application to restrain presentation of a winding up petition

How to apply to restrain the presentation of or notification of a winding-up petition

Published by a lexisnexis restructuring & insolvency expert, opposing a winding-up petition, establishing a debt.

There is no requirement to serve a statutory demand on a company before presenting a winding-up petition in respect of it.

It is a long established principle that winding-up proceedings should not be commenced where the petition debt is genuinely disputed on substantial grounds. Further, it is an abuse of process to seek to use the winding-up court as a debt collection agency (however, see Sell Your Car With Us Ltd v Sareen in which the judge held that a creditor owed an undisputed debt has a right to petition the court for winding-up). It is therefore prudent for a creditor to issue a statutory demand before commencing winding-up proceedings, in order to establish an undisputed debt, unless a judgment debt is already established.

Section 122(1)(f) of the Insolvency Act 1986 (IA 1986) permits the court to wind up a company if it is unable to pay its debts. See Practice Note: Can you wind-up a company when the debt is disputed?

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Related legal acts:

• Insolvency Act 1986 (1986 c 45)

Key definition:

Winding-up petition definition, what does winding-up petition mean.

The formal court document by which one seeks the compulsory winding up of a company.

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Winding Up Petition Solicitors

London Insolvency Lawyers

Obtaining an Injunction to Restrain Presentation of Winding Up Petition

Any presentation of a winding up petition (whether merited or not) can put a business under extreme pressure but there are steps a company can take to either avoid the presentation of a petition or to prevent a winding-up petition being advertised .

Responding to a Statutory Demand:

The first thing the Company ought to realise is that it is now at risk of presentation of a winding-up petition being presented. The Company needs to quickly decide whether it disputes the debt, or has a cross claim or counterclaim. If the claim is valid it is important to pay the debt, if possible, taking into account any cross or counterclaim.

It may be a costly error to wait until the presentation of the petition to pay the debt.

Does the Statutory Demand contain Disputed Debts?

If the debt is disputed the Company or it’s lawyers should write a comprehensive letter of response to the demand for payment.  The letter should:

• Set out the grounds upon which the debt is disputed or the grounds of the cross or counterclaim.
• Explain that if a petition is presented an application will be made to strike it out as an abuse of process.
• Indicate that the company will seek its costs on an indemnity basis if an application is made to strike out.
• Ask the creditor to give an undertaking not to present the petition without prior notice.

Once the letter has been sent the Company should push for a response from the creditor as soon as possible.

Obtaining an Injunction to Prevent Presentation of a Winding-up Petition

If the creditor still intends to present a petition then the company has the option of applying to the court for an injunction to restrain the presentation of the petition. The court will only grant the application if there is prima facie evidence of a substantial and bone fide dispute, cross claim or counterclaim.

The application is made by originating application to the High Court. A form is available from the Insolvency Service website. It will normally need to be supported by a witness statement from either a director or an employee of the company. The statement should:

• Set out clearly and comprehensively the grounds upon which the debt is disputed.
• Exhibit evidence in the form of correspondence between the parties and contemporaneous documents.
• Contain a summary of the financial affairs of the company and include the latest balance sheet, profit and loss accounts and forecast.
• Ideally the hearing of the application should be on notice. If there is insufficient time it is possible to be without notice.

One way by which a party can seek to restrain the presentation of a winding up petition is to show that the debt underlying the possible winding up proceedings is disputed, possibly by showing that there is a possible defence to the claim.

Successful Applications to Restrain Winding-up Petitions

In a recent case,  Tallington Lakes Limited  –v-  South Kesteven District Council  [2012] EWCA civ 443 , Etherton LJ refused permission to appeal the decision of Norris J dismissing an application for an injunction to restrain the presentation of a winding-up petition. Since a judgment debt was not paid or satisfied until the judgment creditor was in possession of cleared funds, interest had continued to run on the outstanding liability owed by the creditor until the cheque payment had not cleared through the company’s account (and not the date on which it was sent to the petitioner), by which date the interest due exceeded £750.

 Lord Justice Etherton provided useful guidance as to when such an application may succeed:

“I have to emphasise, however, in this context that it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition and may be reached even if, on an application for summary judgment, the defence could be regarded “shadowy”.”

This is usefully guidance to parties defending or enforcing debts by means of statutory demands and winding up petitions in circumstances where it is possible that the debtor may have a defence, albeit a weak defence, in respect of the claimed debt. It is also useful guidance for parties seeking to restrain the presentation of winding up proceedings.

Obtaining an Injunction to Restrain Advertisement

If the petition has already been presented the company still has the option of  applying to the court to restrain the advert  which is to appear in the London Gazette and which will likely result in the business banking facilities being frozen.

Our Winding-Up Experts are able to give specialist legal information and advice relating to applications for injunctions to restrain winding-up petitions and the advertisement of the same. To contact one of our Solicitors or Barristers please  click here  or call 0845 8622 529.

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Introduction

Rather unfortunately, there are no statutory provisions available to a company to set aside a statutory demand. If a company is served with a statutory demand and disputes the alleged debt, save for agreeing with the alleged creditor not to present a winding-up petition, it has no alternative but to seek relief from the court and obtain an injunction restraining the presentation of a winding-up petition.

The judgment of Hung Yip (HK) Engineering Company Limited v Kunli Civil Engineering Limited [2021] HKCFI 153 (“ Hung Yip v Kunli ”) (handed down by the Honourable Mr. Justice Harris) helpfully reminds parties (including legal practitioners) of the distinct thresholds between (i) obtaining an injunction preventing the presentation of a winding-up petition, and (ii) determining the merits of a winding-up petition.

In Hung Yip v Kunli , the Defendant (the “ Creditor ”) sent 10 letters to the Plaintiff (the “ Company ”) (the last of which was dated 20 January 2020) demanding repayment of the sum of HK$4,773,651.63. The Company ignored all the letters which led to the Creditor serving a statutory demand on the Company on 21 February 2020.

Three days prior to the 21-day period for satisfying the statutory demand expiring, the Company replied to the Creditor’s previous letters and raised certain grounds to dispute the debt. His Lordship stated that this letter “fell far short of recording with sufficient specificity matters capable of constituting a bona fide dispute on substantial grounds” and “It reads like an attempt to construct excuses for non-payment” .  The Creditor replied on 4 March taking issue with the alleged grounds raised by the Company to dispute the debt.

At 11 a.m. on Saturday, 7 March, the Company sent a letter asking for confirmation by 10 a.m. on Sunday, 8 March that a winding-up petition would not be issued and warning that absent such confirmation an urgent application would be made for an injunction. Unsurprisingly, given the time the letter was sent, the Creditor’s solicitors did not reply and on Sunday, 8 March, the Company’s solicitors approached the Honourable Madam Justice Linda Chan who directed that a hearing be held at 9:30am on Monday, 9 March. Given the late notice, the Creditor’s solicitors did not attend and Her Ladyship granted an interim injunction restraining the presentation of a winding-up petition against the Company. A date for a substantive hearing was set, although the application was eventually dismissed by agreement.

Legal principles clarified

In handing down his Reasons for Decision, His Lordship emphasised that a company that wishes to restrain presentation of a winding-up petition is required to demonstrate that it is clear that presentation would be an abuse of process (rather than the lower threshold required to dispute a winding-up petition, namely the existence of a bona fide dispute of the debt on substantial grounds ). His Lordship stated “it does involve some element of impropriety in the sense of misuse of the procedure in s179 of the Ordinance for presentation of a petition to wind-up a company, particularly if the creditor knows that the debt is disputed on substantial grounds and issue of a petition is threatened with a view to asserting pressure to pay rather than out of a genuine concern as to a company’s solvency.  It is, however, well settled that there is nothing objectionable in principle to a creditor owed a debt that he believes cannot be disputed issuing a petition to wind-up a company he suspects is insolvent. This suggests that presentation of a petition relying on a debt genuinely believed to be payable is not an abuse even if a subsequent inquiry demonstrates that for a reason unknown to the creditor at the time the petition was issued there existed a bona fide defence on substantial grounds.”

