We have seen an increase in enquiries as of late whereby clients with benefiting from security over a debtor’s assets are seeking to wind up the debtor company. As such, it seems pertinent to revisit the circumstances in which this can be done.
Often it is thought that winding up/bankruptcy petitions cannot be issued where a debt is secured without agreeing to give up that security. That, however, is not strictly the case.
In the case of security over a company’s assets, a winding up petition can be issued in the normal way. Where the security comes into play is in relation to proving in the liquidation. Secured creditors essentially have four options available to them:
- Provide no proof and simply rely on the charge.
- Realise the charge and prove for the remaining unsecured debt (may be timing difficulties with this, depending on how long it would take to realise the charge).
- Provide a valuation of the charge, declare as such in the proof of debt, and prove for the unsecured balance only.
- Surrender the security and prove for the whole debt as unsecured.
In the case of an individual, under section 269(1) Insolvency Act 1986, a secured creditor can petition where either:
- The creditor is willing to give up the security for the benefit of all creditors.
- The petition contains a statement of the estimated value of the security as at the date of the petition, and a statement that the petition is only made in respect of the unsecured amount.
It is therefore worth bearing in mind that petitioning is available when you are secured, and the ability to do so can prove a useful in the event of defaulting debtors.
For more information please do not hesitate to contact Alexandra Withers on firstname.lastname@example.org.