Winding-up petition to chase debts

A winding-up petition can sometimes be employed by creditors to chase debts. The threat of a winding-up petition can incentivise a debtor company to meet its contractual obligations. Furthermore, it could potentially reveal the financial health of a debtor company. If the former is unable to pay its debts, any kind of pressure the creditors exert will be futile.

Nevertheless, one should not underestimate the threat of a winding-up petition. Following an order by the court, the debtor company will axiomatically stop trading and the contracts of its employees will be terminated.

With that said, it is imperative to appreciate that a winding-up petition is not contrived for the purpose of collecting debt. In fact, it is a class action lawsuit any of the creditors can beseech the court for the appointment of a liquidator in order to realise and proportionately distribute the assets of the debtor company.

Utilising a winding-up petition to collect debt has almost become a habitual exercise. Consequently, the pertinent legal process can be abused by a creditor. If the court becomes aware that such an abuse has materialised, that creditor’s petition will indubitably be dismissed. Moreover, the debtor company is likely to be awarded costs on the indemnity basis.

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