To assist parties in future matters, His Lordship helpfully stated that in order to establish that presentation of a petition would be an abuse it is necessary for a company to adduce evidence that addresses the following matters:

• The debt and how it is alleged by the creditor to arise;
• When and how the debt has been disputed prior to presentation of the statutory demand and any application to the court for an injunction;
• What is said to be the bona fide defence on substantial grounds;
• The solvency of the company;
• Prejudice that will be caused by the presentation of the winding-up petition; and
• Whether or not it is asserted that the creditor is consciously using the threat of presentation of a winding-up petition improperly.

His Lordship noted that the same facts can often apply to both situations and on the facts of this matter concluded that an injunction should not have been granted because the Company had not shown a bona fide dispute on substantial grounds.  

There is little statutory protection against the presentation of a winding-up petition after a statutory demand has been served. There is also a high bar needed to show abuse of process to obtain an injunction restraining the presentation of a petition. Given the pressure that commencement of winding-up proceedings places on a company, it would be wise to discuss ways to restructure an outstanding debt and avoid a situation where statutory demand becomes necessary.

With respect to a creditor, it is important to understand your right to serve a statutory demand and/or winding-up petition. It is also important to evaluate all available information before proceeding to demonstrate that presenting a winding-up petition was not an abuse of process.  If unable to do so, you may be subject to an adverse costs order s for proceeding with the winding-up petition.

Sunny Hathiramani

If you would like to discuss any of the matters raised in this article, please contact:

Ian De Witt Partner |  E-mail

Robin Darton Partner |  E-mail

Sunny Hathiramani Partner |  E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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The Fate of Winding Up Petitions – Re: A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch)

On 1 June 2020, Morgan J granted ex parte application to restrain the presentation of a winding up petition by a landlord of its tenant company, a high street retailer.

The judgment can be read here.

The tenant had been required to close the premises from which it traded in accordance with the instructions from the Government in response to the Covid-19 pandemic. This resulted in a failure to pay rent and service charges.

The Landlord was unable to forfeit the lease due to Section 82 of the Coronavirus Act 2020. It therefore served a statutory demand in mid-April and subsequently e-filed a winding up petition. By the time of the hearing of the tenant company’s application, the court fee for the petition had not been paid and so the petition was not considered to have been presented yet.

The application to restrain the presentation of the petition was made on various grounds but focused on the provisions pertaining to winding up contained in Schedule 10 of the CIGB [see paragraphs 10 – 16 of the Judgment].

Amongst other provisions, the CIGB temporarily prevents creditors presenting winding up proceedings on or after 27 April 2020 on the basis of statutory demands served between 1 March 2020 to one month after the CIGB is enacted, unless the creditor can satisfy the court it has reasonable grounds for believing:

(1) coronavirus has not had a financial effect on the company; or

(2) the relevant ground (being the company’s inability to pay its debts) would apply even if coronavirus had not had a financial effect on the company.

The Judge placed considerable reliance on the fact that it was “most unlikely” that if the petition was presented, it would be heard before the CIGB came into force and that when enacted, the relevant provisions in Schedule 10 were to be regarded as having come into force on 27 April 2020.

In those circumstances, by the time the petition was heard, the Court’s decision would be taken pursuant to those provision. As a result, Morgan J reasoned at paragraph 18:

“This means that, on the hearing of the petition, a court must ask itself whether coronavirus has had a financial effect on the company before the presentation of the petition. If that is held to be the case, then the court can only wind up the company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) would have arisen even if coronavirus had not had a financial effect on the company. ”

• On the evidence, there was a strong case (at the lowest) that coronavirus had had a financial effect on the company before the presentation of the petition and, further, that the facts on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company [18]. The evidence also showed that the presentation of a petition which would ultimately fail would nonetheless have a seriously damaging effect on the company [19].
• The Judge held that when deciding whether to grant relief, the Court can take into account its assessment of the likelihood of a change in the law which would be relevant to its decision [24]. He also considered that the grant of an injunction to restrain the presentation of the petition is powerfully supported by the clear policy objectives of the CIG Bill [25].

The decision highlights the significance of the CIGB, not just for the elements which are to have retrospective effect but for the stringent conditions it imposes in respect of petitions and statutory demands.

The burden of establishing that the company subject to the petition falls within the narrow exceptions set out in Schedule 10 of the CIGB will lie with the petitioning creditor and it is likely to be a difficult one to discharge. It appears unlikely that it will be enough to simply show that a debt arose pre-Coronavirus.

It is also clear that attempting to get petitions presented before the coming into force of the CIGB is unlikely to be an effective tactic and such petitions will be liable to restraint. The Bill specifically addresses the fate of petitions presented since the end of April and this case endorses the ‘clear policy objectives’ behind the Bill, which it is safe to assume will be given significant weight by a Court considering any such petition.

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How to issue a winding up petition

Winding up petitions are sometimes also known as compulsory liquidation. In this guide, we explore why a winding up petition would be issued by creditors and what the process behind it is.

NOTE: Current restrictions arising from the Corporate Insolvency and Governance Act 2020 due to the Covid-19 pandemic currently prevent winding up petitions from being presented based on statutory demands that were served between 1st March 2020 until 31st March 2021 unless you can prove the pandemic has not affected the ability to pay the debt or the debt issue would have occurred regardless.

What is a winding up petition?

How long does a winding up petition take, who can issue a winding up petition.

• Why would a winding up petition be accepted and what are the other options?

Why would a creditor issue a winding up petition?

Apply for a winding up petition.

• Court hearing

Why could a winding up petition be dismissed?

After the hearing, who gets paid.

A winding up petition is the last resort option for creditors to try and claim some of the money they’re owed for debts above £750. Should you be successful in your application the debtor company will be brought to an end on the grounds that they’re unable to pay their debts.

The company is then liquidated meaning any assets the company have are sold and any money owed to them is collected. They are also required to settle any legal disputes and once all this is resolved debts are paid out to any creditors.

There is no fixed time but a guide of 8-10 weeks is a good approximation as to the length of the procedure from the initial search of the petition register to the hearing.

In order for a company to be wound up the debt owed to you must exceed £750 and you must be able to prove that they are unable to pay the debt. Normally this is following a statutory demand or county court judgement (CCJ).

Any creditor can issue a winding up petition as well as HMRC. Once other creditors are aware of the petition they can join or support once the relevant documentation has been presented.

Why wouldn’t a winding up petition be accepted and what are the other options?

Before the presentation of the winding up petition, it is wise to consider all other options as the court will want to see evidence that these options have been exhausted prior to accepting the petition.

A variety of alternatives may be available and this should only really be considered once if it really is the only option remaining. There several reasons why the court may reject the application and it is recommended that litigation or an alternative dispute resolution be considered first. An injunction may be appropriate if you fear that assets may be at risk of dissipation.

You will need to check if an insolvency procedure has already commenced. Failure to do so could leave you at risk of paying costs. If a petition has already been presented it may be appropriate to support the petition or if that doesn’t proceed you can attempt to substitute yourself as a new petitioner.

If a company has been dissolved prior to the petition you will need to seek an order to restore the debtor to the company register. The court has the power to backdate a petition where normally it would have been time-barred.

If there is a debt that has a genuine dispute or the company has a genuine right to set-off or cross-claim then there is a high risk of the petition failing. In these circumstances, the debtor may successfully apply for an injunction restraining the presentation of the petition in which case you may be liable for costs.

