Restraining Presentation or Advertisement of a Creditor’s Winding Up Petition

Author: Simon Hill
In: Article Published: Tuesday 04 February 2020

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Widespread knowledge that a company is subject to a creditor’s winding up petition can cause that company serious harm. Where the creditor’s winding up petition is warranted, this harm may just be an unfortunate consequence of a valid legal process being pursued against it. However, where the creditor’s winding up petition is unwarranted, and is eventually dismissed because it is unwarranted, its dismissal will be ‘cold comfort’ to the company where, in the intervening period between presentation and dismissal, the company has suffered irreparable reputational and operational damage. 

This article will consider the option open to a company subject to a winding up petition (or a threatened winding up petition) of applying to the court for an injunction[1] to restrain the would-be (or prospective)[2] petitioner /actual petitioner from presenting, pursuing and/or advertising the creditor’s winding up petition. This article will not consider winding up petitions presented by any other party, such as contributories, the company itself, or the company’s directors [3]. A company can also apply for an order striking out the petition[4].

Liberty to Present a Creditor’s Winding Up Petition

The law permits anyone[5] to present a winding up petition against a company without first requiring the would-be petitioner to establish they are eligible to present and pursue the proposed winding up petition. A would-be petitioner is not required to undergo any pre-presentation process of judicial scrutiny, to ensure that that would-be petitioner is in fact eligible to present and pursue the petition. The law has long recognised that this leaves the winding up process vulnerable to abuse. Unless the court (which, for brevity, shall be labelled the 'Companies Court'[6]) has some power to restrain, the process can be used as a device to pressurise a company into paying a debt: (a) the company genuinely and substantially disputes; or (b) against which the company can deploy a genuine and substantial cross claim (whether qualifying as a set off or not) - since the would-be petitioner/petitioner will know the threat of harm to the company likely to result from the company's suppliers/customers knowing of the petition, gives the would-be petitioner/petitioner leverage[7]/an additional negotiating token, against the company. 

Right to Apply for Injunction

Where such an unjustified winding up petition is presented or pursued, this is called an ‘abuse of process’ – it is an abuse of the unconstrained[8] right to present a winding up petition against a company. To enable companies facing an unjustified winding up petition to bring the abuse before the courts, the law provides an injunctive jurisdiction to the Companies Court. On a company's application[9], the Companies Court can issue an order prohibiting (i) a would-be petitioner from presenting[10] a winding up petition, or if the petition has already been presented, (ii) the petitioner from taking any further steps[11] on the petition. Depending on where the petition has reached, this may mean, prohibiting advertisement of the petition or further prosecution of it. The Companies Court may also go a step further, and strike out the petition. 

Related Jurisdiction - Petition Bound to Fail

It is briefly noted here that there is, seemingly, a related and overlapping jurisdiction. An injunction can also be obtained where the petition is bound to fail. Buckley LJ in Bryanston Finance Ltd v De Vries (No. 2) [1976] Ch 63, said at 77:

'If it could now be said that, on the available evidence, the presentation by the defendant of such a petition as is described in the injunction would prima facie be an abuse of process, the plaintiff company might claim to have established a right to seek interlocutory relief. Otherwise I do not think it can. If it were demonstrated that such a petition would be bound to fail, it could be said that to present it, or after presentation to seek to prosecute it, would constitute an abuse: Charles Forte Investments Ltd v Amanda [1964] Ch 240.’[12]

Early Judicial Scrutiny 

A company’s ability to apply to the Companies Court, enables a company to trigger early judicial scrutiny into the merits of the petition to be presented/presented against it. It enables the Companies Court then to evaluate, at an early stage, the petitioner’s standing (formerly known as ‘locus standi’) to bring the petition. Abusive petitions (issued or threatened) are thereby subjected to scrutiny, and unjustified petitions identified and restrained, before any, or any further, unwarranted harm is caused to the company in question[13].

In Mann v Goldstein [1968] 1 WLR 1091, Ungoed-Thomas J said, at 1099:

‘…the prevention of the abuse of the process of the court is the very essence of the whole of this court's jurisdiction to restrain the presentation of a winding-up petition.’

Conversely, where upon judicial evaluation, the would-be petitioner/petitioner is found to have proper grounds for bringing the winding up petition, including an undisputed debt over £750, the petition will be well-founded, and so the presentation, advertisement and pursuance of that petition will not abusive. Consequentially the petition ought not to be restrained, but permitted to run its course. Any damage thereby caused to the respondent company is just a natural and unavoidable consequence of the winding up process[14]

Law of Practice rather than Rule of Law

From the start, it is necessary to emphasize that the notion of ineligibility to present/pursue a creditor’s winding up petition, is founded on a rule of practice, not a rule of law. 

The discussion here is therefore based upon the normal practice of the Companies Court. As this suggests, the Companies Court does retain the discretion to go against normal practice, and make a winding up order in circumstances where the debt is bona fide disputed on substantial grounds. 

In Parmalat Capital Finance Ltd v Food Holding Ltd (In Liquidation) [2008] BCC 371, Lord Hoffman in the Privy Council, said at paragraph 9:

‘If a petitioner's debt is bona fide disputed on substantial grounds, the normal practice is for the court to dismiss the petition and leave the creditor first to establish his claim in an action. The main reason for this practice is the danger of abuse of the winding-up procedure. A party to a dispute should not be allowed to use the threat of a winding-up petition as a means of forcing the company to pay a bona fide disputed debt. This is a rule of practice rather than law and there is no doubt that the court retains a discretion to make a winding-up order even though there is a dispute: see, for example, Brinds Ltd v Offshore Oil NL (1986) 2 B.C.C. 98916. But the Board does not find it necessary to examine the limits of the discretion because they consider that there is no substantial dispute.’ 

Winding up orders will, exceptionally be made, where otherwise the petitioner would be without a remedy, even if the debt is genuinely disputed on substantial grounds (where the company was insolvent and unable to pay its debts) - see Lacontha Foundation v GBI Investments Ltd [2010] EWHC 37). See also Oliver LJ in Claybridge Shipping Company SA [1997] 1 BCLC 572 (‘Claybridge’)[15]. For an example of a case not following normal practice, see Re Russian & English Bank [1932] 1 Ch 663[16]. For foreign company alleged debtors, see Claybridge[17], decided in 1981. For the discretion held by the Companies Court to determine substantively whether the debt exists or not (not merely whether there is a good faith substantial dispute about its existence) and then, where the debt is found to be due, to immediately go on to order a company’s winding up, see Brinds Ltd v Offshore Oil NL (1986) 2 BCC 98916, at 98922[18].

Overview 

It is convenient, before considering the principles in detail, to refer to a helpful and concise summary of the law set out in the recent judgment of Norris J in Angel Group Ltd v British Gas Trading Ltd [2012] EWHC 2702 (Ch); [2013] BCC 265 (‘Angel’), where he said at paragraph 22:

‘The principles to be applied in the exercise of this jurisdiction are familiar and may be summarised as follows:

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] 1 W.L.R. 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 really no rational prospect of success: in Re A Company (No.012209 of 1991) [1992] 1 W.L.R. 351 at 354B.

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. at 354F.

e) There is thus 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 that petition 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: in Re A Company (No.006685 of 1996) [1997] B.C.C. 830 at 832F.

f) But the court will not allow this rule of practice itself to work injustice and will be alert to the risk that an unwilling debtor is raising a cloud of objections on affidavit in order to claim that a dispute exists which cannot be determined without cross-examination (ibid. at 841C).

g) The court will therefore be prepared to consider the evidence in detail even if, in performing that task, the court may be engaged in much the same exercise as would be required of a court facing an application for summary judgment: (ibid. at 837B).’

This summary in Angel was approved by Arnold J in Re A Company Case No: 0254/2015 [2015] EWHC 2144 (CH), paragraph 2, and by Mr Daniel Alexander QC, sitting as a Deputy Judge of the Chancery Division, in Breyer Group Plc v RBK Engineering Ltd [2017] EWHC 1206 (Ch) (‘Breyer Group’), at paragraph 4. Another pithy summary of the law was given by Chief ICCJ Briggs in Barrowfen Properties Limited v Hambros Investments Limited, Anupam Investments Limited [2019] EWHC 2548 (Ch)(‘Barrowfen’), at paragraph 17[19]. See also Buckley LJ in Stonegate Securities Ltd v Gregory [1980] Ch 576 (‘Stonegate’), at 579[20] and Agform Ltd v Fine Organics Ltd [2018] EWHC 2211 paragraph 12.[21a] and Synergy Agri Holdings Ltd v Agform Ltd [2020] EWHC 343 (Ch) ('Synergy'), paragraph 4[21b]

These principles will be considered in more detail below.

The Basis for the Jurisdiction to Restrain

The authorities contain various statements making clear the basis for the jurisdiction. In Mann v Goldstein [1968] 1 W.L.R. 1091, at 1092-1093, Ungoed-Thomas J said:

‘It is well established that this court has jurisdiction to restrain the presentation or advertising of a winding-up petition and restrain all further proceedings on it. That jurisdiction is a facet of the court's inherent jurisdiction to prevent an abuse of the process of the court. It will be exercised where a winding-up application is presented or prosecuted otherwise than in accordance with the legitimate purpose of such process…’

Ungoed-Thomas J in Mann also said, later at 1099:

‘…the prevention of the abuse of the process of the court is the very essence of the whole of this court's jurisdiction to restrain the presentation of a winding-up petition.’

In Re A Company [1894] 2 Ch. 349, Vaughan Williams J said at 350:

‘In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding-up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company.’[22]

In Re Company (No.006685 of 1996) [1997] BCC 830, Chadwick J explained the rule of practice that ‘this court will not allow a winding-up petition to be used for the purpose of deciding a substantial dispute raised on bona fide grounds’ as follows, at 832:

‘It will not do so, as a matter of practice, because the effect of presenting a winding-up petition and advertising that petition 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 writ action. The pressure arises from the fact that once the existence of the petition is known amongst those having dealings with the company, they are likely to withdraw credit or refuse to continue to trade with the company on the ground that, if the company is wound up on the petition, their dealings with it will be subject to the provisions in s. 127 of the Insolvency Act 1986. In those circumstances it may well be commercially necessary for the company to pay a debt which is disputed on substantial grounds rather than to run the risk that the whole of the company's business will be destroyed.’

In other words, the Companies Court will not allow an alleged creditor to improve its negotiating position by threatening to harm the alleged debtor’s whole business and viability, through threatening or pursuing a petition against the alleged debtor company. The Companies Court will intervene to stop the winding up process become a creditor's weapon, or a tool, to extract a better negotiated outcome for the alleged creditor, than otherwise the alleged creditor would be entitled to.

In Claybridge, Oliver LJ said: 

‘…a winding-up petition is a draconian measure which, even if it does not succeed, can have very serious consequences for the company by publicly affecting its credit and reputation. It ought not, therefore, to be used as a means of putting on pressure in cases of genuine dispute and it is right that the Companies Court should, as a matter of its practice, keep a watchful eye on proceedings which can so easily be abused.’

In JN 2 Ltd [1978] 1 WLR 183 ('JN 2 Ltd'), Brightman J said, at 187H:

‘It is, of course, common practice to dismiss a creditor's petition if the debt is bona fide disputed by the company. This seems to me a wholly proper attitude to be adopted by the court. The presentation of a winding-up petition has an immediate effect on the ability of a company to deal with its assets although capable of litigation by an appropriate order under section 227' [for section 227, read now s. 127 of the Insolvency Act 1986[23]

In Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch) (‘Coilcolour’), Hildyard J said, at paragraphs 61 and 62:

‘…it is quite apparent that what [the petitioner] really seeks is not a winding up of the Company, but leverage whereby to require the Company to make payment now and argue later.…the issues are sufficiently arguable to make them unsuitable for adjudication under the threat of winding up and in the Companies Court.

That is not of course because judges sitting in the Companies Court are in some way less able to deal with the points: there is in any event no longer any demarcation and all judges of the Chancery Division sit from time to time in the Companies Court. It is because the process is not apt for the adjudication of such issues, and the inference of inability to pay upon which the remedy is based is unjustified; the threat of winding up should not loom over those whose disputes are in such circumstances more appropriately resolved elsewhere, even if potentially by summary process. Put another way, in my view, a winding-up petition should not be resorted to in such circumstances by those whose objective is not in truth the class remedy which a successful winding-up petition provides but to put pressure upon a company to pay lest the provisions for the protection of the class which are triggered by the mere presentation of a petition undermine its standing and its business.’[24]

In Foxholes Nursing Home Limited v Accora Limited [2013] EWHC 3712 (‘Foxholes’), Mr Edward Murray sitting as a Deputy High Court Judge heard an application by the applicant (Foxholes) for an order restraining the presentation of a winding up petition against it by a prospective petitioning creditor (Accora). 

