Bulletins | July 26, 2023

Landinvest and Re a Company

Two recent judgments in winding up cases illustrate how the same or similar legal points can arise yet lead to different results on the facts of the case.

Landinvest BTL Ltd v Property Services LDN Ltd [2023] EWHC 1778 (Ch), a judgment of ICC Judge Greenwood handed down on 18 July 2023, followed the trial of a contested winding up petition. A Company v Respondent (Re Injunction to Restrain Presentation of a Petition and Insolvency Act 1986) [2023] EWHC 1779 (Ch), a judgment of ICC Judge Barber delivered a few days later on 21 July 2023, deals with an injunction to restrain presentation of a winding up petition following service on the company of a statutory demand.

ICC Judge Greenwood took as his starting point the principles governing contested winding up petitions summarised by Norris J in Angel Group v. British Gas [2012] EWHC 2702:

(a) A creditor’s petition can only be presented by a creditor, and until a prospective petitioner is established as a creditor he is not entitled to present the petition and has no standing in the Companies Court: Mann v Goldstein [1968] 1WLR 1091.

(b) The company may challenge the petitioner’s standing as a creditor by advancing in good faith a substantial dispute as to the entirety of the petition debt (or at least so much as will bring the indisputable part below £750).

(c) A dispute will not be “substantial” if it has no rational prospect of success: Re A Company No.0012209 [1992] 1WLR 351.

(d) A dispute will not be put forward in good faith if the company is merely seeking to take for itself credit which it is not allowed under the contract (ibid).

(e) There is no rule of practice that the petition will be struck out merely because the company alleges that the debt is disputed. The true rule is that it is not the practice of the Companies Court to allow a winding up petition to be used for the purpose of deciding a substantial dispute raised on bona fide grounds, because the effect of presenting a winding up petition and advertising it is to put upon the company a pressure to pay (rather than to litigate) which is quite different in nature from the effect of an ordinary action: Re A Company No.006685 [1997] BCC 830.

(f) But the court will not allow this rule of practice to work injustice and will be alert to the risk that an unwilling debtor is raising a cloud of objections in order to claim that a dispute exists which cannot be determined without cross-examination (ibid).

(g) The court will therefore be prepared to consider the evidence in detail even if, in performing that task, it may be engaged in much the same exercise as would be required of a court facing an application for summary judgment (ibid).

The ICC judge also noted propositions to similar effect in Winnington Networks Communications Ltd v HM Revenue & Customs [2015] BCC 554 and LDX International Group LLP v Misra Ventures Limited [2018] EWHC 275 (Ch)

ICC Judge Barber started with Coilcolour v Camtrex [2015] EWHC 3202, in which Hildyard J summarised the principles relating to applications for an injunction against presentation of a petition:

“31. The court will grant an injunction to restrain presentation of a winding up petition where it considers that the petition would be an abuse of process and/or that the petition is bound to fail (to the extent they are different): Mann v Goldstein [1968] 1 WLR 1091. See also Buckley LJ in Bryanston Finance Ltd v De Vries (No. 2) [1976] Ch 63 […]

32. The court will restrain a company from presenting a winding up petition if the company disputes, on substantial grounds, the existence of the debts on which the petition is based. In such circumstances, the would-be petitioner’s claim to be, and standing as, a creditor is in issue. The Companies Court has repeatedly made clear that where the standing of the petitioner, and thus its right to invoke what is a class remedy on behalf of all creditors, is in doubt, it is the court’s settled practice to dismiss the petition. That practice is the consequence of both the fact that there is in such circumstances a threshold issue as to standing, and the nature of the Companies Court’s procedure on such petitions, which involves no pleadings or disclosure, where no oral evidence is ordinarily permitted, and which is ill-equipped to deal with the resolution of disputes of fact.

33. The court will also restrain a company from presenting a winding up petition in circumstances where there is a genuine and substantial cross-claim such that the petition is bound to fail and is an abuse of process: see e.g. Re Pan Interiors [2005] EWHC 3241 (Ch) […]. If the cross-claim amounts to a set-off, the same issue as to the standing of the would-be petitioner arises as in the case where liability is entirely denied. Even if not qualifying as a set off, a genuine and substantial cross-claim exceeding the would-be petitioner’s claim will also result in the petition being dismissed in accordance with the same settled practice, save in exceptional circumstances (as a discretionary matter). That is also because, if the cross-claim is established, the would-be petitioner will have no sufficient interest either in itself having a winding up ordered, or to invoke the class remedy which such an order represents.