In the first instance, you should seek to recover the debts informally. If that fails you can formalise the process with a statutory demand . We talked about this process in our insight article on the matter. A statutory demand is written notice and allows the debtor to pay before the situation escalates.

There are 21 days for an agreement to be reached with the creditor either by agreeing on a payment structure or settling the debt. Failure to do so would give strong grounds to apply for a winding up petition as it shows they are unable to pay their debts so if you do intend on seeking a winding up petition this would be the logical first step. Other alternatives include:

County Court Summons

If the debtor refuses to pay a debt can instead instigate a county court claim. If the debtor does not acknowledge the summons then a default judgement (County Court Judgement – CCJ) may be granted or it if is challenged it may proceed to trial. In the case of a CCJ, this is something that will cause difficulties for the debtor in gaining credit for a minimum of 6 years whilst it is on the records.

Notice of Enforcement

Another option is to request a Notice of Enforcement from the court. This is a formal document which informs a debtor you are about to take action to recover the debt. Through the use of bailiffs, it gives the creditor the power to claim the company’s goods to raise funds at auction. A noteworthy point is that HMRC can use this process without having to go through the courts.

Controlled Goods Agreement

This process identifies goods that could be seized to raise funds to reduce the debt. A controlled goods agreement requires the debtor to sign and would grant them seven days to pay off the debt or the named goods will be seized. This is a legally binding document and they are not able to remove the named goods. If they do not sign the agreement the goods can be seized immediately.

As described a winding up petition should be considered a last resort after a creditor has visited all other options. Generally speaking, the reason to choose to go down this route is that there is no feasible way for the debtor to pay the money owed. Alternatively, it may doubt that the company is being run honestly so will want to initiate an investigation by insolvency practitioners.

Fees and deposit

In order to submit an application for a winding up petition the following payments need to be paid:

• Court fee – £280
• Receivers deposit – £1,600 This is the payment made for the winding up process to be managed by an Official Receiver
• Search Fee – £11 It is possible that you may not have to pay this fee if you have carried out a search of your own before presenting the petition

To apply you will need to fill in form Comp 1 and submit it to the appropriate court and the debtor company. However, as any mistakes in the process could result in the application being rejected and/or additional costs we strongly recommend seeking legal advice.

You will need to include details such as the contacts of the registered company and information about the debt as well as evidence that the company owes you money. For example, this could be that you have served a statutory demand or a court judgement that is still unpaid. Form Comp 2 is also required which sets out additional details.

After the application

You’ll receive a copy of the petition which you’ll need to serve to a company director or employee of the debtor company. You will need to use a Process Server (an individual who will carry out this process for you) as there are rules that must be followed to legally deliver the documents.

You will also be required to provide a certificate of service to the court confirming that you have successfully served the petition on the company.

Court Hearing

Once the petition has been accepted by the court you will receive confirmation of the hearing date. The court hearing is where both parties present before a judge where you will attempt to have the company wound and if successful, where the order will be issued.

Announce the hearing

You are required to formally announce the hearing which must include details of the date and time plus the details of which court the hearing will be held in. This is done in the following steps:

• Advertise the hearing in The Gazette a minimum of 7 working days in advance of the hearing confirming that the petition has been served. Publication must be done in a specific format and it allows other creditors to come forward.
• You must send a copy of the form Comp 3 a minimum of 5 working days in advance of the hearing which is a certificate of compliance showing that you have advertised in The Gazette.
• Finally, you will need to present an attendance list using form Comp 4 no later than 4.30 pm the day before the hearing.

Once the winding up petition has been seen by the debtor’s bank they will usually freeze accounts to prevent money from being moved out of the company in a process called dispossession.

During the hearing

In the hearing, the creditor will usually request that the debtor be wound-up however either party can ask for an adjournment to attempt to resolve the issue without the collapse of the company. There is also the possibility of requesting dismissal of the petition on the basis that the debt has already been paid (or an agreement has been made). The final option is for the judge to make an interim order before making the final order.

The simplest reason is that the debt has been paid or an agreement has been made and as such there would be no reason to make the order.

A key point is that the court will ensure that the correct procedure has been followed. Should this not have occurred it is a strong possibility that the winding up petition may be dismissed.

Another reason for dismissal is if the judge believes there may be an ulterior motive . A winding up petition should only be used as a process to recover debt and any misuse will result in it failing.

If the debt is unproven , i.e. there is a dispute over the debt then a judge may choose to dismiss the petition. Alternatively, it may be adjourned until the dispute has been settled.

If the winding up petition is a success then the court will issue the winding up order. This initiates the process of liquidation where an official receiver is put in charge to sell off the assets of the company allowing some of the company’s debts to be paid. At this point, any employees of the company will also be made redundant.

The judge will also make an order regarding the costs for both parties:

• If the petition is successful the court will usually make an order to award costs to the petitioner out of the assets of the company.
• If it is dismissed because the procedure was not correctly followed then costs the petitioner will not be entitled to costs.
• If the petition fails then the petitioner will usually be ordered to pay the debtor company’s costs.
• If the petition is dismissed because the debt is paid or an agreement has been reached then the court will usually order the debtor pays costs however for the petitioner to agree to dismissal then they will normally insist on costs being paid.

There is a priority list of who gets paid first as per the Insolvency Act 1986 :

• Secured creditors with a fixed charge – lenders such as banks with a charge over company property
• Preferential creditors – Examples include employees who are entitled to wages
• Secured creditors with a floating charge – This means a creditor who holds a charge over the company but not over a specific asset
• Unsecured creditors – Examples include suppliers, customers, HMRC and contractors
• Shareholders – should there be any remaining assets then these will be distributed amongst shareholders of the company

Do you require assistance with a winding up petition that you’d like to discuss with the team? We have offices in London and Hertfordshire and can arrange a call to provide some initial advice.

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Insolvency What is a Statutory Demand and what steps need to be taken? What are a director’s duties during the insolvency of a company?

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• Re: A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch)

Re: A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch) 05 June 2020

The Corporate Insolvency and Governance Bill 2020 ("the CIG Bill") is not yet in force. Or is it?

Mr Justice Morgan this week granted an urgent ex parte application to restrain the presentation of a winding up petition by a landlord of a high street retailer. It is understood a number of similar applications have been successful in recent weeks but heard in private without dissemination of any judgment, so this decision provides some clearer guidance for those advising parties whose rights are to be affected by the CIG Bill – or rather have already been affected.

The facts were familiar. The tenant had been required to close the demised premises “in accordance with the instructions from the Government in response to the Covid-19 pandemic”. It failed to pay rent and service charges. Unable to forfeit (by reason of s 82 of the Coronavirus Act 2020), the landlord served a statutory demand in mid-April 2020. It later E-filed a winding up petition but had not yet paid the relevant Court fee at the time of the tenant’s application.

The landlord relied on the ground contained in s 122(1)(f) of the Insolvency Act 1986 ("the 1986 Act"), namely that the tenant company was unable to pay its debts. Sections 123(1)(a),123(1)(e) or 123(2) of the 1986 Act were also likely to be engaged - though the petition itself was not before the Court. There is nothing to suggest the tenant’s liability for the debts was disputed.

The landlord argued (in correspondence - it was not represented at the hearing) that there was nothing to stop it from presenting the petition before the CIG Bill had been enacted, and that the petition’s disposal should not be pre-determined.

The tenant applied to restrain the petition on various grounds, focusing on the provisions pertaining to winding up contained in Schedule 10 to the CIG Bill.  