The Deputy Judge said in Foxholes, paragraphs 41 to 43:

'It is a rule of practice of the Companies Court that it will refuse to entertain a winding up petition founded on a disputed debt, but only if the dispute is substantial and raised on bona fide grounds: see Re a Company No.006685 of 1996 [1997] BCC 830 at 823F. As noted by Mr Justice Chadwick in Re a Company No.006685 of 1996 at 832G, the rule of practice is founded on the policy that this court will not allow a winding-up petition to be used to pressure a debtor into paying a debt that is disputed on substantial grounds. The debtor may, unfairly, be pressured into paying the disputed debt rather than run the risk that the existence of the petition, once it becomes widely known, damages its credit and ultimately destroys its business. 

Another grounds of the rule of practice is that in a case where there is a substantial dispute in good faith, it is not appropriate to resolve the issues of fact arising in that dispute in a proceeding on an application of the type I have before me simply on the basis of weighing witness statements or affidavits against each other without the advantage of hearing cross examination of the makers of those witness statements or of the deponents of those affidavits: Re a Company No.006685 of 1996 at 838C. Instead, the appropriate proceeding is a trial of a claim based on the debt. 

This does not, however, prevent the Companies Court from determining that there is no need for a trial in circumstances in which, on a full understanding of the documents, the evidence asserted in the witness statements or affidavits on one side is simply incredible: see Re a Company No.006685 of 1996 at p.838D. Having reviewed various authorities addressing disputed debts in the context of the presentation of a winding-up petition, Chadwick J in Re a Company No.006685 of 1996 at p.838F concluded:

“In my view those authorities, and in particular the authorities of the Court of Appeal to which I have referred, make it clear that the general rule under which this court refuses to entertain a petition founded on a disputed debt applies only where the dispute is a genuine dispute founded on substantial grounds...’[25]

In Re JN 2 Ltd, Brightman J said, at 187:

'Frequently in the case of a trading company the presentation of a petition will damage the financial standing of the company. It therefore seems to me obviously correct that the court should not allow a creditor's petition to remain on the file longer than is necessary once the status of the petitioner is in doubt.’

This passage was quoted with apparent approval by Chadwick J in Re a Company No.006685 of 1996 [1997] BCC 830, at 834.

Subtype of Wider Rule

The rule against using a petition as a device to gain leverage may be a subtype of a wider rule. In Re Majory (A Debtor) [1955] Ch. 600, Evershed MR was considering a bankruptcy case involving the application of the rule against extortion in bankruptcy. While identifying the principles to the rule against extortion in bankruptcy, he stated (in a often-cited passage), at 623:

'The so-called "rule' in bankruptcy is, in truth, no more than an application of a more general rule that court proceedings may not be used or threatened for the purpose of obtaining for the purpose of the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.'

See also Re Wallace Smith Group [1992] BCLC 989. 

Challenge to Petitioner's Creditor Status

On an application for an injunction, the Companies Court following normal practice determines whether the company has a dispute made in good faith and on substantial grounds; it does not adjudicate on whether, on the balance of probabilities, the debt (or debts) founding the winding up petition are, or are not, owed by the company to the would-be petitioner/petitioner. In Stonegate, Buckley J said 581:

‘In my opinion a petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224(1) at all, and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings.’[26]

As touched on above, necessarily, to determine whether or not the debt (or debts) founding the petition are disputed in good faith (or genuinely) and on substantial grounds, the Companies Court will have to evaluate the evidence to make a determination on each of these elements – in order to determine whether the winding up petition is abusive or proper. Chadwick J in Re a Company No.006685 of 1996, said at 835:

‘…the general rule under which this court refuses to entertain a petition founded on a disputed debt applies only where the dispute is a genuine dispute founded on substantial grounds; and does not preclude this court from determining – or entitle this court to decline to determine – the question whether or not there are substantial grounds for dispute. …the court necessarily has to take a view whether on the evidence there really is substance in the dispute which is raised by the alleged debtor.’

In Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2014] BCC 327 ('Ancasta'), David Richards J in the Court of Appeal said, at paragraph 41:

'The practical issue is the extent to which the court must go in determining whether there is a genuine dispute on substantial grounds. The court must, as Oliver L.J. put it, take a view whether, on the evidence, there really is substance in the dispute.... It is not, however, practical or appropriate to conduct a long and elaborate hearing, examining in minute detail the case made on each side. Such a course will involve both delay in getting the issue ready for hearing and a potentially lengthy hearing. In this case, the evidence went through several rounds over a period of some six months. This time would have been better spent in getting a CPR Pt 7 claim under way. A lengthy hearing is likely to result in a wasteful duplication of court time. Petitioning creditors must take a realistic view of whether the company is likely to establish a genuine and substantial dispute. Where, as here, the petitioner insists on proceeding, the court is fully justified in taking the course sensibly adopted by the judge in this case of concentrating on those points which the petitioner said were his strongest.'

See also paragraphs 4 and 39 of Ancasta;[27]

Petition presented in Hope of Inducing the Company to pay the debt

The petition is not rendered an abuse of process merely because the petitioner hopes that the company will be induced to pay an indisputably due debt, even though other enforcement processes are available, and even if the petition is pursed with personal hostility or even venom. In Sell Your Car, ICCJ Burton said, at paragraphs 52 to 53:

'Whilst winding-up proceedings are a class remedy and it is an abuse of the process of the court to present a winding-up petition based on a claim in respect of which there is a triable issue, an unpaid creditor of even a substantial and prosperous company, whose debt is not disputed, is entitled to petition for its winding up. I do not therefore accept the Applicant’s contention that insolvency proceedings should not be used as a method of debt collection.

Whilst the courts have historically looked dimly on the use of such proceedings for debt collection, there is a long line of authority leading up to and following Cornhill Insurance Plc v Improvement Services Ltd [1986] 1 W.L.R. 114; (1986) 2 B.C.C. 98942 which confirms the right of a creditor owed an undisputed debt to petition the court for winding-up. This is because a failure by a company to pay even one, relatively small debt, is evidence that the company is unable to pay its debts as they fall due. The position is helpfully summarised in Goode on Principles of Corporate Insolvency Law , edited by Dr Kristin van Zwieten, 5th edn (London: Sweet & Maxwell, 2018), p.195, where the author states:

“Admittedly, it has been said on more than one occasion that the winding-up procedure in the Companies Court cannot properly be used for the purpose of debt collection. In Re a Company (No.001573 of 1983), for example, Harman J stated:

‘… it is trite law that the Companies Court is not, and should not be used as (despite the methods in fact often adopted) a debt-collecting court. The proper remedy for debt collecting is execution upon a judgment, a distress, a garnishee order, or some such procedure.’

However, if this statement means that it is somehow improper for a creditor to resort to winding-up instead of execution in the hope of inducing the company to pay the debt, then it undoubtedly goes too far. Very often that is precisely the reason why the petition is launched, and the courts have emphasised that a petition presented in order to bring pressure on a company to pay a debt which is indisputably due is perfectly proper, even where other proceedings are in train for recovery of the debt and even if the winding-up proceedings are being pursued “with personal hostility or even venom.”’[28]

See also Harman J in Re a Company [1983] BCLC 492.[29]

Two Elements to Test

As indicated above, the test for judging the company's challenge to the debt(s) founding the petition has been phrased in the authorities variously as being that the debt must be disputed on bona fide grounds, or on substantial grounds, or both. In Re Welsh Brick Industries Ltd [1946] 2 All ER 197 ('Welsh Bricks'), Lord Greene MR said at 198:

‘I do not think that there is any difference between the words “ bona fide disputed” and the words “disputed on some substantial ground”.[30]

However, the modern approach is that the challenge to petitioner’s standing as a creditor must be advanced in good faith and must raise a substantial dispute (see Norris J in Angel, paragraph 22(b))[31].

For completeness, it is noted here that the test is the same, whether the application is for dismissal/strike out of the petition, or for an injunction restraining it. In Re Company (No.0160 of 2004), David Donaldson QC, sitting as a Deputy High Court Judge said, at 22:

'It is common ground and plainly the case that the test as regards striking out or restraining the presentation or advertisement of a petition must be the same. 

Good Faith

The corollary of this being a separate element is that, an honestly advanced, but thoroughly bad reason for disputing a debt, will not be enough to warrant an injunction against the would-be petitioner/petitioner. In Taylor’s Industrial Flooring Ltd [1990] BCC 44, Dillon LJ said, at 50:

‘…the reason for non-payment has to be substantial. It is not enough if a thoroughly bad reason is put forward honestly.’

Dispute must be founded on Substantial Grounds

The rule is not whether or not the company simply alleges that the debt is disputed - a bare assertion. The company's assertion must be made on substantial grounds (as well as in good faith). To quote Chadwick J again from Re a Company No.006685 of 1996, at 832:

‘It is, in my view, important to re-emphasise that there is no rule of practice in this court that a petition will be struck out or dismissed merely because the company alleges that the debt is disputed. The true rule, which has existed for many years, is the rule of practice that this court will not allow a winding-up petition to be used for the purpose of deciding a substantial dispute raised on bona fide grounds.’

Chadwick J put it another way in Re Company (No.006685 of 1996), at 832:

‘The rule of practice that this court will not allow a winding-up petition to be used for the purpose of exerting that sort of pressure …it only applies where the court is satisfied that the dispute is founded on substantial grounds.’

On the threshold of ‘substantial’, Etherton LJ in Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA 443 ('Tallington Lakes') explained, at paragraph 22:

‘…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….and may even be reached even if, on an application for summary judgment, the defence could be regarded as “shadowy”'

Though the above was obiter and said in a permission to appeal hearing (so of persuasive authority only and reference to which is not encouraged - see Clark v University of Lincolnshire and Humberside [2000] 3 All ER 752, paragraph 43), the above was adopted as the law in Chief ICCJ Briggs in Barrowfen, paragraph 17[32]. In Mulalley and Company Limited v Regent Building Services Limited [2017] EWHC 2962 (Ch) ('Mulalley'), David Stone, sitting as a Deputy High Court Judge, said at paragraph 40 that '...principles to be applied on an application for injunctions to prevent the presentation of a winding up petition are well known', before quoting at paragraph 43 the above passage from Tallington Lakes. The Deputy High Court Judge then said, paragraph 44:

'So the hurdle is a low one. Winding up proceedings should not be pursued on the basis of a debt which is disputed in good faith, and where that dispute is of sufficient substance to warrant determination in the usual way.'

Scope of the Dispute – Whole of Debt Covered by Dispute 

The scope of the substantial dispute must cover all of the debt founding the petition (or at least all but £749 of it, to bring it below the statutory minimum[33]). The Judge in Foxholes said at paragraph 45-46:

‘It is important to note that it is not enough simply that there be a substantial dispute raised on good faith grounds in relation to part of the debt. The dispute must relate to that whole of the debt and must be substantial and raised in good faith in relation to that whole…

If, on any view of the facts, part of the debt is effectively undisputed (and, if the petition is based on failure of the company to pay for three weeks after service of a statutory demand under section 123(1)(a) of the Insolvency Act 1986, the undisputed part is, on any view of the facts, greater than the statutory threshold of £750), then the creditor is entitled to the remedy of presenting a winding up petition against the debtor. This is true even if there is some uncertainty about the precise sum that is due…’

In Ensygnia Ltd v David Rickard [2014] EWHC 1184 (Ch) (‘Ensygnia’), Nugee J said, at paragraphs 9 and 10:

‘…unless the alleged debtor can show that the entirety of the sums claimed are in dispute, or at any rate can show that there is a sufficient dispute to reduce the undisputed sums below £750, the creditor is entitled to present a petition and no injunction should be granted.

To put this point the other way round, it is enough for the creditor to point to at least one debt, or debts, exceeding £750, as to which there is no substantial dispute, in order to succeed. Where, as here, there are numerous invoices relied on this places a high hurdle in the way of the applicant, who must successfully challenge all the invoices, or at any rate enough of them to bring the undisputed sum below £750.’