34. Further, it is an abuse of process to present a winding up petition against a company as a means of putting pressure on it to pay a debt where there is a bona fide dispute as to whether that money is owed: Re a Company (No 0012209 of 1991) [1992] BCLC 865.

35. However, the practice that the Companies Court will not usually permit a petition to proceed if it relates to a disputed debt does not mean that the mere assertion in good faith of a dispute or cross-claim in excess of any undisputed amount will suffice to warrant the matter proceeding by way of ordinary litigation. The court must be persuaded that there is substance in the dispute and in the Company’s refusal to pay: a ‘cloud of objections’ contrived to justify factual enquiry and suggest that in all fairness cross examination is necessary will not do.

36. As stated by Chadwick J (as he then was) in Re a Company (No 6685 of 1996) [1997] BCC 830 […]:

‘I accept that any court, and particularly the Companies Court, should not seek to resolve issues of fact without cross-examination where there is credible affidavit evidence on each side. But I do not accept that the court is bound to hold that there is a need for a trial in circumstances in which, on a full understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible.’”

ICC Judge Barber too cited further authority by way of amplification, including Tallington Lakes v South Kesteven District Council [2012] EWCA Civ 443, in which Etherton LJ (albeit obiter) considered the threshold that an applicant needed to cross in an application to restrain presentation:

“[I]t is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition, and may be reached even if, on an application for summary judgment, the defence could be regarded as ‘shadowy.’”

The petition in the Landinvest case was founded on a debt arising out of the company’s failure to pay a costs order of £20,000 made against it. The company opposed the petition on two grounds: first, it contended that the costs order was “flawed” and “invalid” because the interested parties (including the petitioner) had not been joined to the proceedings as they ought to have been under CPR 46.2(1)(a); secondly, it asserted a cross-claim for damages against the petitioner, contending that it had induced or procured another company to breach a number of contracts for the sale of properties to it: in the judge’s words, “It claims (or rather, says that it will at some future point claim) damages in the sum of £450,000, being the difference between the agreed sale price (£1,000,000) and the value of the Properties (said to have been £1,450,000) – in other words, it seeks compensation for the loss of its bargain.”

ICC Judge Greenwood found that there was nothing in the point about the costs order: the order had not been challenged or appealed, so there was no basis on which he could treat it as “invalid,” nor had there been any procedural irregularity in obtaining it.

He held that the cross-claim was not genuine and substantial because the company had failed to adduce sufficient evidence and properly particularise it: “[U]ltimately, its case in this respect comprises no more than bare assertion,” he said. Importantly, in so deciding, he took delay in raising it into account: proceedings relating to the properties had been commenced in July 2021, the properties had been sold on 23 June 2022, the petition had been presented on 19 July 2022, and a witness statement in opposition to the petition had been made on 31 August 2022, yet the claim now relied on had not been raised until very shortly before a hearing on 27 April 2023. ICC Judge Greenwood said:

“Not only is the Company’s failure to raise the allegation more promptly unfair to the Petitioner, but it is a relevant factor in assessing the substance and genuineness of the asserted claim. As was said by Mummery LJ in Dennis Rye Limited v Bolsover District Council [2009[ EWCA Civ 372 at [19]:

‘A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed in bringing proceedings on the cross-claim. The failure to litigate the cross-claim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so.’”

He went on to uphold the petition (although we do not know from his judgment whether a winding up order followed).

Delay was also a factor relied on in A Company v Respondent: ICC Judge Barber was referred to Poperly v Poperly [2004] EWCA Civ 463 in which Jonathan Parker LJ (citing Re Bayoil) said that: “Delay in putting forward a cross-claim may lead to an inference that it is not put forward in good faith, but only as a pretext in order to stave off bankruptcy.” However, she decided that “it would not be legitimate to infer from the timing of the introduction of evidence on the cross claim in this case that the cross-claim was put forward in bad faith, as a pretext to stave off winding up proceedings” because it had been intimated in correspondence. On the evidence before her she also found that all but £16,889.25 of the sum claimed in the statutory demand was the subject of a bona fide dispute on substantial grounds; and the company had a genuinely arguable cross-claim in contract/misrepresentation “comfortably exceeding £16,889.25 with real prospects of success.”

In light of those conclusions, she made an order restraining the respondent from presenting a petition.

Whilst the different outcomes of the two cases stemmed from the facts of the individual cases, it is plain that delay in raising the cross claim played a part in a decision adverse to the company in the first case, whilst raising it reasonably promptly assisted the company’s position in the second in establishing its bona fides.