Materially:

• para 1 provides that no petition may be presented under s124 of the 1986 Act on or after 27 April 2020 on the ground specified in s123(1)(a) - (d) where the demand is served during the period 1 March 2020 to one month after the coming into force of schedule 10 ;
• para 2 provides for there to be restrictions on the presentation of winding up petitions:
• para 2(1) concerns petitions based on various grounds including the ground in s 123(1)(a) - (d) (statutory demand or process on a judgment returned unsatisfied)
• para 2(3) concerns petitions based on the ground in s 123(1)(e) (where the company is cash-flow insolvent) or s 123(2) (where the company is balance sheet insolvent);
• paras 1 and 2 are to be regarded as having come into force on 27 April 2020; 
• paras 2(1) 2(3) requires all petitioning creditors to satisfy the condition contained in para 2(2) /para 2(4) (the latter bears slightly different wording);
• the condition in para 2(2) is expressed as follows:

"(2) The condition referred to in sub-paragraph (1) is that the creditor has reasonable grounds for believing that— (a) coronavirus has not had a financial effect on the company, or (b) the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company."

• para 4 makes provision for petitions presented on or after 27 April 2020 but before the day on which schedule 10 comes into force. If a petition is presented without the condition in paragraph 2(2) or 2(4) being met, the Court may make such order as it thinks appropriate to restore the position to what it would have been if the petition had not been presented ;
• para 5 provides that where i) a petition was presented under s 124 between 1 March 2020 and one month after the coming into force of schedule 10, ii) is deemed insolvent,  and iii) it  appears to the Court that coronavirus had a financial effect on the company before the presentation of the petition, then the Court may wind the company up only if satisfied that the facts by reference to which that ground applies would have arisen even if coronavirus had not had a financial effect on the company. This paragraph is also to be regarded as having come into force on 27 April 2020.

The applicant relied on the well-established tenet that a winding up order is a class remedy which, if made, would harm the interests of the creditors generally and would confer no benefit on the landlord. It argued that the petition was an abuse of process and bound to fail – contending that this was a situation in which it was appropriate for the Court to take into account a forthcoming change in the law. It referred the Court to a number of ministerial statements as to the Government’s commitment to enact the legislation imminently.

Finally, the tenant argued that it should not be required to give a cross-undertaking in damages in relation to the injunction, drawing attention to a very recent (but unavailable) decision of Birrs J Travelodge Ltd v Prime Aesthetics Ltd  [2020] EWHC 1217 (Ch) in which he concluded that it was unlikely that the injunction would cause loss to the respondent petitioner for which the applicant company would not already be liable.

Morgan J granted the application on an interim basis on terms the tenant did provide the usual cross-undertaking in damages.

The judgment is short and worth reading in full ( https://www.bailii.org/ew/cases/EWHC/Ch/2020/1406.html ), but the headline points are as follows :

• were the petition to be presented, it would not realistically be heard before the CIG Bill came into force. Noting he was confident Schedule 10 would be enacted in more or less its current form, and receive Royal Assent by the end of June 2020, his Lordship reasoned:

“This means that, on the hearing of the petition, a court must ask itself whether coronavirus has had a financial effect on the company before the presentation of the petition. If that is held to be the case, then the court can only wind up the company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) would have arisen even if coronavirus had not had a financial effect on the company.”

• on the evidence that there was a strong case (at the lowest) that coronavirus had had a financial effect on the tenant before the presentation of the petition and, further, that the facts on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company. Any petition to wind up the company would likely fail, and further have a seriously damaging effect on the tenant in the menatime.
• when the Court is deciding whether to grant relief and, in particular, relief which involves the Court controlling or managing its own processes, it can take into account its assessment of the likelihood of a change in the relevant law: Hill v C A Parsons  [1972] Ch 305,  Sparks v Holland  [1997] 1 WLR 143 and  Travelodge . Travelodge pre-dated the publication of the CIG Bill and was apparently based solely on ministerial statements. A fortiori , by the instant application, the position with the CIG Bill was far clearer.
• Morgan J did not however share Birrs J’s approach to cross-undertakings. He referred to JSC Mezhdunarodniy Promyshlenniy Bank and another v Pugachev  [2016] 1 WLR 160  in which Lewison LJ rejected the submission  that a respondent had to show that was likely to be caused loss before a cross-undertaking should be required. The undertaking is regarded as the price that must be paid for the interim interference with a respondent’s freedom and necessarily before they have had an opportunity to give evidence about likely loss.

It is well established that the Court will restrain presentation of a winding up petition where it considers that presentation would be an abuse of process and/or that the petition is bound to fail:  Mann v Goldstein [1968] 1 WLR 1091. In the majority of cases this is engaged where the debt is disputed. As this case and Travelodge demonstrate, it is highly likely that many petitions, were they to be  presented now, would we liable to restraint.  Not only does the CIG Bill have retrospective effect, it explicitly prescribes the fate of petitions and statutory demands presented in recent weeks. In those circumstances it will not be easy for a creditor to argue a petition which does not meet the stringent conditions set out in the bill is not ‘bound to fail’, especially given the exacerbation of the usual consequences of presentation by the pandemic. This is consistent with clear extant Government policy [1] .

Further, establishing the condition contained in paras 2(1) 2(3) of Schedule 10 (i.e.  the facts on which the petition is based would have arisen even if coronavirus had not had a financial effect on the company) is plainly going to be forensically tough – and it is probably not enough (though each case will turn on its facts) simply to show that a debt arose pre-pandemic.

Interestingly, Alok Sharma was pressed on this at the second reading. One MP (who happened to declare an interest) remarked:

“One wonders how, in the current health climate, the creditor will be able to show that this test has been met. Could the Minister enlighten us? Will there be a series of tests to be met, or will this all have to be fleshed out by the judiciary and the courts, which is presumably not the intention? Again, this provision is to be retrospective, so we could have a number of void petitions out there at the moment. Can the Minister advise us how many we are likely to be talking about?”

He went on to state the retrospective effect of the CIG Bill would ‘undermine confidence in our economy’ and suggested ‘state meddling in the marketplace could have serious negative implications for credit and business’. The effect was however broadly welcomed by others and survives intact.

Following the third reading of the CIG Bill on 3 June there are in fact no amendments to Schedule 10.

Having lost another means of leverage, many landlords will now be eager to see whether the Government’s forthcoming “code of practice” [2] aimed at facilitating resolution of disputes with high street business tenants will have any “teeth” – especially those landlords of recalcitrant tenants who might well be able to pay something but are withholding rent and not engaging.

The CIG Bill will be the subject of a forthcoming Zoominar hosted by Cecily Crampin and Camilla Chorfi. Details will be posted shortly on the Falcon Chambers page. In the meantime,

detailed guidance can now be found  at https://www.gov.uk/government/publications/corporate-insolvency-and-governance-bill-2020-factsheets .

Camilla Chorfi

5 June 2020

[1] See the announcement on 23 April 2020[1] entitled ‘New measures to protect UK high street from aggressive rent collection and closure’

[2] https://www.gov.uk/government/news/government-to-publish-code-of-practice-with-commercial-sector-in-boost-to-high-street?utm_content=immediate +.

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Winding-Up Petition Injunctions

Home » Solicitors for business » Corporate Insolvency » Winding-Up Petition Injunctions

Injunction to restrain the presentation / advertisement of a winding-up petition

If your company has been served with a statutory demand and is being threatened with the presentation of a winding-up petition, you can apply to the court for an injunction to restrain the presentation of the petition. If you have already been served with a winding-up petition, you can apply to the court for an injunction to restrain the advertisement of that winding-up petition.

There is a cost for these applications and it is important to take advice on your likelihood of success. Before making the application, another option is to write to the other side in response to the statutory demand explaining the steps that will be taken if the winding-up petition is presented.

The court will only grant an injunction to restrain the presentation or advertisement of a winding-up petition if it is satisfied that there is a bona fide and substantial dispute over the debt. This means that you will need to demonstrate that you have a genuine reason to dispute the debt claimed.

