Winding up petitions can be a very effective means of bringing pressure to bear on debtor companies. However, as one High Court case illustrated, their deployment as leverage is usually only appropriate in circumstances where the evidence of money owed is cut and dried.
Company A claimed to be owed substantial sums by company B in respect of the supply of high quality finished steel. It issued a winding up petition when its invoices remained unpaid. However, company B argued that some of the steel was not fit for purpose and that it had a defence and counterclaim of real substance.
The Court acknowledged that company A had a strong case and that there were indications that company B was scratching around for a defence. However, the case involved factual disputes and issues of contractual interpretation which were not straightforward. In those circumstances, ordinary commercial litigation, rather than a winding up petition, was the right way to proceed. The Court would issue an injunction, restraining company A from presenting the petition, unless appropriate undertakings were offered in lieu.