As long as the petitioner is indisputably a creditor for more than the statutory minimum, it matters not, the precise sum. In Re A Company [2016] EWHC 1548, HHJ Hodge QC, sitting as a Judge of the High Court said, at paragraph 18:

‘As Norris J explained in the Angel case, the question is whether or not there is an indisputable debt owed by the applicant to the respondent sufficient to support a winding up petition. Even if there is uncertainty about the precise sum, the court at this stage is not concerned to determine what could be proved in a winding up; it is concerned simply to see that the petitioner is indisputably a creditor in a sum exceeding the statutory minimum, and so entitled to present a winding up petition.’

Benefit of the Doubt

The Companies Court does apply a 'benefit of the doubt', as indicated by the following passage from Hoffman J in Re Company (No.012209 of 1991) [1992] 1 WLR 351, at 354:

'It does seem to me that a tendency has developed, possibly since the decision in Cornhill Insurance Plc. v. Improvement Services Ltd. [1986] 1 W.L.R. 114, to present petitions against solvent companies as a way of putting pressure upon them to make payments of money which is bona fide disputed rather than to invoke the procedures which the rules provide for summary judgment. I do not for a moment wish to detract from anything which was said in the Cornhill case, which indeed followed earlier authority, to the effect that a refusal to pay an indisputable debt is evidence from which the inference may be drawn that the debtor is unable to pay. It was, however, a somewhat unusual case in which it was quite clear that the company in question had no grounds at all for its refusal. Equally it seems to me that if the court comes to the conclusion that a solvent company is not putting forward any defence in good faith and is merely seeking to take for itself credit which it is not allowed under the contract, then the court would not be inclined to restrain presentation of the petition. But if, as in this case, it appears that the defence has a prospect of success and the company is solvent, then I think that the court should give the company the benefit of the doubt and not do anything which would encourage the use of the Companies Court as an alternative to the R.S.C., Ord. 14 procedure.'

The reference to RSC Order 14 is a reference to the summary judgment procedure, as it then existed; now provided for by CPR Part 24 (see Re A Company [2016] EWHC 2353 (Ch), paragraphs 10 and 11)

Tax - Equivalent Test for Assessment of Tax and Local Taxation

Where the assessment of tax itself generates the debt, seemingly, there is no issue as to petitioner's present creditor status[34a], unless there is a sufficient cross claim. However, that assessment can be subject to an appeal, and an equivalent test is applied[34b] as a matter of discretion. For council tax and business rates, see Bolsover District Council and another v Ashfield Nominees Ltd [2010] EWCA Civ 1129, paragraph 10[35]

Counter risk of Debtor creating Clouds of Objections

Given that petition is likely to be injuncted, and typically will later be dismissed (see Synergy, paragraph 1), if the petition debt is disputed in good faith on substantial grounds, the temptation will arise in those who are debtors, to create a sufficient ‘cloud of objections’ to the petitioner’s debt, with the hope of persuading the Companies Court that cross examination is required to resolve factual disputes and that this is only possible in ordinary civil proceedings. This risk has been recognised by the Companies Court. In Claybridge, Oliver LJ said: 

‘…it is only too easy for an unwilling debtor to raise a cloud of objections on affidavits and then to claim that, because a dispute of fact cannot be decided without cross-examination, the petition should not be heard at all but the matter should be left to be determined in some other proceedings. Whilst I do not in any way, therefore, seek to weaken the rule of practice as a general rule, I think that it ought not to be assumed to be inflexible and to preclude the Companies Court from determining the issue in an appropriate case simply because the debtor files mountains of evidence raising disputes of fact which require to be determined by cross-examination.[36]

In Re a Company No.006685 of 1996, Chadwick J, having concluded that the evidence of the applicant was incredible, summed up, as follows at 841C:

‘For those reasons, I reach the conclusion that this is a case in which the dispute now said to exist is not founded on any substantial grounds. Rather, this is one of those cases in which, as Oliver LJ observed in Re Claybridge Shipping Company SA, an unwilling debtor is raising a cloud of objections on affidavit in order to claim that a dispute of fact exists which cannot be determined without cross-examination so that the petition cannot be allowed to proceed. Staughton LJ pointed out in Taylor’s Industrial Flooring Ltd that anything that the law could do to discourage such behaviour should be done.’[37]

In Coilcolour, Hildyard J said, at paragraph 35:

‘…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 inquiry and suggest that in all fairness cross-examination is necessary will not do.’

Solvency of Company

In Coilcolour, Hildyard J said, at paragraph 41:

‘…a company opposing a petition on the basis that it is not insolvent and the debt asserted is disputed on grounds on which it has at least a prospect of success, is not using solvency as a shield or insulation, but as part of a composite answer as to why the Companies Court is not the appropriate forum, and is thus being abused. In such a context, the court can usually be expected to give the company the benefit of the doubt and not do anything to encourage the use of the Companies Court as an alternative to ordinary court processes, even if the case is one of sufficient strength in the perception of the petitioner that it would be proper to resort to an application for summary judgment under CPR Part 24.'

Later, Hildyard said, in Coilcolour, at paragraph 62:

‘The circumstances, exemplified by the Cornhill Insurance case, of a company using its prestige and solvency as if it clothed it with immunity from the process of a petition, despite delaying payment of an undisputed debt without condescending to any defence, are both exceptional and distinguishable.’

Contingent and Prospective Creditors 

As per section 124(1) of the Insolvency Act 1986, '...any creditor or creditors (including any contingent or prospective creditor or creditors)...' of a company may apply by way of creditor's winding up petiton against the company.[38] As Scott J in Re a Company No. 003028 of 1987 (1987) 3 BCC 575 said in relation to a contingent creditor, at 586: 

'Whether the petition will succeed, whether the petition is an abuse of process, will depend upon the underlying facts and not upon a lack of status to present the petition.'

But a would-be petitioner may contend that he is not merely a contingent/prospective creditor, but contend that the debt is immediately due. And the company may admit the would-be petitioner is a contingent/prospective creditor, but dispute (on genuine and substantial grounds) that any part of the sum is immediately due. In such circumstances, unless simple and straightforward, the Companies Court will not be the appropriate forum to determine this, and the would-be petitioner ought to be restrained. In Stonegate, the company admitted that the would-be petitioner was a contingent creditor, but not that any part of the sum is immediately due, Buckley LJ said at 586: 

‘If when a matter is brought before a court a prospective petitioner has not yet made clear in what form, or on what basis, he proposes to petition, whether as a creditor in respect of a debt presently due or in respect of a contingent or prospective debt, an application to restrain presentation of the petition might well be premature if the only dispute as to liability was as to whether it was immediate or prospective. But if the prospective petitioner has made it clear that he proposes to petition upon the footing of a debt alleged to be presently due, and there is a bona fide dispute on substantial grounds as to its being presently due, it seems to me that on principle…the court ought to restrain the presentation of a petition otherwise than in terms which make it plain that for the purposes of the petition the petitioner is content to be treated as being no more than a prospective or contingent creditor.… The whole of the doctrine of this part of the law is based upon the view that winding up proceedings are not suitable proceedings in which to determine a genuine dispute about whether the company does or does not owe the sum in question; and equally I think it must be true that winding up proceedings are not suitable proceedings in which to determine whether that liability is an immediate liability or only a prospective or contingent liability. It might be that in some cases the point was so simple and straightforward that the winding up court might be able to deal with it…’[39]

See also JSF Finance & Currency Exchange Co Ltd v Akma Solutions Inc [2001] 2 BCLC 307; also T & N Ltd [2006] 1 WLR 1728.

Genuine and Substantial Cross Claim held by Company against Petitioner

In Wilson and Sharp Investments Ltd v Harbour View Developments Ltd [2015] EWCA Civ 1030; [2015] BPIR 1496, Gloster LJ said, at paragraph 65: 

'...it is established law that the fact that the proposed petition debt is not disputed (or as in this case acknowledged) does not prevent the debtor raising a cross-claim in defence of a winding up petition: see e.g. Re Bayoil SA supra at [150]'[40]

In Coilcolour, Hildyard J said, at paragraph 33:

‘The court will … 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) at [34]–[37]. 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.[41]

Hildyard J refers to paragraphs 34-37 of Pan Interiors [2005] EWHC 3241(Ch), a decision of Warren J. While the paragraphs can be found in full in the endnotes[42], the important parts to those paragraphs, are:

‘Bayoil … clarified the modern practice where the respondent company has a genuine and substantial cross claim which exceeds the amount of the debt on which the petition is based. In the absence of any special circumstances, the court will dismiss or possibly stay the petition, although dismissal will, I think, be the usual course. In disputed debt cases, the petition is dismissed because the petitioner cannot properly claim to be a creditor at all, but there is little practical difference between that and a cross claim — see in particular the comments of Ward LJ at 156E.

…the court will, in the absence of special circumstances, apply the principle applicable to the dismissal of a petition in a cross claim case in the case of the granting of an injunction to restrain advertisement….the court has power to do so provided that the proceedings sought to be restrained would be an abuse of process.

Abuse of the process…is precisely the foundation on which the modern practice of dismissal of petitions rests where there is a genuine and substantial cross claim…

The same principles which lead to dismissal and the grant of an injunction to restrain advertisement of a petition lead also to the grant of an injunction to restrain the presenting of a petition.’

For a recent illustrative example of the Companies Court refusing to restrain a petitioner pursuing a winding up petition, where the debt was not disputed but a cross-claim was (unsuccessfully)[43] put forward, see Sell Your Car With Us Ltd v Sareen [2019] BCC 1211 (‘Sell Your Car’).

No ‘Unable to litigate’ additional element

One difference, which was previously thought to hold significance, between the law’s approach to a company: (a) disputing the debt; and (b) alleging a cross-claim against the would-be petitioner/petitioner, had been that 'in a cross claim case the debt must be one which the company has been unable to litigate’ - Warren J in Pan Interiors, paragraph 38 - summarising an element emanating from Nourse LJ in Re Bayoil S.A. [1999] 1 WLR 147 (‘Bayoil’), at 155[44]). 

Following some uncertainty in the law, Jonathan Parker LJ in Popely v Popely  [2004] EWCA Civ 463; [2004] BPIR 778 (‘Popely’), clarified that Nourse LJ in Bayoil had only been indicating that where there has been delay in the prosecution of the cross-claim the delay must not be such as to throw real doubt on the genuineness of the cross-claim[45a]. With Warren J’s agreement with Jonathan Parker LJ’s comments (which were obiter in Popely), Jonathan Parker LJ’s interpretation is now the law in this area. See Synergy at paragraph 4[45b].

Independent Determination by Companies Court

The Companies Court is not bound to reach the same conclusion as the ordinary civil courts, on whether the debt is disputed on substantial grounds. In Welsh Brick, the alleged creditor issued an ordinary civil court money claim; he then, before that money claim had made significant progress, presented a winding-up petition against the same defendant/alleged debtor. In the ordinary civil court money claim, the alleged creditor sought summary judgment[46], but this failed, and the alleged debtor was granted unconditional leave to defend the money claim. The summary judgment application failing, meant that the alleged debtor had shown that there was an issue or question in dispute which ought to be tried, or that there ought, for some other reason, to be a trial of that claim [47]. In the Companies Court on the winding-up petition, the alleged debtor argued that this finding in the ordinary civil court, was conclusive and acted to preclude the Companies Court from reaching a different view. However, Lord Green MR said at 198:

‘I cannot accept the proposition that, merely because unconditional leave to defend is given, that of itself must be taken as establishing that there is a bona fide dispute or that there is some substantial ground of defence. The fact that such an order is made is no doubt a matter which the winding-up court will take into consideration and to which the winding-up court will in due course pay respect, but I cannot regard it as in any way precluding a winding-up judge from going into the matter himself on the evidence before him and considering whether or not the dispute is a bona fide dispute or, putting it another way, whether or not there is some substantial ground for defending the action.

Evidence Expected

In Re A Company [2016] EWHC 3881, David Foxton QC, sitting as a Deputy Judge of the High Court said, at paragraph 33:

‘…applications for injunctions to restrain the presentation or advertisement of a petition are brought on in haste and both this factor and the role of the Companies Court on such applications must temper the court's expectations as to the extent of the evidence which will be available. Nonetheless, as is clear from Warren J's judgment in Pan Interiors, there is some minimum evidential threshold necessary before it can be said that there is a substantial dispute.’