An application is made by submitting a form and supporting witness statement to the High Court. This witness statement should set out clearly the grounds on which the debt is disputed; exhibit evidence and contain a summary of the financial affairs of the company.

COVID-19 Update

Please note the current restrictions in place on the presentation of winding-up petitions pursuant to the Corporate Insolvency and Governance Act 2020 –

Winding-up petitions cannot be presented on the basis of a statutory demand that was served between 1 March 2020 and 31 December 2020; and

Winding-up petitions cannot be presented between 1 March 2020 and 31 December 2020 based on the company’s inability to pay its debts, unless the petitioner has reasonable grounds for believing that COVID-19 has not had a financial effect on the company.

Take Early Advice

When faced with the threat of the presentation or advertisement of a winding-up petition, it is important to take legal advice early in order to take the most suitable course of action and comply with strict deadlines.

If you would like advice on the options available to you, please get in touch with Farleys’ insolvency team on 01254606008 .

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• Procedure rules
• Rules & Practice Directions
• PRACTICE DIRECTION – INSOLVENCY PROCEEDINGS

Contents of this Practice Direction

PART ONE: GENERAL PROVISIONS

1.  definitions.

1.1 In this Practice Direction, which shall be referred to as the “IPD”, the following definitions will apply:

(1) The “Act” means the Insolvency Act 1986 and includes the Act as applied to limited liability partnerships by the Limited Liability Partnerships Regulations 2001 or as applied to any other person or body by virtue of the Act or any other legislation;

(2) The “Insolvency Rules” means the rules for the time being in force and made under s.411 and s.412 of the Act in relation to Insolvency Proceedings (currently The Insolvency (England and Wales) Rules 2016, as amended), and, save where otherwise provided, any reference to a ‘rule’ is to a rule in the Insolvency Rules;

(3) “CPR” means the Civil Procedure Rules and “CPRPD” means a Civil Procedure Rules Practice Direction;

(4) “EU Regulation on Insolvency Proceedings” means either the Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings or the Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (known as the “Recast” EU Insolvency Regulation), as applicable

(5) “Service Regulation” means Council Regulation (EC) No. 1393/2007 or such successor regulation as may come into force replacing Council Regulation (EC) No. 1393/2007 concerning the service in the Member States of judicial and extrajudicial documents in civil and commercial matters;

(6) “Insolvency proceedings” means:

(a) any proceedings under Parts 1 to 11 of the Act, the Insolvency Rules, the Administration of Insolvent Estates of Deceased Persons Order 1986 (S.I. 1986 No.1999), the Insolvent Partnerships Order 1994 (S.I. 1994 No. 2421) or the Limited Liability Partnerships Regulations 2001;

(b) any proceedings under the EU Regulation on Insolvency Proceedings or the Cross-Border Insolvency Regulations 2006 (SI 2006/1030); and

(c) in an insolvency context an application made pursuant to s.423 of the Act.

(7) References to a ‘company’ include a limited liability partnership and references to a ‘contributory’ include a member of a limited liability partnership;

(8) The following judicial definitions apply:

(a) “District Judge” means a person appointed a District Judge under s.6(1) of the County Courts Act 1984;

(b) “District Judge Sitting in a District Registry” means a District Judge sitting in an assigned District Registry having insolvency jurisdiction as a District Judge of the High Court under s.100 of the Senior Courts Act 1981;

(c) “Circuit Judge” means a judge sitting pursuant to s.5(1)(a) of the County Courts Act 1984;

(d) “ICC Judge” means a person appointed to the office of Insolvency and Companies Court Judge (previously, Registrar in Bankruptcy) under s.89(1) of the Senior Courts Act 1981;

(e) “High Court Judge” means a High Court Judge listed in s.4(1) of the Senior Courts Act 1981.

(9) The definitions in paragraph 1.1(8) include Deputies unless otherwise specified and Deputies are defined as meaning, for each definition above respectively, a deputy District judge appointed under s.8 of the County Courts Act 1984, a deputy District Judge of the High Court appointed under s.102 of the Senior Courts Act 1981, a deputy Circuit Judge appointed under s.24 of the Courts Act 1971, a deputy ICC Judge appointed under s.91 of the Senior Courts Act 1981, and a judicial office holder acting as a judge of the High Court under s.9(1) of the Senior Courts Act 1981 or a deputy judge of the High Court appointed under s.9(4) of the Senior Courts Act 1981;

(10) “Court” means the High Court or any County Court hearing centre having insolvency jurisdiction;

(11) “Royal Courts of Justice” means the Business and Property Courts of England and Wales at the Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NL.

(12) In part six of this IPD “assessor” means a person appointed as an assessor under s.70 of the Senior Courts Act 1981 or s.63 of the County Courts Act 1984] as an assessor.

2.  Coming into force

2.1 This IPD shall come into force on 4 July 2018 and shall replace all previous Practice Directions, Practice Statements and Practice Notes relating to insolvency proceedings.  This IPD does not affect PDs 51P – Pilot for Insolvency Express Trials, and for the avoidance of doubt, does not affect the PD for Directors’ Disqualification Proceedings.

2.2 If at the date of commencement of this IPD, a petition or application within or for the commencement of insolvency proceedings has already been listed for a hearing at a County Court hearing centre and such County Court hearing centre would otherwise have had jurisdiction to hear and determine that petition or application as at 24 th April 2018, paragraph 3 of this IPD shall not apply and a judge at that hearing centre may proceed to determine that petition or application, unless the court considers or the parties agree that it would be appropriate to transfer the petition or application in line with paragraph 3.6 in any event, in which case paragraphs 3.8-3.10 may be considered.

3.  Distribution of business

3.1 In the High Court, all petitions and applications, save where paragraph 3.2 below provides otherwise, should be listed for an initial hearing before an ICC Judge in the Royal Courts of Justice, or a District Judge Sitting in a District Registry.

3.2 The following applications relating to insolvent companies or insolvent individuals must be listed before a High Court Judge:

(1) applications for committal for contempt; and

(2) applications for a search order (CPR 25.1(1)(h)) and a freezing order (CPR 25.1(1)(f)).

3.3 The following applications relating to insolvent companies or insolvent individuals may be listed before a High Court Judge or ICC Judge but, subject to paragraph 3.4 below, not before a District Judge Sitting in a District Registry or a District Judge:

(1) applications for an administration order;

(2) applications for an injunction pursuant to the Court’s inherent jurisdiction (e.g. to restrain the presentation or advertisement of a winding up petition);

(3) interim applications and applications for directions or case management after any proceedings have been referred or adjourned to the High Court Judge;

(4) applications for the appointment of a provisional liquidator; and

(5) applications for an injunction (other than those referred to in paragraph 3.2(2) above) pursuant to s.37 of the Senior Courts Act 1981, including an ancillary order under CPR 25.1(1)(g).

3.4  The following applications relating to insolvent companies or insolvent individuals may be listed before a District Judge Sitting in a District Registry only with the consent of the Supervising Judge for the circuit in which the District Judge is sitting, or with the consent of the Supervising Judge’s nominee:

(1) applications pursuant to the Court’s inherent jurisdiction (e.g. to restrain the presentation or advertisement of a winding up petition);

(2) interim applications and applications for directions or case management after any proceedings have been referred or adjourned to a High Court Judge.

3.5 When deciding whether to hear and determine proceedings or to refer or adjourn them to a different level of judge, regard must be had to the following factors:

(1) whether the proceedings raise new or controversial points of law or have wide public interest implications;

(2) which venue can provide the earliest date for the hearing;

(3) the likely length of the hearing; and/or

(4) whether the petition or application includes or is likely to include matters that must be heard by a High Court Judge under paragraph 3.2 above.

