Judge orders directors to pay costs after a wrongful defence of a winding up petition.
As Commercial Litigation Specialists, this case study enables us to highlight the pitfalls involved in going to court without taking proper professional advice. The case demonstrates that in the field of Insolvency and Commercial Litigation, failing to consult the right legal specialists can be an extremely costly mistake.
The company directors of Winnington Networks Communications Ltd are now personally out of pocket after a judge ruled they had not sought proper advice from Commercial Litigation Solicitors in defending a winding up petition.
As reported on Lawtel, Winnington’s directors were instrumental in deciding that the company would defend the winding up petition brought by HMRC after they calculated that a debt of £1.6million in VAT was owed.
The company appealed against the VAT assessment and defended the petition. They then applied to have the petition dismissed, on the basis that their appeal against the VAT assessment had a real prospect of success.
After looking at the case, the judge refused Winnington’s application, a winding up order was made and the company was ordered to pay HMRC’s costs on the indemnity basis.
Directors did not seek advice from commercial litigation specialists
HMRC then applied for the directors of the company to personally pay HMRC’s costs and the company’s costs. The directors opposed this application, as they believed the company had a legitimate defence. However, the court rejected their stance, as their assertions that they followed professional advice from commercial litigation specialists were not backed up by evidence from solicitors or counsel.
The directors had not adequately explained how spending substantial sums defending the winding up petition was in the company’s, rather than their own, interests. The judge is reported to have considered it just to make an order for costs against the directors personally, for both HMRC and the company’s costs.
This unusual case is a clear warning to directors who have been threatened with, or issued with, a winding up petition. It is vitally important to consider your position from the point of view of the company and to seek professional legal advice from commercial litigation solicitors. Obtaining this advice will protect directors from adverse costs orders, and the petition can be dealt with in the most appropriate way.
If you are facing a winding up order then the sooner you can get in touch with us, the better, as early on in the process it is much more likely that we can help you. Whatever stage you are at, please do not delay in seeking advice. Click here to see some of our commercial litigation case studies.
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