Naturally, whether the Court is satisfied of the would be petitioner's/petitioner's creditor status will depend on the evidence, including the quality of evidence tendered. It is not simply about how much evidence is tendered. In Claybridge, Oliver LJ said:

'Nobody would say that the evidence in this case was jejune. It extends to nine thick volumes of affidavits and exhibits. But the credibility of evidence does not depend upon the number, of kilograms achieved on either side…’

Guidance can be gleaned from Commissioners for HM Revenue & Customs v Rochdale Drinks Distributors Ltd [2013] BCC 419, where at paragraph 80, Rimer LJ said:

'It perhaps hardly needs to be said that the rule does not, however, entitle a company to do no more than assert that it disputes the debt and then expect the petition to be struck out or, if the hearing is the substantive one, dismissed. It is not sufficient for the company merely to raise a cloud of objections. It has, in the old-fashioned phrase, to condescend to particulars by properly explaining the basis of the claimed dispute and showing that it is a substantial one. If, despite the company’s protestations, the alleged dispute can be seen on the papers to be no dispute at all, or to be no dispute as to part of the debt, the petition will ordinarily be allowed to proceed. If, however, the dispute is shown to be one whose resolution will require the sort of investigation that is normally within the province of a conventional trial, the settled practice is for the petition to be struck out or dismissed so that the parties can contest their differences before whichever other forum may be appropriate.'

Mere bare assertions will be insufficient. Assertions must be backed up with substantiating evidence and 'condescend to particulars' - see Winnington Networks Communications Ltd v Revenue and Customs Commissioners [2015] BCC 554, paragraphs 14 and 31. An application for an injunction is likely to fail if the applicant '...has neither particularised nor quantified any such dispute to even the minimum standard to establish a bona fide and substantial dispute.' - GBM Minerals Engineering Consultants Ltd v Michael Wilson & Partners Ltd [2018] EWHC 3401 (Ch), paragraph 50. Arnold J in Re a Company [2015] EWHC 2144 (Ch) said, at paragraph 23, '[o]n an application of this nature, there is no reason why hearsay evidence should not be relied on.'

As to the hearing itself, in Synergy, ICCJ Jones said, at paragraph 5:

'All decisions on such an application must normally, as here, be made on the basis of written evidence, unchallenged by cross-examination.'

Outcome of Application for Injunction to Restrain

Should the application to restrain presentation, or advertisement, be successful, then the Court will injunct the would-be petitioner/petitioner, prohibiting it from presenting, advertising, or taking any further steps on (as the case may be), the petition. 

Should the application be unsuccessful, then the Court will dismiss the application; the petition's progress will not be impedied by an injunction [48]

Costs

In Re Company (No.012209 of 1991) [1992] 1 W.L.R. 351, Hoffman J held that the petition sum was subject to bona fide dispute on substantial grounds, and granted the injunction restraining presentation of a petition. Hoffman J said, at 354:  

'The basis upon which the injunction is granted is that presentation of the petition is an abuse of the process of the court. I think that it should be made clear that abuse of the petition procedure in these circumstances is a high risk strategy, and consequently I think the appropriate order is that the petitioner should pay the company's costs on an indemnity basis.'[49]

The above was cited in Mulalley[50], after which, the Deputy High Court Judge in Mulalley said, at paragraph 56:

'This conclusion was approved, obiter, by Lord Wilson in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] 1 WLR 1408 at [24]. I also note that in In Re A Company (No 006798 of 1995) [1996] 1 WLR 491, referred to above, the costs order made was one of indemnity costs.

There is a helpful passage in the judgment of Steven Jourdan QC sitting as a Deputy High Court Judge in Richmond Pharmacology Limited v. Chester Overseas Limited, Levine and Levine [2014] EWHC 3418 (Ch):

"The applicable principles, in a case where indemnity costs are claimed on the ground that the paying party's conduct was unreasonable, so far as relevant to this claim, are as follows:

a) As the very word 'standard' implies, the standard basis will be the normal basis of assessment where the circumstances do not justify an award on an indemnity basis. For there to be an order for assessment on the indemnity basis, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.

b) Dishonesty or moral blame does not have to be established to justify indemnity costs. But indemnity costs are appropriate only where the conduct of the paying party was unreasonable to a high degree. "Unreasonable" in this context does not mean merely wrong or misguided in hindsight.

c) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs.

d) The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. Cases vary very considerably and each case is highly fact-dependent.

e) It is important not to lose sight of the essential requirement of unreasonable or inappropriate conduct overall and not to treat examples of such which may amount to such conduct as necessarily constituting it. The essential question is whether the relevant conduct makes it just as between the parties to remove from the paying party the twofold benefit of an order on the standard basis, as compared with an order on the indemnity basis, that is to say, to enable the receiving party to recover its costs, reasonably incurred and reasonable in amount, with the benefit of the doubt being given to the receiving party and without the receiving party having to address (and persuade the court upon) the subject of proportionality.

f) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. However, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may lead to such an order. In Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45 at [27] HHJ Coulson QC said: "I consider that to maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs."

g) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there may be no injustice in denying the claimant the benefit of an assessment on a proportionate basis or in the claimant forfeiting its normal right to the benefit of the doubt on reasonableness.

h) The making of a grossly exaggerated claim may be a ground for indemnity costs.

i) The rejection of reasonable attempts to settle will not normally, by itself, justify an award of indemnity costs. In Kiam v MGN Ltd (No. 2) [2002] EWCA Civ 66, [2002] 1 WLR 2810 at [13], Simon Brown LJ said: "… it will be a rare case indeed where the refusal of a settlement offer will attract under Part 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis." However, if coupled with other factors, it may do so: for an example see Barr v Biffa Waste Services Ltd (Costs) [2011] EWHC 1107 (TCC); 137 Con. L.R. 268 (Coulson J).'

Some assistance on costs can be gleaned from cases where petitions were dismissed. If a petition fails on the basis that the debt is genuinely disputed on substantial grounds, the general rule is that the petitioner should pay the costs of that failure, save in exceptional circumstances. In Re Skykes & Son [2012] EWHC 1005; [2012] BPIR 1273, Richard Snowden QC sitting as a Deputy High Court Judge said, at paragraphs 22 to 25:

'There is no doubt that the general rule in CPR r 44.3, that the losing party should pay the costs of the successful party in litigation, applies with added force in the context of winding up petitions. It is well known that the presentation of a winding up petition can put heavy pressure to pay upon a respondent company, and the Companies Court always has been assiduous to discourage the use of a winding up petition as a short cut instead of issuing a claim form to establish liability in the normal way. I also accept Warner J's observation that the court should do nothing to encourage any belief that a person who thinks that he has a claim against a company can first try his luck in the Companies Court on the basis that if he fails, the costs of that exercise will simply be added to the costs of a subsequent Part 7 claim. There is therefore considerable merit in adhering to the principle that, save in exceptional circumstances, a petitioner whose petition fails on the basis that the debt is genuinely disputed on substantial grounds should pay the costs of that failure.

However, in considering whether there are exceptional circumstances to justify a departure from the general rule, I think that the court is entitled to take into account the communications between the parties prior to the presentation of the petition. In In re Fernforest [1990] BCLC 693 there had plainly been an attempt, albeit apparently not very convincing, by the company to set out the grounds upon which it disputed the debt, and I think that [counsel for the petitioner] was right when he observed that Warner J's comments were addressed to the more limited question of whether a company facing a claim is under a duty to instruct lawyers to prepare a detailed defence prior to a claim being issued. Likewise, in In re UK (Aid) Ltd [2003] 2 BCLC 351 Blackburne J's conclusion that the petitioner had adopted a high risk strategy that had failed, was made against the background (which appears plainly from the report), that the company's stance had been set out at length by its solicitors in correspondence prior to the petition being presented.

I also consider that Blackburne J's comments, at para 7, to the effect that a petitioner who launches winding up proceedings without the benefit of a judgment runs the risk that there may be irreconcilable assertions where it is likely that one side is telling the truth, and the other is not, must be read in context. A petitioner who, as in that case, is aware of the basis upon which the company is disputing the debt, but takes the view that the court can conclude that there is no substance in the company's case, indeed takes the risk that the court will conclude that it cannot resolve the dispute without disclosure or cross-examination; and the fact that it may later turn out that witnesses on behalf of the company were lying or had produced false documents to support their stated case will not prevent the court from holding that the petitioner must pay the consequences of choosing an inappropriate procedure. 

But I do not think that Blackbume J can have meant that a petitioner who presents a winding up petition must necessarily be taken to have assumed the risk that the company may, after presentation of the petition, raise a false defence supported by fabricated documents. The law turns its face against the use of fabricated documents in litigation, and I cannot see how the policy of the Companies Court in discouraging the misuse of winding up petitions would be advanced by rewarding companies which resort to lying to avoid paying their debts, and penalising petitioners who are belatedly met by false defences that they could not have evaluated prior to presenting their petition.'

On the facts of Sykes & Sons, the Companies Court did not apply the general rule, as exceptional circumstances were found to exist, as the company had failed to give any meaningful account of a defence and produced late important documents. See also Warner J in Re Fernforest Ltd [1991] BCC 680 and Blackburne J in GlaxoSmithKline Export Ltd v UK (Aid) Ltd (Costs) [2003] EWHC 1383 (Ch), [2004] BPIR 528.

Conclusion

The normal rule of practice (rather than a rule of law) is that a creditor's winding up petitions should only be presented or pursued if the would-be petitioner/petitioner's status as the respondent company's creditor (for at least £750) is not subject to: (a) a genuine and substantial dispute; nor (b) a countervailing cross claim reducing the sum founding the petition to below £750. One reason is to prevent the winding up process being used as a device by those with questionable: (i) claims against the company; or (ii) net creditor status, - a device for pressurizing the company into capitulating to demands for payment, in order to avoid the adverse effects that come from being subject to a winding up petition. 

Where the would-be petitioner/petitioner’s status as an eligible creditor is put into sufficient doubt, then the Court will, on an application by the company for an injunction, prohibit the would-be petitioner/petitioner from presenting the petition, or if presented, from pursuing further the petition, including advertisement of the petition. Where such an injunction is granted, the would-be petitioner/petitioner will be left to seek to establish its creditor status, through ordinary civil proceedings.

The above involves a careful balance, and the nuanced approach, taken by the Companies Court - as was summarised in Coilcolour, Hildyard J said, at paragraph 42:

'In short, in my judgment, although solvency is not a defence to a petition based on an undisputed claim, and the court will always consider whether any dispute has real substance such as to make the Companies Court an inappropriate forum for its resolution, the court will also wish to be satisfied that the remedy is not being invoked as a means of putting pressure on a company of which the solvency is not in real doubt, and where there is a dispute as to indebtedness. Further, in my view, the remedy is ultimately discretionary; and the more obvious it is that the remedy is being threatened or pursued as a threat or to exert inappropriate pressure, the more likely the court is to give the company the benefit of any reasonable doubt, both at the interlocutory stage of an injunction and subsequently, in determining whether its defences or cross-claims give rise to a sufficiently substantial dispute to make the Companies Court process inappropriate.’

SIMON HILL © 2020

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1]  In Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch) (‘Coilcolour’), Hildyard J said, at paragraph 34:

‘…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.’

[2] An alternative label would be ‘prospective petitioner’.

[3] Under section 124(1) of the Insolvency Act 1986, a winding up petition may be presented by: (1) the company; (2) the directors of the company; (3) any creditor or creditors (including contingent or prospective creditor or creditors); (4) any contributory or contributories; (5) a liquidator or temporary administrator appointed in main proceedings opened in another EU member state pursuant to arts 3(1) and 52 of Regulation (EC) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, who wishes to open secondary proceedings in the United Kingdom; (6) a designated officer of a Magistrates Court in exercise of the power conferred by s.87A of the Magistrates Court Act 1980; (7) all or any of those parties together or separately. (8) Secretary of State under s.122(1)(b) or (c) or on grounds of public interest; (9) the Regulator of Community Interest Companies; (10) an administrator; (11) an administrative receiver; (12) the supervisor of a CVL; (13) Director of Public Prosecutions or the Director of the Serious Fraud Officer, on public interest grounds; (14) Financial Conduct Authority and Prudential Regulation Authority, on the ground of inability to pay debts or on the ‘just and equitable ground’; (15) Official receiver, where company then in CVL. 