3.6 Where an application or petition for the commencement of insolvency proceedings, or any application or petition within existing insolvency proceedings, is issued in a County Court hearing centre having insolvency jurisdiction, unless the application or petition is Local Business, the application or petition but more usually the entirety of those insolvency proceedings shall be transferred:

(a) to a County Court hearing centre having insolvency jurisdiction located at a Business and Property Court in the same circuit; or

(b) to the Central London County Court if the application or petition was issued in a County Court hearing centre located in the South-Eastern circuit; or

(c) to one of the specialist centres specified in a list published from time to time by the Chancellor of the High Court or their nominee, and located in the same circuit as the hearing centre in which the application or petition was issued,

and be listed before a judge specialising in Business and Property Courts work as defined in paragraph 4.4 of the Business and Property Courts Practice Direction (the “specialist judge”). (The current list of specified specialist centres may be found at https://www.judiciary.uk/insolvency-proceedings-practice-direction-specified-specialist-hearing-centres/).

3.7 For the purpose of paragraph 3.6 Local Business means (i) applications to set aside statutory demands; (ii) unopposed creditors’ winding up petitions; (iii) unopposed bankruptcy petitions; (iv) applications for income payment orders; (v) applications for and the conduct of public and private examinations; (vi) warrants for arrest in connection with the conduct of public or private examinations; (vii) claims for possession by an office-holder against a bankrupt (whether or not the bankrupt has been discharged); (viii) claims falling under the Trusts of Land and Appointment of Trustees Act 1996 (notwithstanding the application of section 335A of the Act); (ix) claims for the granting or enforcement of charging orders pursuant to section 313 of the Act; (x) unopposed applications by the Official Receiver to suspend discharge from bankruptcy, and if the application transpires to be opposed, any application by the Official Receiver for an interim suspension pending the matter being heard following its transfer pursuant to paragraph 3.6 above; and (xi) applications for debt relief orders under Part 7A of the Act Such Local Business may be heard and determined by any judge in the County Court hearing centre in which those insolvency proceedings were issued, unless such a judge considers that it would be appropriate to transfer them in accordance with paragraph 3.6 in any event.

3.8 Where insolvency proceedings are transferred under paragraph 3.6 or 3.7, they shall be listed for review on paper before a specialist judge in the receiving court as soon as possible. The specialist judge shall determine of their own initiative where the application (or any part of it) can most fairly be determined having regard to (i) the nature and complexity of the issues; (ii) the amounts involved in the insolvency proceedings or insolvency application; (iii) the location and needs of the parties; (iv) the available judicial resources; and (v) all the other circumstances of the case. The specialist judge shall take into account any views of the transferring judge and those of the parties to the application expressed in writing (without the need for evidence).

3.9 The options available to the specialist judge include (but are not limited to):

(a) Retaining the entirety of the insolvency proceedings in the receiving court;

(b) Retaining the entirety of the insolvency proceedings in the receiving court but fixing the venue of any hearing before a specialist judge at some other hearing centre or by some means other than a physical hearing;

(c) Returning the insolvency proceedings to the sending court to be dealt with as if it were Local Business;

(d) Retaining the insolvency proceedings in the receiving court but transferring some part back for hearing or for management and hearing in the sending court as if it were Local Business.

3.10 The case management decision about transfer shall be recorded in an order made of the specialist judge’s own initiative.

4.  Court documents

4.1 All insolvency proceedings should be commenced and applications in insolvency proceedings should be made using the information prescribed by the Act, Insolvency Rules, the Business and Property Courts Practice Direction and/or other legislation under which the same is or are brought or made. Some forms relating to insolvency proceedings may be found at:

http://hmctsformfinder.justice.gov.uk/HMCTS/GetForms.do?court_forms_category=Bankruptcy%20and%20Insolvency

5. Service of Court documents in insolvency proceedings

5.1 Schedule 4 to the Insolvency Rules prescribes the requirements for service where a Court document is required to be served pursuant to the Act or the Insolvency Rules.  Pursuant to Schedule 4, CPR Part 6 applies except where Schedule 4 provides otherwise, or the court otherwise approves or directs.

5.2 Subject to the Court approving or directing otherwise, CPR Part 6 applies to the service of Court documents both within and out of the jurisdiction.

5.3 Attention is drawn to paragraph 6 of Schedule 4 to the Insolvency Rules which provides that where the Court has directed that service be effected in a particular manner, the certificate of service must be accompanied by a sealed copy of the order directing such manner of service.

5.4 The provisions of CPR Part 6 are modified by Schedule 4 to the Insolvency Rules in respect of certain documents. Reference should be made to the “Table of requirements for service” in Schedule 4. Notable modifications relate to the service of: (a) a winding up petition; and (b) an application for an administration order.

5.5 A statutory demand is not a Court document.

6.  Drawing up of orders

6.1 The parties are responsible for drawing up all orders, unless the Court directs otherwise. Attention is drawn to CPRPD 40B 1.2 and the Chancery Guide. All applications should be accompanied by draft orders.

7.  Urgent applications

7.1 In the Royal Courts of Justice the ICC Judges and the High Court Judges (and in other Courts exercising insolvency jurisdiction the High Court Judges, District Judges Sitting in a District Registry and District Judges) will hear urgent applications and time-critical applications as soon as reasonably practicable. This may involve delaying the hearing of another matter. Accordingly, parties asking for an application to be dealt with urgently must be able to justify the urgency with reasons.

PART TWO: COMPANY INSOLVENCY

8.  administrations.

8.1 Attention is drawn to paragraph 2.1 of the Electronic Practice Direction 51O -The Electronic Working Pilot Scheme, or to any subsequent Electronic Practice Direction made after the date of this IPD, where a notice of appointment is made using the electronic filing system. For the avoidance of doubt, and notwithstanding the restriction in sub-paragraph (c) to notices of appointment made by qualifying floating charge holders, paragraph 2.1 of the Electronic Practice Direction 51O shall not apply to any filing of a notice of appointment of an administrator outside Court opening hours, and the provisions of Insolvency Rules 3.20 to 3.22 shall in those circumstances continue to apply.

8.2 Paragraph 5.4 of the Electronic Practice Direction 510 provides that ‘the date and time of payment’ will be the filing date and time and ‘it will also be the date and time of issue for all claim forms and other originating processes submitted using Electronic Working’.

8.3 In the absence of special circumstances, an application for the extension of an administration should be made not less than one month before the end of the administration. The evidence in support of any later application must explain why the application is being made late. The Court will consider whether any part of the costs should be disallowed where an application is made less than one month before the end of the administration.

9.  Winding up petitions

9.1. Where a winding up petition is presented following service of a statutory demand, the statutory demand must contain the information set out in rule 7.3 of the Insolvency Rules and should, as far as possible, follow the form which appears at https://www.gov.uk/government/publications/demand-immediate-payment-of-a-debt-from-a-limited-company-form-sd1.

9.2 Before presenting a winding up petition, the creditor must conduct a search to ensure that no petition is pending. Save in exceptional circumstances a second winding up petition should not be presented whilst a prior petition is pending. A petitioner who presents a petition while another petition is pending does so at risk as to costs.

9.3 Payment of the fee and deposit

9.3.1 Unless the petition is one in respect of which rule 7.7(2)(b) of the Insolvency Rules applies, a winding up petition will not be treated as having been presented until the Court fee and official receiver’s deposit have been paid.

9.3.2 A petition filed electronically without payment of the deposit will be marked “private” and will not be available for inspection until the deposit has been paid. The date of presentation of the petition will accord with the date on which the deposit has been paid. If the official receiver’s deposit is not paid within 7 calendar days after filing the petition, the petition will not be accepted, in accordance with paragraph 5.3 of the Electronic Practice Direction 510 -The Electronic Working Pilot Scheme. If a petition is not accepted, a new petition will have to be filed if the petitioner wishes to wind up a company.

