In Bridger & Co Ltd v Specialist Lending Ltd (t/a Duologi) [2023] EWHC 2562 (Ch) Deputy ICC Judge Curl KC dismissed an application for an injunction to restrain Specialist Lending Limited from advertising a winding up petition presented against Bridger & Co Limited, a firm of solicitors. He did so by reference to the factors set out by Norris J in Angel Group Ltd v British Gas Trading Ltd, holding that, although that case concerned an application to restrain presentation of a petition, the principles were equally applicable to an application to restrain advertisement. He rejected the company’s submissions that the petition was susceptible of opposition as an abuse of process by reason of defences based on misrepresentation, implied terms in the contract giving rise to the petition, frustration, repudiation and force majeure, saying that he would have dealt with those ex tempore. It was a point taken on the capacity of a secured creditor to petition for winding up that led him to reserve judgment, which he later gave orally and which is the principle point of interest in the judgment.
The petition was based on a debt said to be due under a disbursement funding agreement under the terms of which the petitioner had advanced money to the company to fund disbursements to enable clients of the solicitors’ company to pursue claims relating to cavity wall insulation.
The company’s case was that the effect of the contractual terms of the DFA was that the petitioner’s only recourse was against the claims that it had funded and associated ATE insurance, not against the company itself. The DFA, it contended, gave rise to a security interest in the claims, the true effect of which meant that the petitioner was required to “stand on its right” as a secured creditor to “lift and shift” the claims, an expression used by counsel for the company for the obligation to “put them with other solicitors to be pursued”. Specifically, the petitioner’s secured rights relied on by the company were said to arise out of an agreement to assign which gave the petitioner a right, in an event of default, to call for an assignment of the benefit of the company’s contract with its clients. The assets arising under that arrangement were expressly defined as secured and expressed to be security for what were defined as secured liabilities. The question formulated by the deputy judge was, then, “whether, if the Petitioner held security for the petition debt, this affected its ability to present a petition and seek a winding up order,” having regard to “the proposition that a secured creditor’s rights take effect outside the liquidation and such a creditor does not have an interest in the assets subject to the statutory trust for creditors that arises when a winding up order is made.”
The deputy judge’s analysis relied on McPherson & Keay on the Law of Company Liquidation, and two cases mentioned there as authority for the proposition that a secured creditor may petition: Re Lafayette Electronics Europe Ltd and Re Sushinho Ltd. McPherson & Keay, the judge noted, concluded that a secured creditor was a creditor for the purposes of a petition, but they also said:
“While a secured creditor is a creditor for the purposes of a petition, the views of such creditor are not likely to be regarded as highly by a court considering whether or not to make a winding-up order as those of the unsecured creditors.”
In Re Lafayette, HHJ Norris QC, as he then was, sitting as a High Court judge, accepted a submission that former administrators with the benefit of a statutory charge over the company’s assets to secure their fees had standing to present a petition for those fees. The decisive point appeared to have been the inability of the administrators to sue for those fees, rather than the petitioner’s general submission that the existence of security did not deprive them of their standing as creditors, although equally there was nothing in the judgment to suggest that the judge had not accepted that general submission.
The report of Re Sushinho cited in McPherson & Keay did not include the judgment itself, which appeared to have been delivered ex tempore without having been transcribed: there was only a headnote digest. That indicated that the case was more relevant to the facts of this case than Re Lafayette. A petitioner landlord held a rent deposit that was sufficient to satisfy the petition debt. The debtor contended that the petition had been improperly presented as the landlord was fully secured and could have taken payment out of the deposit. Mann J rejected that argument, holding that the petitioner was entitled to its costs, having properly presented a petition, despite the existence of the rent deposit. The headnote recorded Mann J as holding that it was “trite law that a secured creditor could get a winding up order” and saying:
“In the instant case, there was clear evidence that the applicant could not pay its debts as they fell due. The ability to pay rent was a crucial obligation and failure to pay it was an indication of its inability to pay. The respondent was merely entitled, not obliged to take the rent money from the deposit held on trust for the applicant and there were many good reasons to leave the deposit intact. The respondent therefore had locus standi to bring and serve a statutory demand and was entitled to petition for winding up.”
Deputy ICC Judge Curl drew an analogy with the case before him:
“where under the DFA the Petitioner has a right, but not an obligation, to ‘lift and shift’ the cases. Indeed, the current case would seem to be a stronger case for the Petitioner than Re Sushinho was for the landlord, in that there is considerable doubt, which I will come back to in a moment, over the adequacy of any security, which was not the case in Re Sushinho where the rent deposit appears to have been adequate to satisfy the outstanding rent.”
Lafayette and Sushinho, Judge Curl held, were consistent with the absence of any restriction in the Insolvency Act 1986 or the Insolvency Rules 2016 on the ability of a creditor to present a winding up petition based on a secured debt, “a position that falls to be contrasted with the detailed provisions restricting the right of a creditor to present a bankruptcy petition based on such a debt.” He therefore held that the petitioner in the case before him had standing to present the petition, even though it had security for the petition debt.
Deputy ICC Judge Curl’s judgment provides welcome clarity on the point, even if Mann J thought the proposition that a secured creditor could present a winding up petition was trite: Shushinho was about the costs of a petition that had in fact been disposed of as regards the petition debt by the time the case came before Mann J, while Lafayette was concerned with a narrow set of circumstances. But it will be a rare case in which a secured creditor will want to petition rather than rely on its security: a secured creditor cannot prove and at the same time rely on his security; and if he submits a proof without disclosing his security, he will usually be treated as having surrendered it for the benefit of the general body of creditors. In this case, the value of the security was clearly doubtful.