[4] See, for example: (1) Winnington Networks Communications Ltd v Revenue and Customs Commissioners [2015] BCC 554; and (2) Re Taylor's Industrial Flooring Ltd [1990] BCC 44 ('Re Taylor's Industrial').

In Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2014] BCC 327, the Court of Appeal heard an appeal by a petitioner against an order striking out its winding up petition against an alleged debtor. As to the test to be applied on an application to strike out a winding up petition, David Richard J said, at paragraph 4:

'If the company can demonstrate that the alleged debt on which the petition is founded is genuinely disputed on substantial grounds, the court will strike out the petition. There are rare exceptions to this principle...'

Note Dillon LJ in Re Taylor's Industrial, at 47-48, where he said:

‘The company obtained from His Honour Judge O'Donoghue an injunction restraining advertisement of the petition on the ground that the debt claimed was disputed and the company was solvent. The judge's order striking out the petition was on the inter partes hearing following that ex parte injunction, but because the petition (because of the injunction) had not been advertised, it was not fully before the court for hearing as the other creditors had not had the opportunity, which the rules require, to put forward their views on whether they supported or opposed the petition.’

This feeds into a distinction that needs to be borne in mind - between: (1) applying for, and obtaining, an order striking out the petition before it reaches a final hearing on the petition (or at least before the petition is substantively determined) - this is an interim application; and (2) a final order made at the final hearing of the substantive petition, dismissing the petition. 

[5] Strictly speaking, any natural or legal person may present a winding up petition, though certain classes of person may have to meet additional requirements – for instance, those declared ‘vexatious litigants’  

[6] The Chancery Division Companies Court has, relatively, recently been replaced by the Business and Property Court, Insolvency and Company List (ChD). For brevity, this court will be referred to in this article as ‘Companies Court’

[7] See for example, see Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch)

[8] See endnote 5

[9] The application for an injunction is governed by Insolvency Rules 2016, r.7.24. R.7.24 is entitled ‘Injunction to restrain presentation or notice of petition’ and reads:

‘(1) An application by a company for an injunction restraining a creditor from presenting a petition for the winding up of the company must be made to a court having jurisdiction to wind up the company.

(2) An application by a company for an injunction restraining a creditor from giving notice of a petition for the winding up of a company must be made to the court or hearing centre in which the petition is pending.’

[10] For instance, see (1) Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch); (2) Barrowfen Properties Limited v Hambros Investments Limited, Anupam Investments Limited [2019] EWHC 2548 (Ch); or (3) Ensygnia Ltd v Rickard [2014] EWHC 1184 (Ch); (4) Re A Company (No 0160 of 2004) [2004] EWHC 380; (5) In re A Company (No. 0012209 of 1991) [1992] 1 W.L.R. 351; (6) Mulalley and Company Limited v Regent Building Services Limited [2017] EWHC 2962 (Ch); (7) GBM Minerals Engineering Consultants Ltd v Michael Wilson & Partners, Limited [2018] EWHC 3401 (Ch); (8) Re Company 0254/2015 [2015] EWHC 2144 (CH),

[11] For instance, see: (1) Mann v Goldstein [1968] 1 WLR 1091, where the petitions had been presented, and the company’s application was to retain the petitioners from advertising or taking any further steps in the prosecution of the respective petitions; (2) Re A Company [2016] EWHC 1548 (Ch), where an application for orders (i) restraining the respondent from proceeding further upon the petition, whether by advertising it or otherwise; and (ii) orders that the petition be removed from the court file, were refused by HHJ Hodge QC, sitting as a Judge of the High Court. The Judge found the petitioner has made out he case that she was a creditor of the applicant LLP in a sum ‘…considerably in excess of the insolvency limit of £750.’ (paragraph 17); (3) Agform Ltd v Fine Organics Ltd [2018] EWHC 2211 (Ch), where the company applied (unsuccessfully) for an injunction to restrain a threatened petition. The Companies Court found, at paragraph 79, that company's dispute to the debt was '...not substantial such as to give rise to a dispute requiring the court to dismiss the petition, nor are the cross-claims genuine and serious within the relevant test as requiring the court to dismiss the petition.'; (4) Re A Company [2016] EWHC 3811; (5) JSF Finance & Currency Exchange Co Ltd v Akma Solutions Inc [2001] 2 BCLC 307 ('JSF Finance');

It is nothing to the point that an application for an injunction could have been made pre-presentation of the petition. In JSF Finance, the petitioner served a statutory demand on the company. The company did not then apply for an injunction restraining presentation of a petition. The petitioner then presented the petition and the company applied to the Companies Court for orders (1) that the petitioner be restrained from proceeding further upon the winding up petition, whether by advertising the same or otherwise; and (2) that the petition be removed from the file of proceedings (which is not the same as dismissal). The company argued the debt founding the petition was genuinely disputed on substantial grounds. 

During the injunction application hearing, the petitioner sought to make a point about the company not applying for an injunction prior to the winding up petition being presented. Park J in JSF Finance dealt with that argument, at 309:

'When [the company] received the statutory demand it could have applied to the court for an order restraining [the petitioner] from petitioning for a winding up. It did not do that. [Counsel for the petitioner] seeks to make something of its omission in that respect. In my view, however, there is nothing to be made of it. If there is a genuine and substantial dispute about the alleged debt, [the company] is entoled to seek the releif which it is seeking now. Indeed, applications of this sort, brought at the stage after a petition has been presented, are not uncommon.'

[12] This paragraph was quoted by Hildyard J in Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch), at paragraph 31, under legal principles and in support, along with Mann v Goldstein [1968] 1 WLR 1091, for the proposition:

‘The court will grant an injunction to prevent 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):’

The authors of Sealy & Milman: Annotated Guide to the Insolvency Legislation 22nd Ed. - 2019, in their commentary to Insolvency Rules 2016, r.7.24, adopted this as their summary of the position. As did David Foxton QC, sitting as a Deputy Judge of the High Court in Re A Company [2016] EWHC 3811, at paragraph 7 (for all of paragraphs 31 to 33 of Coilcolour).

The application before the Companies Court in Re a Company No. 003028 of 1987 (1987) 3 BCC 575, was for an order striking out a winding up on just and equitable grounds petition, on the ground that the presentation of the petition and its future prosecution represented an abuse of process, or, on the alternative but associated ground, that the petition was bound to fail.

[13]For an early statement on this see Cadiz Waterworks Co. v. Barnett (1874) L.R. 19 Eq. 182. In that case, there was a genuine dispute as to whether the debt was payable, and the company was solvent. Malins VC said (at 194 and 195):

‘…and I am satisfied it is a solvent company. Therefore, the company being solvent, and there being a bona fide dispute as to the debt, what injury am I doing (the petitioner) by restraining him from presenting a petition to wind up … … Here is a company perfectly solvent, which has a fair prospect, as far as I have heard, of being successful, and you have it advertised in every paper in England that there is a petition presented to wind them up … … I think this case does fall within the rule …. that the object of this Court is to restrain the assertion of doubtful rights in a manner productive of irreparable damage. I am satisfied that in this case the presentation of a petition may be productive of irreparable damage to this company.’

The last passage quoted was said by Willmer LJ in Charles Forte Investments Ltd. v. Amanda [1964] Ch. 240, to be of general application, although the latter case was not one of a creditor's petition.

[14] It has been posited in an old Australian case, that an insolvent company has no trading reputation or commercial credit which constitutes an interest which either will or ought to be protected by the law. In Community Development Pty Ltd v Engwirda Construction Company [1968] Qd R 541, Lucas J said, after referring to some old English cases about granting an injunction (546-547), that: 

‘In my opinion these cases show that the basis of the exercise of the jurisdiction is the irreparable injury which might be done to a solvent company by the presentation or prosecution of a petition by a person whose debt is genuinely disputed.

In this case there is no assertion by anybody on behalf of the company that it was solvent…What irreparable injury can then be done to an insolvent company by the advertisement of a petition for a winding up order?…’

[15] See also Oliver LJ in Claybridge Shipping [1997] 1 BCLC 572, where towards the end of his speech, he said:  

‘I do not wish in the least to cast doubt on the practice of the Companies Court – which is well-established – of staying a petition in circumstances where there is a bona fide and substantial dispute as to the existence of a debt and leaving it to the parties to fight the matter out between them in an action. But that is at highest, a rule of practice and it must, I think, give way to circumstances which make it desirable that the petition should proceed, although it may be that that would only apply in very exceptional circumstances.’

[16] In Re Russian & English Bank [1932] 1 Ch 663, Bennett J held that the case was an exceptional one. Though the debt was found to be disputed on substantial grounds, the petition was allowed to continue. This was because the bank, being incorporated under the laws of Russia, had ceased to exist under those laws before the petition was presented.

[17] In Re Claybridge Shipping Company SA [1997] 1 BCLC 572, Shaw LJ said:

‘As to the rule of practice, I venture to emphasise that it is a rule of practice and not a rule of law. Accordingly it may be overborne in a particular set of circumstances where its application might result in injustice.’

After referring to practice of dismissing petition presented for abusive purposes, Oliver LJ said: 

‘But, having said that, the refusal of the court to entertain cases where the underlying debt is said to be disputed is, in my judgment, a matter of practice only. It is not, in general, convenient that the very status of the petitioner to proceed with his petition should be fought out on a winding-up petition. But the court must, I think, remain flexible in its approach to such cases. There may well be cases where to compel the creditor to go off to another division of the court to establish his debt would effectively deprive him of any remedy at all. That may, of course, be inevitable where the court is convinced that the dispute is a genuine one, genuinely raised and persisted in, and one which cannot conveniently be determined in a short space of time on hearing the one application – and that, I think, must be particularly the case even in cases which can perhaps conveniently be dealt with where the grounds of dispute have been known to and canvassed with the petitioner well before the presentation of the petition. But it ought not, in my judgment, i (sic) to be an inflexible rule that the Companies Court should never take upon itself the burden of determining the matter on the hearing of the petition. It does so in petitions on the just and equitable ground, and it is only too easy for an unwilling debtor to raise a cloud of objections on affidavits and then to claim that, because a dispute of fact cannot be decided without cross-examination, the petition should not be heard at all but the matter should be left to be determined in some other proceedings. Whilst I do not in any way, therefore, seek to weaken the rule of practice as a general rule, I think that it ought not to be assumed to be inflexible and to preclude the Companies Court from determining the issue in an appropriate case simply because the debtor files mountains of evidence raising disputes of fact which require to be determined by cross-examination. The court must, I think, reserve to itself the right to determine disputes – even perhaps in some cases substantial disputes – where this can be done without undue inconvenience and where the position of the company, whether it be an English company or a foreign company, is such that the likely result in effect of striking out the petition would be that the creditor, if he established his debt, would lose his remedy altogether.’

On the facts of Claybridge, Oliver LJ held that the dispute was not substantial, only the volume of evidence. The petition allowed to proceed.

[18] In Brinds Ltd v Offshore Oil NL (1986) 2 BCC 98916, Lord Brightman delivered the judgment of the Privy Council. He said, at 98921:

‘It is a matter for the discretion of the judge whether a winding-up order should be made on a disputed debt, and it is also a matter of discretion whether he decides the substantive question of debt or no debt. Their Lordships agree with the observations of Gibbs J. in Re Q.B.S. Pty. Ltd. [1967] Qd. R. 218 , at p. 225:

“It seems to me that in every case it becomes necessary for the court to exercise its discretion as to how far it will allow the question whether or not the dispute is bona fide to be explored. In some cases it may be very easy to decide this question on the petition and affidavits in reply. In other cases however it may be difficult to determine whether or not the dispute is bona fide without determining the merits of the dispute itself. In some such cases convenience may require that the court decide the question whether or not a debt exists, but in other such cases it may appear better to allow that question to be determined in other proceedings before the petition for winding up is heard.”'

The same line of reasoning was adopted by this Board in an appeal from New Zealand, Bateman Television Ltd. v. Coleridge Finance Co. Ltd. [1971] N.Z.L.R. 929 at p. 932:

“…the general rule is, no doubt, that no order will be made on a petition founded on such debts. But each case must depend upon its own circumstances and it is a question for the discretion of the Judge; a discretion to be exercised judicially, which is not open to review …Their Lordships add the very important fact that from start to finish neither side ever suggested to Macarthur J. that the petitions should be dismissed or even stayed on the ground of disputed debts pending the bringing of appropriate proceedings at law to determine these matters.”