9.3.3 The deposit will be taken by the Court and forwarded to the official receiver. In the Royal Courts of Justice the petition fee and deposit should be paid by cheque, or by debit or credit card over the phone. The Court will record the receipt and will impress two entries on the original petition, one in respect of the Court fee and the other in respect of the deposit. In a District Registry or a County Court hearing centre, the petition fee and deposit should be paid to the staff of the duly authorised officer of the Court, who will record its receipt.

9.3.4 If payment is made by cheque, it should be made payable to ‘HM Courts and Tribunals Service’ or ‘HMCTS’. For the purposes of paragraph 9.3 of this IPD, the deposit will be treated as paid when the cheque  is received by the Court.

9.4 Save where by reason of the nature of the company or its place of incorporation the information cannot be stated (in which case as much similar information as is available should be given), every creditor’s winding up petition must (in the case of a company) contain the information set out in rule 7.5. Similar information (so far as is appropriate) should be given where the petition is presented against a partnership.

9.5 Where the petitioning creditor relies on failure to pay a debt, details of the debt relied on should be given in the petition (whether or not they have been given in any statutory demand served in respect of the debt), including the amount of the debt, its nature and the date or dates on or between which it was incurred.

9.6 The statement of truth verifying the petition in accordance with rule 7.6 should be made no more than ten business days before the date of issue of the petition.

9.7 Where the company to be wound up has been struck off the register, the petition should state that fact and include as part of the relief sought an order that it be restored to the register. Save where the petition has been presented by a Minister of the Crown or a government department, evidence of service on the Government Legal Department or the Solicitor for the Affairs of the Duchy of Lancaster or the Solicitor to the Duchy of Cornwall (as appropriate) should be filed exhibiting the bona vacantia waiver letter.

9.8 Notice of the petition

9.8.1 The provisions contained in Chapter 4 of Part 1 and in particular rule 7.10 must be followed (unless waived by the Court). These provisions are designed to preserve the sanctity of the class remedy in any given winding up by the Court. Failure to comply with rule 7.10 may lead to summary dismissal of the petition on the return date. If the Court, in its discretion, grants an adjournment, this will usually be on terms that notice of the petition is gazetted or otherwise given in accordance with the Insolvency Rules in due time for the adjourned hearing. No further adjournment to comply with rule 7.10 will normally be given.

9.8.2 Copies of every notice gazetted in connection with a winding up petition, or where this is not practicable a description of the form and content of the notice, must be lodged with the Court as soon as possible after publication and in any event not later than five business days before the hearing of the petition. This direction applies even if the notice is defective in any way (e.g. is published on a date not in accordance with the Insolvency Rules, or omits or misprints some important words) or if the petitioner decides not to pursue the petition (e.g. on receiving payment).

9.8.3 Attention is drawn to the requirement to give notice of the dismissal of a petition under rule 7.23(1). The Court will usually, on request, dispense with the requirement where (a) presentation of the petition has not previously been gazetted or (b) the company has become the subject of some supervening insolvency process, or (c) the company consents.

9.9 Errors in petitions

9.9.1 Applications for permission to amend errors in petitions which are discovered after a winding up order has been made should be made to the member of Court staff in charge of the winding up list in the Royal Courts of Justice or to a District Judge Sitting in a District Registry or District Judge.

9.9.2 Where the error is an error in the name of the company, the member of Court staff in charge of the winding up list in the Royal Courts of Justice or a District Judge Sitting in a District Registry or District Judge may make any necessary amendments to ensure that the winding up order is drawn up with the correct name of the company inserted. If there is any doubt, e.g. where there might be another company in existence which could be confused with the company to be wound up, the member of Court staff in charge of the winding up list will refer the application to an ICC Judge at the Royal Courts of Justice. A District Judge Sitting in a District Registry or District Judge may refer the matter to a High Court Judge.

9.9.3 Where it is discovered that the company has been struck off the Register of Companies prior to the winding up order being made, the petition must be restored to the list as soon as possible to enable an order for the restoration of the name to be made as well as the order to wind up and, save where the petition has been presented by a Minister of the Crown or a government department, evidence of service on the  Government Legal Department or the Solicitor for the Affairs of the Duchy of Lancaster or the Solicitor to the Duchy of Cornwall (as appropriate) should be filed exhibiting the bona vacantia waiver letter.

9.10 Rescission of a winding up order

9.10.1 A request to rescind a winding up order must be made by application.

9.10.2 The application must be made within five business days after the date on which the order was made, failing which it should include an application to extend time pursuant to Schedule 5 to the Insolvency Rules. Notice of any such application must be given to the petitioning creditor, any supporting or opposing creditor, any incumbent insolvency practitioner and the official receiver.

9.10.3 An application to rescind will only be entertained if made by a (a) creditor, or (b) contributory, or (c) by the company jointly with a creditor or with a contributory. The application must be supported by a witness statement which should include details of assets and liabilities and (where appropriate) reasons for any failure to apply within five business days.

9.10.4 In the case of an unsuccessful application, the costs of the petitioning creditor, any supporting or opposing creditor, any incumbent insolvency practitioner and the official receiver will normally be ordered to be paid by the creditor or the contributory making or joining in the application. The reason for this is that if the costs of an unsuccessful application are made payable by the company, those costs will inevitably fall on the general body of creditors.

9.11 Validation orders

9.11.1 A company against which a winding up petition has been presented may apply to the Court after the presentation of a petition for relief from the effects of s.127(1) of the Act, by seeking an order that a certain disposition or dispositions of its property, including payments out of its bank account (whether such account is in credit or overdrawn), shall not be void in the event of a winding up order being made at the hearing of the petition (a validation order).

9.11.2 Save in exceptional circumstances, notice of the making of the application should be given to: (a) the petitioning creditor; (b) any person entitled to receive a copy of the petition pursuant to rule 7.9; (c) any creditor who has given notice to the petitioner of their intention to appear on the hearing of the petition pursuant to rule 7.14; and (d) any creditor who has been substituted as petitioner pursuant to rule 7.17. Failure to do so is likely to lead to an adjournment of the application or dismissal.

9.11.3 The application should be supported by a witness statement which should be made by a director or officer of the company who is intimately acquainted with the company’s affairs and financial circumstances. If appropriate, supporting evidence in the form of a witness statement from the company’s accountant should also be produced.

9.11.4 The extent and content of the evidence will vary according to the circumstances and the nature of the relief sought, but in the majority of cases it should include, as a minimum, the following information:

(1) when and to whom notice has been given in accordance with paragraph 9.11.2 above;

(2) the company’s registered office;

(3) the company’s capital;

(4) brief details of the circumstances leading to presentation of the petition;

(5) how the company became aware of presentation of the petition;

(6) whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;

(7) full details of the company’s financial position including details of its assets (and including details of any security and the amount(s) secured) and liabilities, which should be supported, as far as possible, by documentary evidence, e.g. the latest filed accounts, any draft audited accounts, management accounts or estimated statement of affairs;

(8) a cash flow forecast and profit and loss projection for the period for which the order is sought;

(9) details of the dispositions or payments in respect of which an order is sought;

(10) the reasons relied on in support of the need for such dispositions or payments to be made prior to the hearing of the petition;

(11) any other information relevant to the exercise of the Court’s discretion;

(12) details of any consents obtained from the persons mentioned in paragraph 9.11.2 above (supported by documentary evidence where appropriate);

(13) details of any relevant bank account, including its number and the address and sort code of the bank at which such account is held, and the amount of the credit or debit balance on such account at the time of making the application.

9.11.5 Where an application is made urgently to enable payments to be made which are essential to continued trading (e.g. wages) and it is not possible to assemble all the evidence listed above, the Court may consider granting limited relief for a short period, but there should be sufficient evidence to satisfy the Court that the interests of creditors are unlikely to be prejudiced by the grant of limited relief.

