Consequences of the abuse of process of early advertisement of Winding-up Petitions

Insolvency Rules 4.11 provides that once a Winding-up Petition has been presented, it must be advertised in the London Gazette.  Advertisement must take place within a certain window: it must be no sooner than 7 business days after service on the company and no later than 7 business days before the date appointed for the hearing.  The reason behind this rule is to allow the company a certain grace period after presentation, while ensuring that all creditors are made aware of the hearing, giving them the opportunity to file Notices of Appearance, stating whether they support or oppose the winding up.  Banks keep a careful eye on the Gazette, and bank accounts will invariably be frozen following advertisement, which can have a dire effect even on an otherwise solvent company.

Under Rule 4.11(5), the Court has a discretionary power to dismiss a petition which has not been advertised in accordance with the Rule, and this includes the case where the petition has been advertised too early.  In Re Signland Ltd [1982] 2 All ER 609, Slade J held that the purpose of the grace period was to allow the company time either to pay the debt (if it was admitted) or apply for the petition to be struck out (if it was disputed), to which may be added that the company may also wish to apply for a validation order under s127 of the Insolvency Act 1986 or for an injunction restraining advertisement.  Slade J held that aggravating factors included where the breach was blatant, as when advertisement was before service on the company, or where the breach was deliberate.  It should be noted, however, that in the Signland case itself, although Slade J found that the breach was such as to justify striking out the petition, he did not do so, as another creditor successfully applied to be substituted.

A notification otherwise than by advertisement in the Gazette is outside the scope of Rule 4.11(5) (Secretary of State for Trade and Industry v North West Holdings plc [1999] 1 BCLC 425).  However, it has been held that publicising the petition before advertisement according to the Rule is a breach of the spirit of the rules (Re FSA Business Software Ltd [1990] BCC 465) and it can be struck out as an abuse of process.  In particular, in Re Bill Hennessey Associates Ltd [1992] BCC 386, a petition was struck out after it was faxed to the company’s bank on the same day as it was served on the company.

In a recent case in which LEXLAW was instructed (Re A Company (2012) unreported), the petitioner faxed a copy of the petition to the company’s bank before service on the company.  However, Bill Hennessey was not followed, despite the similar facts.  Arnold J held that the company had no reasonable prospect of opposing the petition, and thus had suffered no prejudice from the early advertisement.  Since the early notification was deliberate (albeit well-intentioned) and was before service, both of the aggravating factors mentioned in Signland applied, and with great respect for the learned judge, it may be doubted whether this decision gives effect to the policy of the rules.  If early notification will be winked at simply because the petition itself is good, the procedural requirement would seem to be of little effect.

It was at least some consolation to the company that the petitioning creditor was penalised in costs for it’s abuse of the process of advertisement.