In the instant case, having regard to the nature of the dispute and the course which the proceedings took, it was almost inevitable that the trial judge should determine the question whether the debt was repayable on demand or only on 12 months' notice. As the Full Court observed,

“the question whether the debt was due and payable was … inextricably interwoven with the questions of the motives and purposes of Adler, and in turn, with the bona fides of Macintosh … Accordingly we are of opinion that once all the evidence was in, for the learned Judge to have then dismissed or stayed the petition would have been a wrongful exercise of discretion. In reality he had no alternative but to proceed to determine the matter. To do otherwise would have caused injustice to both parties”.

This conclusion, with which their Lordships are in entire agreement…’

[19] Chief ICCJ Briggs in Barrowfen Properties Limited v Hambros Investments Limited, Anupam Investments Limited [2019] EWHC 2548 (Ch) said, under the heading ‘The Legal Test’, in paragraph 17:

‘The parties are agreed on the legal test to be applied, namely a requirement to demonstrate that the debt or debts are disputed on genuine and substantial grounds. The test is well established. In Coulson Sanderson & Ward (1986) 2 BCC 99, 207 the Court of Appeal explained that the Court "should not on an interlocutory motion restrain what would otherwise be the legitimate presentation of a winding-up petition by someone qualified to present it, unless the company establishes on the evidence a prima facie case for holding that the petition would constitute an abuse of process.". It will be an abuse where the presenting party has no standing as a creditor. A substantial dispute is sufficient to demonstrate, for the purpose of injunctive proceedings, that a creditor has no standing: Re a Company (no 00751 of 1992) [1992] BCLC 869 . I have been directed to Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA 443 where Etherton LJ (as he was) explained (at para 22) "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….and may even be reached even if, on an application for summary judgment, the defence could be regarded as "shadowy"". This is the test and the standard I shall apply.’

[20] In Stonegate Securities Ltd v Gregory [1980] Ch 576, Buckley LJ said, at 579:

‘If the creditor petitions in respect of a debt which he claims to be presently due, and that claim is undisputed, the petition proceeds to hearing and adjudication in the normal way; but if the company in good faith and on substantial grounds disputes any liability in respect of the alleged debt, the petition will be dismissed or, if the matter is brought before a court before the petition is issued, its presentation will in normal circumstances be restrained.’

[21a] In Agform Ltd v Fine Organics Ltd [2018] EWHC 2211 (Ch), HHJ Davis-White QC (sitting as a Judge of the High Court) said, at paragraph 12:

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

(2) The determination of whether or not a petitioner is a creditor of the company is not a matter to be decided in winding up proceedings. 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 date, or at least so much as will bring the indisputable part below the statutory minimum of £750. The presentation of a winding up petition in respect of a debt which is genuinely disputed on substantial grounds is an abuse of the court's process. See, for example, Stonegate Securities v Gregory [1980] Ch 576.

(3) However, the grounds of dispute must be substantial and advanced in good faith. A creditor's mere honest belief that payment is not due is not sufficient; Re a Company (No 0010656 of 1990) [1991] BCLC 464.

(4) Nor is it enough for the company simply to allege that the debt is disputed or "merely to raise a cloud of objections." The company must properly explain the basis of the dispute and provide evidence to show that it is a substantial one. If it can be seen from the papers that there is no dispute, or no dispute as to part of the debt, then ordinarily the petitioner will be allowed to proceed; Revenue & Customs Commissioners v Rochdale Drinks Distributors [2012] 1 BCLC 748.

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

(6) It has been held that the test of whether the grounds in which the debt is disputed are substantial is, "Similar to or possibly slightly higher than the threshold for obtaining permission to defend under CPR Part 24". See Re a Company [2007] EWHC 2137 (Ch) at paragraph 2. A dispute will not be substantial if it has really no rational prospect of success, in Re a Company (No 0012209 of 1991) [1992] 1 WLR 351 and 354 B.

(7) A winding up petition may also be dismissed or stayed if the company can prove that: (1) it has a cross-claim against the petitioner which is larger than the undisputed debt owed to the petitioner or falls short of it by £750 or less; re a Company [1983] 1 BCC 98901, and; (2) its cross-claim is either undisputed or is genuine and serious, the test for which is much the same as that for determining whether the grounds on which a debt is disputed are substantial; Re a company (No 002272 of 2004) [2005] EPIR 1251.

(8) Finally, where a company has previously requested time to pay a debt but subsequently suddenly asserts that the debt is disputed, its assertion of a dispute should be regarded with what has been described as "acute suspicion"; Delaine Property Limited v Quarto Publishing PLC [1990] 3 ACSR 81.'

[21b] In Synergy Agri Holdings Ltd v Agform Ltd[2020] EWHC 343 (Ch), ICCJ Jones said, at paragraph 4:

'The legal test to be applied for the purposes of an application to obtain restraint of advertisement, and indeed dismissal of a petition, is whether there is established by the company a genuine dispute based on substantial grounds. This may be by defence, set off or crossclaim. Subject to special circumstances, a cross- claim will be treated in the same way as a disputed debt defence which, if established, will give rise to the jurisdiction to stay or dismiss the petition. There is no requirement that the crossclaim must be litigated or shown to have been litigated. However, a failure to pursue a crossclaim may raise doubt over its genuineness.'

[22]In Cadiz Waterworks Co. v Barnett (1874) LR 19 Eq 182, Malins VC commented:

'…if [this court] sees a petition to wind up presented, not for a bona fide purpose of winding up the company, but for some collateral and sinister object, on that ground it will be dismissed with costs … the object of this court is to restrain the assertion of doubtful rights in a manner productive of irreparable damage.'

[23] This passage was quoted with apparent approval by Chadwick J in Re a Company No.006685 of 1996, at 833-834. 

Section 227 of the Companies Act 1948 (now obsolete) was entitled 'Avoidance of dispositions of property, &c. after commencement of winding up' and read (when originally enacted):

'In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.

[24] In Mann, Ungoed-Thomas J said, as regards to the jurisdictional basis for the Companies Court’s power to grant a prohibitory injunctions, at 1098-1099: 

‘For my part, I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding-up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court.’

In Stonegate, Buckley LJ said at 579 ‘…a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed.’ And then adopted at 580 the passage from Mann above [1098-1099].

In Coilcolour, Hildyard J said, at paragraph 32:

‘The court will restrain a company from presenting a winding-up petition if the company disputes, on substantial grounds, the existence of the debt 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.' [perhaps read 'a petitioner' for 'a company' in the first sentence]

[25]Two points on this quote from the Deputy Judge in Foxholes Nursing Home Limited v Accora Limited [2013] EWHC 3712:

(i) In Re a Company (No. 6685 of 1996) [1997] BCC 830, Chadwick J said, at 838D:

'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.’

This passage is quoted with apparent approval in Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch), paragraph 36.

(ii) the quoted passage from Chadwick J in Re a Company (No. 6685 of 1996) [1997] BCC 830, said to be from 838F, is in fact from 835F.

[26] Chief ICCJ Briggs in Barrowfen Properties Limited v Hambros Investments Limited, Anupam Investments Limited [2019] EWHC 2548 (Ch), said, at paragraph 17:

'The parties are agreed on the legal test to be applied, namely a requirement to demonstrate that the debt or debts are disputed on genuine and substantial grounds. The test is well established. In Coulson Sanderson & Ward (1986) 2 BCC 99 , 207 the Court of Appeal explained that the Court "should not on an interlocutory motion restrain what would otherwise be the legitimate presentation of a winding-up petition by someone qualified to present it, unless the company establishes on the evidence a prima facie case for holding that the petition would constitute an abuse of process.". It will be an abuse where the presenting party has no standing as a creditor. A substantial dispute is sufficient to demonstrate, for the purpose of injunctive proceedings, that a creditor has no standing: Re a Company (no 00751 of 1992) [1992] BCLC 869. I have been directed to Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA 443 where Etherton LJ (as he was) explained (at para 22) "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….and may even be reached even if, on an application for summary judgment, the defence could be regarded as "shadowy"". This is the test and the standard I shall apply.'

In Mulalley and Company Limited v Regent Building Services Limited [2017] EWHC 2962 (Ch), at paragraph 40, David Stone, sitting as a Deputy High Court Judge, said 'The principles to be applied on an application for injunctions to prevent the presentation of a winding up petition are well known.' before stating, at paragraphs 41 and 42:

'The court's power to grant an injunction in these circumstances stems from its jurisdiction to prevent an abuse of process: Coulon Sanderson & Ward Limited v John Francis Ward (1986) 2 BCC 99207.

As Park J said in Argyle Crescent Limited v Definite Finance Co Limited [2004] EWHC 3422 (Ch) at paragraph 9:

"On an injunction application such as that before me, the court does not have to decide whether a dispute to the petitioner's debt or a cross-claim against the position is valid. Indeed I would go further and say that the court ought to stop short of deciding those questions. However, the court does have to go into the argument sufficiently to be able to form a view about whether the dispute to the debt or to the cross-claim is put forward in good faith and has sufficient substance to justify it being determined in a normal civil action."'

[27] In Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2014] BCC 327 ('Ancasta'), David Richards J in the Court of Appeal said, at paragraph 4:

This principle is essentially a statement of general practice. A petitioner must establish its standing to present a winding-up petition. Those with standing are defined for present purposes by s.124 of the Insolvency Act 1986 and include any creditor or creditors. Where the company disputes any liability to a person petitioning as a creditor, it is taking issue with the petitioner’s standing to present the petition. It would in theory be open to the court dealing with the winding-up petition to try that issue itself, as in effect a preliminary issue. For at least three sound reasons, that is not the practice of the court. First, it is not the function of the Companies Court to try disputed debt claims. Its function, so far as winding-up petitions are concerned, is to decide whether the case is suitable for the class remedy of a winding-up order and, if so, to administer, principally through the official receiver or liquidator, the winding up. The determination of debt claims is a proper function of the county courts or, in appropriate cases, an action in the High Court. Secondly, the threat of winding-up proceedings could otherwise be used as improper pressure on a company to pay a disputed debt. Thirdly, the inevitable delay in determining the issue is unacceptably damaging to the company, whose freedom to carry on business may be severely curtailed by the existence of a pending winding-up petition. It is for this reason that the earlier practice of staying a winding-up petition while the issue of liability was determined in separate proceedings was abandoned in favour of striking it out.

At paragraph 39 of Ancasta, he said:

'The Companies Court is not the right court in which to engage in a detailed examination of claim and counterclaim.'

[28] Interestingly, HHJ Hodge QC, sitting as a Judge of the High Court in Re A Company [2016] EWHC 1548, considered it necessary, though having found £750 was indisputably due from the LLP/applicant for an injunction, to the petitioner/creditor, to go on and make findings about the petitioner/creditor’s belief in the solvency of the LLP when deciding to petition, at paragraphs 18 and 19:

‘I am satisfied that this is not a case where the winding up process is being used to exert pressure to pay a debt that is bona fide disputed on substantial grounds rather than to litigate it….I am also satisfied on the evidence that at the time the winding up petition was presented, the respondent entertained genuine concerns as to the solvency of the applicant LLP. She was concerned that the accounts were by then overdue. … The respondent inferred from that that the applicant was in a poor financial state…I am satisfied that there was some substance to the respondent's concerns about the financial status of the LLP at the time she presented the winding up petition.’

[29]In Re A Company [1983] BCLC 492, Harman J at 495 said:

'Firstly it is trite law that the Companies Court is not, and should not be used as (despite the methods in fact often adopted) a debt-collecting court. The proper remedy for debt collecting is an execution upon a judgment, a distress, a garnishee order, or some such procedure. On a petition in the Companies Court in contrast with an ordinary action there is not a true lis between the petitioner and the company which they can deal with as they will. The true position is that a creditor petitioning the Companies Court is invoking a class right (see Crigglestone Coal Co. [1906] 2 Ch 327), and his petition must be governed by whether he is truly invoking that right on behalf of himself and all others of his class rateably, or whether he has some private purpose in view. It has long been the law that a petition presented for the purpose of putting pressure on the company is not properly presented: see In re a Company [1894] 2 Ch 349 and in a slightly different context Re Bellador Silk Ltd [1965] 1 All ER 667. The question for me, therefore, is whether I am satisfied that the petitioner seeks this winding up for the benefit of his class. I am not concerned with his motives or with the past conduct of the company, which was here deplorable or worse and which may have led the petitioner to have justifiable dislike for and a desire to see the downfall of some person such as the main protagonist in the company. In my judgment the Bryanston Finance case merely shows that in this field the rule which applies at common law, that malice or bad motive does not make unlawful that which is otherwise lawful (compare Bradford Corporation v Pickles [1895] AC 587) also applies. The decision in Bryanston Finance [1976] 1 All ER 25 never sought to overrule the basic law that the only proper purpose for which a petition can be presented is for the proper administration of the company's assets for the benefit of all in the relevant class. To hold otherwise would be to confuse motive, which is past, with purpose, which is future.

