Poor Management Leads to Winding Up Petition for Solvent Company

The trouble with companies having only one active director is that, if he or she falls ill or is otherwise incapacitated, management can suffer severely. In a case on point, the High Court had to come to the aid of a company that found itself the target of a winding up petition despite having sufficient funds to pay all of its debts.

The company suffered poor management for about two years after its sole director and guiding mind suffered kidney failure. He underwent a kidney transplant just two days before two of the company’s creditors lodged a winding up petition. A winding up order was granted by a judge after the company was refused an adjournment.

In upholding the company’s application to rescind the order, the Court noted that it had reached agreement with most of its creditors, all but one of whom supported the application. The company’s solicitors held £2.4 million on its behalf: a sufficient sum to cover all of its debts and to leave £1.5 million as working capital.

The company, which clearly had substantial funds at its disposal, had put in place a new management team, and the Court found that there had been a sufficient change in its circumstances to justify rescission of the order. With some hesitation, the Court found that the company’s trading operations had been fair and above board and that there was nothing that required further investigation of its affairs.

Noting that the company’s difficulties stemmed from its deficient management over an extended period, the Court directed that at least one additional director be appointed to its board within three months. The new director must be a UK resident, independent of the company’s shareholders, and the Court recommended that a professional such as an accountant should be chosen to fill the post.