In Sarjanda Ltd (in liquidation) v Aluminium Eco Solutions Ltd and another [2021] EWHC 210 (Ch), an application to rescind a winding up order was refused where the application had been made over two years outside of the five-day time limit. That level of delay, allegedly caused by the company negotiating payment of its debts, was not a good enough reason for the breach of the time limit.

The winding up order was made in 2018 and the application to rescind made over two years later. The delay was said to be due to a combination of factors including the need to negotiate with creditors, ill-health and the impact of the COVID-19 pandemic. By October 2020 all creditors, fees and expenses had been paid in full.

The five day time limit is imposed by the Insolvency Rules albeit the court has the power to extend the time limit under rule 3.1 of the Civil Procedure Rules.

The case highlighted the deliberate legislative distinction between bankruptcy (where an annulment can be obtained even after discharge) and winding up and the fact that it was undesirable to permit rescission in circumstances where creditors could only be paid from funds volunteered by shareholders. Allowing this could lead to shareholders negotiating directly with individual creditors against a background of being told that they would receive nothing in the liquidation.

It was also relevant that Sarjanda Ltd was not intending to continue to trade and could not demonstrate that it was able to pay its debts.

The decision reinforces the need for any applicant for the rescission of a winding up order to act swiftly and to demonstrate that the order for winding up was inappropriate. A mere desire on the part of the shareholders to settle the company’s liabilities will usually be insufficient. If an extension of the statutory 5 day time limit is required there must be good reason (i.e. the applicant was inadvertently prevented from complying with the rule) or exceptional circumstances.