The question, therefore, is not "does the petitioner genuinely wish to wind up this company', as counsel for the petitioner (Mr. Littman) submitted. It would be hard for me to find that this petitioner, which has taken all regular steps to prosecute its petition and which plainly has reasons to desire the winding-up of this company, since that must put beyond cavil the future of the company's lease, does not in truth desire to wind up the company. In my judgment the true question is "for what purpose does the petitioner wish to wind up this company'. A judge has to decide whether the petition is for the benefit of the class of which the petitioner forms a part or is for some purpose of his own.

If the latter, then it is not properly brought. If the petitioner can show that he and his class stand together and will benefit or suffer rateably, then his ill motive is nothing to the point. But here it is plain that no such even-handedness exists.'

On the petition being a class remedy, reference can be made to Harman J in Re Southbourne Sheet Metal Co Ltd [1991] BCC 732, where he said, at 734:

'It is, of course, classically true and a matter always to be remembered that a winding-up petition is not a lis inter partes for the benefit of A as against B. It is the invoking by A of a class remedy for the benefit of himself and other members of the class. Nonetheless, it is (1) based upon a commercial interest of the person invoking the remedy, and [(2) it is for the benefit of himself, amongst other members of the class.'

[30] This passage was quoted with apparent approval by Chadwick J in Re a Company No.006685 of 1996, at 834.

[31]In Re Company (No.012209 of 1991), Hoffman J used slightly different phraseology when he said, at 354:

'In order to say that the respondent company is entitled to present a winding up petition I must come to the conclusion that that argument is either not put forward in good faith or that it has really no rational prospect of success. In my view it is not possible on the affidavit evidence to come to that conclusion. There is in my judgment a triable issue on that question, and if that is right then the whole question of whether the application for interim payment, which forms the basis of the statutory demand, was in accordance with the contract is something which is disputed and would have to be tried.'

However, later in the same case he said '... it is sufficient to say that there seems to me to be a bona fide dispute on substantial grounds in relation to the validity of the 6 September application.'

[32] see endnote 24

[33] The statutory minimum is £750 for companies (it is £5,000 for individuals). In Re Taylor's Industrial Flooring Ltd [1990] BCC 44, Dillon LJ said at 48:

‘If there is a debt which in part above the statutory minimum is indisputable, then a petition can validly be presented even if the debt as claimed in the petition is for a larger sum, part of which is bona fide disputed. That was decided in Re Tweeds Garages Ltd [1962] Ch 406…’

In Re Tweeds Garages Ltd [1962] Ch 406, Plowman J consider a winding up petition under section 222-224 of the Companies Act 1948 (now obsolete). After quoting those statutory provisions, he said, at 413-414:

'...the only qualification which is required of the petitioners in this case is that they are creditors and about that, as I have said, there is really no dispute. Moreover, it seems to me that it would, in many cases, be quite unjust to refuse a winding-up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. If I may refer to an example which I suggested in the course of argument, suppose that a creditor obtains judgment against a company for £10,000 and after the date of the judgment something is paid off. There is a genuine bona fide dispute whether the sum paid off is £10 or £20. The creditor then presents a petition to have the company wound up. Is the company to be entitled to say: "It is not disputed that you are a creditor but the amount of your debt is disputed and you are not, therefore, entitled to an order"? I think not. In my judgment, where there is no doubt (and there is none here) that the petitioner is a creditor for a sum which would otherwise entitle him to a winding-up order, a dispute as to the precise sum which is owed to him is not of itself a sufficient answer to his petition.

In the present case, being, as I have said, satisfied that the company is insolvent, I think that it would be wrong to put these petitioners to the trouble and expense of quantifying the precise amount which is owing to them in other proceedings and, in all the circumstances of this case, I propose to make the usual compulsory order.'

[34a] For an analogous situation in bankruptcy, see Revenue and Customs Commissioners v Harris [2011] EWHC 3094 (Ch) and Vieira v Revenue and Customs Commissioners [2017] 4 WLR 86.

[34b] This was considered in Winnington Networks Communications Ltd v Revenue and Customs Commissioners [2015] BCC 554 ('Winnington'), by Nicholas le Poidevin QC sitting as a Deputy High Court Judge. A company subject to a winding up petition applied for an order dismissing the petition. After noting an argument about juridiction was no longer pursued, the Deputy Judge said, at paragraph 5:

'That left the alternative basis for the application, that the petition debt was disputed in good faith on substantial grounds. [counsel for HMRC] took me to Commissioners for HM Revenue & Customs v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116; [2013] B.C.C. 419: “A well-settled rule of practice … is that a debt that is wholly disputed on substantial grounds”–– [counsel for HMRC] emphasised the word “wholly”––“cannot ordinarily found the basis for the making of a winding up order”, per Rimer LJ at [79]. Putting it in that way in a case of this kind (though Rochdale itself concerned input tax) may not be strictly accurate, because the assessment itself generates the debt. Nonetheless, the making of a winding-up order is a matter of discretion and an equivalent test has been applied when the assessment to tax is under challenge on appeal. The formulation approved in [Commissioners for HM Revenue & Customs v Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) [2015] B.C.C. 317 (at [1]) was whether the appeal had a real as opposed to a fanciful or frivolous prospect of success.'

On the facts of Winnington, the Deputy Judge said, at paragraph 55:

'In summary, I have held that [the Applicant's] appeal has no real prospect of success on either the non-payment issue or the non-supply issue. Its application for the petition to be dismissed is therefore itself dismissed.'

A question arises: if the appeal against the assessment (to the First Tier Tribunal) is found to have at least real prospects of success by the Companies Court, whether the more appropriate course for the Companies Court to take, would be to adjourn the petition, rather than this dismiss the petition, pending the outcome of that appeal.

In Inland Revenue Commissioners v Pearlberg [1953] 1 WLR 331, Lord Denning LJ made the point that, where an assessment exists, the correct method of challenge is through the statutory appeal process provided. At 333, Lord Denning LJ said:

'If there has been no appeal to the Commissioners the debts become absolute and conclusive, and their legal effect cannot be denied.'

In Revenue and Customs Commissioners v Foster [2019] EWHC 2077 (Ch), HHJ Davis-White QC (Sitting as a Judge of the High Court) said, at paragraph 88:

'IRC v Pearlberg [1953] 1 WLR 331 lays down the well-known principle that where tax legislation lays down a statutory appeal system that is (at least in general) an exclusive procedure for challenging relevant decisions. In that case the Court of Appeal decided that the taxpayer could not, in the case before them, challenge tax assessments by way of defence to enforcement proceedings in the High Court. Rather, the right to challenge was limited to the statutory appeal system laid down by the relevant legislation. In that case Schedule 1, paragraph 5 of the Finance Act, 1941 provided a conclusive presumption that he person on whom the relevant notice was served was the relevant person liable to pay the tax (the landlord) and that the amount of tax specified was due so far as unpaid. The case was followed in IRC v Soul 51 TC 86...'

[35] As to council tax, in Bolsover District Council v Ashfield Nominees Ltd [2010] EWCA Civ 1129, paragraph 10:

'In this context it is to be noted that, if council tax is due and unpaid, it is regarded as a debt for the purposes of insolvency proceedings even if a liability order has not yet been made. Judge Cooke so held at the earlier stage of these proceedings, a conclusion which was not challenged on an earlier appeal by the companies to this court: see Dennis Rye Ltd v Bolsover District Council [2009] 4 All ER 1140. That is consistent with what was held to be the position as regards general rates in the Chancery Division in In re North Bucks Furniture Depositories Ltd [1939] Ch 690 and by the Court of Appeal in In re McGreavy [1950] Ch 269 . I have no doubt that this is correct. It would be absurd to suggest that council tax due and unpaid was not a “debt” for the purposes of insolvency proceedings merely because a liability order had not been made.'

Later, at paragraph 34, Lloyd LJ said:

'I accept that, whereas unpaid council tax can rank as a debt for the purposes of the Insolvency Act 1986 even if no liability order has been made, this is subject to the proviso that, if the tax fell due for payment more than six years previously, so that a liability order could no longer be applied for in respect of that sum, it would not be a valid debt for the purposes of insolvency proceedings.'

In Council Tax (Administration and Enforcement) Regulations 1992 (SI 1992/613), rule 49 is entitled 'Insolvency' and provides:

'(1) Where a liability order has been made and the debtor against whom it was made is an individual, the amount due shall be deemed to be a debt for the purposes of section 267 of the Insolvency Act 1986 (grounds of creditor's petition).

(2) Where a liability order has been made and the debtor against whom it was made is a company, the amount due shall be deemed to be a debt for the purposes of section 122(1)(f) (winding up of companies by the court) or, as the case may be, section 221(5)(b) (winding up of unregistered companies) of that Act.

(3) For the purposes of this regulation the amount due is an amount equal to any outstanding sum which is or forms part of the amount in respect of which the liability order was made.'

As to business rates, in North Somerset DC v Honda Motor Europe Ltd [2010] EWHC 1505 (QB), Burnett J said, at paragraph 19:

'It is common ground before me that no duty on the ratepayer to discharge his rates liability arises until a notice has been served under Regulation 5. There is thus, within the statutory scheme, a clear distinction between the liability for business rates created by Section 43, on the one hand, and the obligation to discharge that liability after service of a notice under the 1989 Regulations.'

In Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 (SI 1989/1058), rule 18 is entitled 'Insolvency' and provides:

'(1) Where a liability order has been made and the debtor against whom it was made is an individual, the amount due shall be deemed to be a debt for the purposes of section 267 of the Insolvency Act 1986 (grounds of creditor's petition).

(2) Where a liability order has been made and the debtor against whom it was made is a company, the amount due shall be deemed to be a debt for the purposes of section 122(1)(f) (winding up of companies by the court) or, as the case may be, 221(5)(b) (winding up of unregistered companies) of that Act.

(3) The amount due for the purposes of this regulation is an amount equal to any outstanding sum which is or forms part of the amount in respect of which the liability order was made.'

[36] In Re Claybridge Shipping Company SA [1997] 1 BCLC 572, Lord Denning MR said:

‘If it is obviously a “put-up job” – or if it is so insubstantial that a Queen's Bench master would only give conditional leave to. defend – then I should think the petition to wind. up should stand.’

In Re A Company 0254/2015 [2015] EWHC 2144 (Ch) Arnold J, at paragraph 41 said,

'Counsel for [the would-be petitioner] understandably submitted that this was an exercise in what he described as smoke and mirrors.' 

[37] In Foxholes, the Deputy Judge noted passage from Chadwick J in Re a Company No.006685 of 1996, Chadwick J, at paragraph 44, as part of his summary of the law. 

In Re Taylor's Industrial Flooring Ltd [1990] BCC 44, Staughton LJ said, at 51:

‘Many people today seem to think that they are lawfully entitled to delay paying their debts when they fall due or beyond the agreed period of credit, if there is one. Alternatively they may think that no remedy is in practice available to the creditor if they do delay payment. There is a greater degree of truth in the second belief than the first. Legal remedies are in themselves slow and expensive. A creditor will often tolerate late payment, rather than incur further expense. But this can cause great hardship to honest traders, particularly those engaged in small businesses recently started. Anything which the law can do to discourage such behaviour in my view should be done.

In my judgment [the Petitioner] had allowed quite enough gratuitous time for payment to the company when they presented their petition. Indeed, they would have been justified, like Lord Clive, in being astonished at their own moderation.’

The third member of the Court of Appeal in Re Taylor's Industrial Flooring Ltd [1990] BCC 44, Mann LJ, said at 51:

‘As Staughton LJ has just said, this is an example of the popular fact that one may prevaricate over the payment of debts. It is a fallacy and the law must not be allowed to be exploited.’

