Success For The Busy Litigation Team
9th May 2019
Our Litigation team continue to be busy on Insolvency matters, both for creditors and debtors, especially businesses seeking arrangements to repay HMRC or to oppose the petitions (winding up and bankruptcy). We are also acting on dealing with petitions within the construction industry.
Opposing a Winding-Up Petition
A winding up petition may be challenged by a company on the following grounds:
- The debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the company.
- The company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
- In certain other limited circumstances (for example such as Jurisdiction, Company likely to become insolvent, Technical or procedural error or Delay).
The procedure to oppose a winding up petition is to file a witness statement in opposition in court not less than five business days before the date of the hearing of the petition (rule 4.18(1), Insolvency Rules). A copy of the evidence must also be sent to the petitioning creditor as soon as reasonably practicable (rule 4.18(2), Insolvency Rules). We can also seek a validation order and apply for an injunction.
APPLICABLE LAW: RESTRAINING A WINDING-UP PETITION
An injunction restraining the presentation of a winding up petition should be granted when there is a bona fide dispute over the relevant debt. The High Court set out in ReCompany (No.006685 of 1996) BCC 830 (§832F) that:
“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. 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.” (Emphasis added). The Court of Appeal accepted the same in The Arena Corporation Ltd  EWCA Civ 371. Materially, it set out that it is not the function of the Companies Court in the exercise of its winding up jurisdiction to adjudicate in respect of a genuinely disputed debt.
The authorities on cross-claim cases generally deal with cases where the primary debt is not in dispute, but it is argued that there is a separate genuine cross-claim between the parties which exceeds the amount of that debt. In such cases, in the absence of special circumstances, the court should exercise its discretion by dismissing or staying the petition Re Bayoil SA  BCC 988.
The standard to be made out in an application to restrain is again that there is a “real prospect” of the cross claim being established and exceeding the debt (Re a Company EWHC
If you have any issues or queries regarding insolvency or debt related matters, you can contact our experienced and knowledgeable litigation team at firstname.lastname@example.org or 01603 675639.