance owed to €84,295.75.

The company sought an adjournment of the petition claiming that it would be in a position to generate an income stream the following month and to discharge the debt in full within 18 months.  Two major creditors of the company supported the application for an adjournment.

The company argued that the Court had a wide discretion to adjourn the petition in order to enable it to trade its way out of difficulties.  It referred in this regard to section 213 of the Companies Act 1963 which states that the court “may” (as opposed to ‘shall’) order the winding-up of an insolvent company and to section 216 which allows the court to adjourn the hearing of a winding-up petition.

However, the Court did not think that it should exercise its discretion in such a far-reaching manner as to convert the winding-up procedure into something akin to examinership.  Hogan J noted that examinership involves a series of ‘checks and balances’ designed to protect both companies and their creditors.  One such safeguard is that a petition for examinership must be accompanied by an independent accountant’s report, the purpose of which is to guide the court on the likely prospects of survival of the company.  No similar safeguards exist in the context of the winding-up process. 

The judge concluded that a company seeking to resist a winding-up petition cannot ordinarily do so on the ground that, if given breathing space from its creditors, it will have a reasonable prospect of survival as a going concern and will be in a position to discharge the debt of the petitioning creditor.  Any such argument must be advanced by way of an application for examinership rather than by means of a defence to a winding-up petition.

As the Revenue Commissioners had complied with the requisite statutory formalities in making their petition, the Court held that it had no alternative but to make the winding-up order sought.

Contributed by: Niamh Cacciato