[38] In Re a Company (No.003028 of 1987) (1987) 3 BCC 575, Scott J said, at 585-586:

'Ordinarily, the interest of a creditor is in obtaining repayment of his debt. If his debt is repayable and is not repaid, the creditor can apply to wind up on the ground that the company cannot pay its debts: sec. 122(1)(f). If the petitioner were a contingent creditor, the debt would not be immediately repayable, and in order to obtain a winding-up order the contingent creditor would have to show something in the affairs of the company to justify the apprehension that when the time for repayment of the debt arrived, the company would be unable to repay, and that in those circumstances the company ought to be at once wound up. Current inability on the part of a company to pay its debts would not necessarily entitle a contingent creditor to succeed in a winding up petition. The contingent creditor would, I think, be expected to show, not only and not necessarily a current inability by the company to pay its debts, but rather an inability to pay its debts at the time when the contingent debt became payable. A case of that character would, in my opinion, fall more clearly within subsec. (g) than subsec. (f) of sec. 122(1). Be that as it may, I can see no ground on authority or in principle for limiting the ability of a contingent creditor to present a petition to only some of the paragraphs contained in sec. 122(1). A contingent creditor has, in my judgment, locus standi to present a petition. Whether the petition will succeed, whether the petition is an abuse of process, will depend upon the underlying facts and not upon a lack of status to present the petition.'

The definition of 'contingent creditor' and 'prospective creditor' does not seem settled. A useful case is Stonegate Securities Ltd v Gregory [1980] Ch 576, where Buckley LJ said (in a case on sections 222, 223 and 224 of the Companies Act 1948 (now obsolete)), at 579:

'In that context, in my opinion, the expression "contingent creditor" means a creditor in respect of a debt which will only become due in an event which may or may not occur; and a "prospective creditor" is a creditor in respect of a debt which will certainly become due in the future, either on some date which has been already determined or on some date determinable by reference to future events.'

[39] In Stonegate Securities Ltd v Gregory [1980] Ch 576, Goff LJ said, at 589:

'Once the court is satisfied that there is a bona fide dispute as to the right of an alleged creditor to claim as one to whom a debt is presently due then, unless he elects for the purposes of the petition, to proceed on the basis, if that be not also disputed, that he is only a contingent or prospective creditor, then he ought to be restrained.'

[40] Gloster LJ in Wilson and Sharp Investments Ltd v Harbour View Developments Ltd [2015] EWCA Civ 1030; [2015] BPIR 1496, said, at paragraph 62:

'There was no dispute before us that, in order to resist presentation of a winding up petition, the appellant had to establish that it had a serious and genuine cross-claim, and that, absent special circumstances, if such a claim was established on the evidence before the court, as a matter of principle, presentation of a winding up order should be restrained by injunction: see, for example, Re Bayoil SA supra per Nourse LJ at [154]–[155] and per Ward LJ at [156]–[157].'

After considering the evidence, Gloster LJ held, at paragraph 71:

'This, in my judgment, was a classic case where, based on the evidence before the court, which necessarily had not been tested by cross-examination or any kind of exploration of the evidence in depth, the judge, in accordance was well established principles applying to these type of cases, should have concluded that there were substantial disputes between the parties which could not be appropriately determined in winding-up proceedings. Accordingly he should have granted the injunction sought restraining the issue of a winding up petition.'

[41] David Foxton QC, sitting as a Deputy Judge of the High Court in Re A Company [2016] EWHC 3811 approved of this passage from Coilcolor Limited v Camtrex [2015] EWHC 3302 Ch, when the Deputy Judge in Re A Company said, at paragraph 9:

‘I have also been referred to helpful guidance from Hilliard (sic) J in Coilcolor Limited v Camtrex [2015] EWHC 3302 Ch. At [31]-[33]. I am not going to lengthen this judgment by setting those paragraphs out, but Hilliard (sic) J provides a helpful reminder that the Companies Court's procedure on petitions is one which is ill equipped to determine issues of fact with no pleadings, disclosure or oral evidence.’

[42] In Re Pan Interiors [2005] EWHC 3241 (Ch), Warren J said, at paragraphs 34-37:

‘The modern practice in relation to winding-up petitions where the alleged debt owing by the respondent company is disputed in good faith and on substantial grounds is to dismiss the petition. That practice is explained in In Re Bayoil SA [1999] 1 WLR 147 at 150. The reason is set out in the quote from the decision in Mann v Goldstein [1968] 1 WLR 1091. Mann was a case of a disputed debt where the applicant sought injunctions to restrain the petitioning creditors from advertising the petition which had already been presented. Whether the same reasoning should be applied in the case of an application to prevent the presentation of a petition, I shall come in a moment. Bayoil also clarified the modern practice where the respondent company has a genuine and substantial cross claim which exceeds the amount of the debt on which the petition is based. In the absence of any special circumstances, the court will dismiss or possibly stay the petition, although dismissal will, I think, be the usual course. In disputed debt cases, the petition is dismissed because the petitioner cannot properly claim to be a creditor at all, but there is little practical difference between that and a cross claim — see in particular the comments of Ward LJ at 156E.

Just as the principle applicable to the dismissal of the petition in a disputed debt was applied in Mann to the grant of an injunction to restrain advertisement, so too the court will, in the absence of special circumstances, apply the principle applicable to the dismissal of a petition in a cross claim case in the case of the granting of an injunction to restrain advertisement. Jonathan Parker J applied the principle applicable in disputed debt cases to restrain the presentation of a petition where the respondent had an arguable defence by way of equitable set off, which, if successful, would result in the respondents not being indebted to the petitioner. But in a cross claim case the position is different, since the petitioner does not have a debt and to restrain the presenting of the petition would be to interfere with what would otherwise be a legitimate approach to the seat of justice. Nonetheless, the court has power to do so provided that the proceedings sought to be restrained would be an abuse of process.

Abuse of the process, it is to be noted, is precisely the foundation on which the modern practice of dismissal of petitions rests where there is a genuine and substantial cross claim — see the passage in Bayoil at page 152 citing (with apparent approval) from Buckley on the Companies Acts.

The same principles which lead to dismissal and the grant of an injunction to restrain advertisement of a petition lead also to the grant of an injunction to restrain the presenting of a petition. I therefore reject the submission which was made to me by Mr Robins that in cross claim cases an injunction against presentation should not be granted, but the cross claim could only be raised in relation to advertisement of the petition or as a ground for dismissing the petition when it comes to be heard.’

[43] In Sell Your Car With Us Ltd v Sareen [2019] BCC 1211, ICCJ Burton concluded that the company’s cross claim against the petitioner had no prospects of success. The Judge said, at paragraph 51:

‘The cross-claim …has no prospect of success and falls below the threshold required for me to consider it to be serious, genuine or substantial.’

[44] In Re Bayoil S.A. [1999] 1 WLR 147, Nourse LJ said, at 155:

‘I emphasise that the cross-claim must be genuine and serious or, if you prefer, one of substance; that it must be one which the company has been unable to litigate; and that it must be in an amount exceeding the amount of the petitioner's debt. All those requirements are satisfied in this case.’

[45a] In Popely v Popely [2004] EWCA Civ 463; [2004] BPIR 778, Jonathan Parker LJ (with whom Ward LJ and Moses J agreed), said in paragraphs 123 to 125:

‘In this connection, however, I must return briefly to the requirement expressed by Nourse LJ in Bayoil to the effect that the cross-claim must be “one which the [debtor] has been unable to litigate”. As to that, I respectfully share the concerns of Rimer J in Re a Debtor (No. 87 of 1999) (quoted in paragraph 64 above) and of Park J in Montgomery (quoted in paragraph 65 above). I respectfully agree with their view that Nourse LJ's reference to this requirement probably derives from the terms of the headnote to the report of LHF Wools .

Be that as it may, I do not in any event understand Nourse LJ to be intending to lay down any absolute requirement to the effect that the debtor must demonstrate that he has been unable to litigate his cross-claim. Rather, I understand Nourse LJ to be doing no more than indicating that where, as in LHF Wools , there has been delay in the prosecution of the cross-claim the delay must not be such as to throw real doubt on the genuiness of the cross-claim (it will be recalled that in LHF Wools the delay occurred because the company could not litigate its claim in the Belgian action until the merchant's appeal against his conviction had been finally concluded; hence the delay threw no real doubt on the genuiness of the cross-claim in that case).

For reasons already given, however, the point does not arise on the facts of the instant case.’

On the facts in Pan Interiors [2005] EWHC 3241 (Ch), Warren J dealt with the ‘unable to litigate’ element in this way, at paragraph 46:

‘I would like to deal with the unable to litigate point at this stage. There is nothing in my judgment on the facts of this case that would justify one in concluding in the light of the Popely explanation of that principle that this is a case where Pan should have litigated the matter already, and I therefore do not see anything in that point.’

[45b]In Synergy Agri Holdings Ltd v Agform Ltd [2020] EWHC 343 (Ch), ICCJ Jones said, at paragraph 4:

'Subject to special circumstances, a cross- claim will be treated in the same way as a disputed debt defence which, if established, will give rise to the jurisdiction to stay or dismiss the petition. There is no requirement that the crossclaim must be litigated or shown to have been litigated. However, a failure to pursue a crossclaim may raise doubt over its genuineness.'

[46] Summary judgment was sought under the now obsolete Rules of the Supreme Court, Ord.14. (SI 1965/776 as amended, Schedule 1, Part 2).

[47] The application was made under Ord.14. Ord. 14(3), entitled ‘Judgment for plaintiff’, read:

‘(1) Unless on the hearing of an application under rule 1 either the Court dismisses the application or the defendant satisfies the Court with respect to the claim, or the part of a claim, to which the application relates that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part, the Court may give such judgment for the plaintiff against that defendant on that claim or part as may be just having regard to the nature of the remedy or relief claimed.’.

Ord.14(4), entitled, ‘Leave to defend’ read:

‘(1) A defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the Court.

(2) Rule 2 (2) applies for the purposes of this rule as it applies for the purposes of that rule.

(3) The Court may give a defendant against whom such an application is made leave to defend the action with respect to the claim, or the part of a claim, to which the application relates either unconditionally or on such terms as to giving security or time or mode of trial or otherwise as it thinks fit.’

[48] In Re Welsh Brick Industries Ltd [1946] 2 All ER 197, Lord Greene MR quoted from a passage from a leading textbook as having ‘sufficient accuracy’, at 198:

‘Some years ago petitions founded on disputed debt were directed to stand over until the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.’

Though the Companies Court may make a winding up order where no substantial grounds for disputing the debt founding the petition exists, typically this is unlikely to occur immediately, since there may be many other reasons put forward by the company as to why an immediate winding up order ought not to be made. For instance, an adjournment might be sought by the company for CVA proposals to be made.

[49] This was considered by Neuberger J in Company (No.0012209 of 1997) [1997] C.L.Y. 3087. In the short report, it states:

'C sought to restrain P from advertising a winding up petition on the ground that the debt was disputed. In evidence, it appeared that C's case was doubtful, very weak and unattractive.

Held, that the court could not allow the petition to go ahead. With regard to costs, the ordinary course was that costs should follow event in such a high risk procedure, Company (No.012209 of 1991), Re [1992] 1 W.L.R. 351, [1991] 11 WLUK 43 considered. However, these circumstances were outside that course...'

[50]In Mulalley and Company Limited v Regent Building Services Limited [2017] EWHC 2962 (Ch)('Mulalley'), the petitioner was Regent (Mr White was Regent's director and a '...proper party to the proceedings, and hence is also properly liable for costs' (paragraph 54)) and Mulalley was the company. The company was successful on its application and an injunction was granted to restrain presentation of a winding up petition. On costs, the Deputy High Court Judge awared indemnity costs in favour of the company and against the petitioner/Mr White, reasoning, at paragraph 58:

'Regent and Mr White were well aware of Mulalley's solvency, and that Mulalley contested the debt on which Regent/Mr White relied. I have held above that the three bases on which Mulalley disputes the debt are substantial, and are put forward in good faith. In all the circumstances, if this was not obvious to Regent/Mr White, who at least for a period of approximately two months including the first hearing of this application had the benefit of professional legal advice, then it ought to have been. This is particularly so given the earlier set of proceedings which were settled. Regent/Mr White knew or ought to have known that Mulalley had grounds for contesting the debt. An award of indemnity costs is appropriate.'