9.11.6 Where the application involves a disposition of property, the Court will need details of the property (including its title number if the property is land) and to be satisfied that any proposed disposal will be at a proper value. Accordingly, an independent valuation should be obtained and exhibited to the evidence.

9.11.7 The Court will need to be satisfied by credible evidence either that the company is solvent and able to pay its debts as they fall due or that a particular transaction or series of transactions in respect of which the order is sought will be beneficial to or will not prejudice the interests of all the unsecured creditors as a class.

9.11.8 A draft of the order sought should be attached to the application.

9.11.9 Similar considerations to those set out above are likely to apply to applications seeking ratification of a transaction or payment after the making of a winding up order.

10.  Applications

10.1 In accordance with rule 12.2(2), in the Royal Courts of Justice an officer acting on behalf of the operations manager or chief clerk has been authorised to deal with applications:

(1) to extend or abridge time prescribed by the Insolvency Rules in connection with winding up;

(2) for permission to withdraw a winding up petition (rule 7.13);

(3) made by the official receiver for a public examination (s.133(1)(c) of the Act), where no penal notice is endorsed and no unless order is made;

(4) made by the official receiver to transfer proceedings from the High Court to a specified hearing centre within the meaning of rule 12.30;

(5) to list a hearing for directions with a time estimate of 30 minutes or less in circumstances where both parties are represented without reference to an ICC Judge;

(6) for a first extension of time to serve a bankruptcy petition.

10.2 Outside of the Royal Courts of Justice, applications listed in paragraph 10.1 must be made to a District Judge Sitting in a District Registry or in the County Court to a District Judge.

10.3 Where an application is made by an official receiver in respect of the matters listed in paragraph 10.1(4) above, the official receiver must comply with rule 12.32 and give any incumbent office-holder 14 days’ written notice of the application.

PART THREE: PERSONAL INSOLVENCY

11. statutory demands.

11.1 Rule 10.1 prescribes the contents of a statutory demand. An example of a statutory demand may be found at:

11.2 . Rule 10.2 applies to service of a statutory demand whether within or out of the jurisdiction. If personal service is not practicable in the particular circumstances, a creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention. This could include taking those steps set out at paragraph 12.7 below which justify the Court making an order for service of a bankruptcy petition other than by personal service. It may also include any other form of physical or electronic communication which will bring the statutory demand to the notice of the debtor.

11.3 A creditor wishing to serve a statutory demand out of the jurisdiction in a foreign country with an applicable civil procedure convention (including the Hague Convention) may and, if the assistance of a British Consul is desired, must adopt the procedure prescribed by CPR rule 6.42 and CPR rule 6.43. In the case of any doubt whether the country is a ‘convention country’, enquiries should be made of the Foreign Process Section of the King’s Bench Division, Room E16, Royal Courts of Justice, Strand, London WC2A 2LL.

11.4 Setting aside a statutory demand

11.4.1 The application and witness statement in support of setting aside a statutory demand, exhibiting a copy of the statutory demand, must be filed in Court within 18 days of service of the statutory demand on the debtor. The time limits are different if the statutory demand has been served out of the jurisdiction: see rule 10.1(10).

11.4.2 A debtor who wishes to apply to set aside a statutory demand after the expiration of 18 days, or if service is out of the jurisdiction, after the expiration of the time limit specified by rule 10.1(10)(a) from the date of service of the statutory demand, must apply for an extension of time within which to apply to set aside the statutory demand. The witness statement in support of the application to set aside statutory demand should also contain evidence in support of the application for an extension of time and should state that to the best of the debtor’s knowledge and belief the creditor(s) named in the statutory demand has/have not presented a bankruptcy petition.

11.4.3 Unless the Court to which the application to set aside is made operates Electronic Filing and Electronic Practice Direction 51O applies, the following applies:

(1)  Three copies of each document must be lodged with the application, to enable the Court to serve notice of the hearing date on the applicant, the creditor and the person named under rule 10.1(3).

(2) Where copies of the documents are not lodged with the application, any order of the Court fixing a venue is conditional upon copies of the documents being lodged on the next business day after the Court’s order, otherwise the application will be deemed to have been dismissed.

11.4.4 Where the debt claimed in the statutory demand is based on a judgment, order, liability order, costs certificate, tax assessment or decision of a tribunal, the Court will not at this stage inquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment, order, decision, costs certificate or any appeal.

11.4.5 The Court will determine an application to set aside a statutory demand in accordance with rule 10.5.

11.4.6 Attention is drawn to the power of the Court to decline to file a petition if there has been a failure to comply with the requirement of rule 10.2.

12. Bankruptcy petitions

12.1 All petitions presented will be listed under the name of the debtor unless the Court directs otherwise.

12.2 Content of petitions

12.2.1 The attention of Court users is drawn to the following points:

(1)  A creditor’s petition does not require dating, signing or witnessing, but must be verified in accordance with rule 10.10.

(2)  In the heading, it is only necessary to recite the debtor’s name e.g. Re John William Smith or Re J W Smith (Male). Any alias or trading name will appear in the body of the petition.

12.2.2 Where the petition is based solely on a statutory demand, only the debt claimed in the demand may be included in the petition.

12.2.3 The attention of Court users is also drawn to rules 10.8 and 10.9, where the ‘aggregate sum’ is made up of a number of debts.

12.2.4 The date of service of the statutory demand should be recited as follows:

(1)  Where the demand has been served personally, the date of service as set out in the certificate of service.

(2)  Where the demand has been served other than personally, the date as set out in the certificate of service filed in compliance with rule 10.3.

12.3 Searches

12.3.1 The petitioning creditor shall, before presenting a petition, conduct an Official Search with the Chief Land Registrar in the register of pending actions for pending petitions presented against the debtor and shall include the following certificate at the end of the petition:

“I/we certify that within 7 days ending today, I/we have conducted a search for pending petitions presented against the debtor and that to the best of my/our knowledge, information, and belief [no prior petitions have been presented which are still pending]  [a prior petition (No [        ]) has been presented and is/may be pending in the [              Court] and I/we am/are issuing this petition at risk as to costs].Signed…..Dated….”.

12.4 The deposit

12.4.1 A bankruptcy petition will not be treated as having been presented until the Court fee and official receiver’s deposit have been paid. A petition filed electronically without payment of the deposit will be marked “private” and will not be available for inspection until the deposit has been paid. The date of presentation of the petition will accord with the date on which the deposit has been paid. If the official receiver’s deposit is not paid within 7 calendar days after filing the petition, the petition will not be accepted, in accordance with paragraph 5.3 of the Electronic Practice Direction 51O -The Electronic Working Pilot Scheme.

12.4.2 The deposit will be taken by the Court and forwarded to the official receiver. In the Royal Courts of Justice the petition fee and deposit should be paid by cheque, or by debit or credit card over the phone. In a District Registry or a County Court hearing centre, the petition fee and deposit should be handed to the staff of the duly authorised officer of the Court who will record its receipt. For the purposes of paragraph 12.4.1 above, the deposit will be treated as paid when received by the Court.

12.4.3 If payment is made by cheque, it should be made payable to ‘HM Courts and Tribunals Service’ or ‘HMCTS’. For the purposes of paragraph 12.4 of this IPD, the deposit will be treated as paid when the cheque is received by the Court

12.5 Certificates of continuing debt and of notice of adjournment

12.5.1 At the final hearing of a petition, the Court will need to be satisfied that the debt on which the petition is founded has not been paid or secured or compounded. The Court will normally accept as sufficient evidence a certificate signed by the person representing the petitioning creditor in the following form:

“I certify that I have/my firm has made enquiries of the petitioning creditor(s) within the last business day prior to the hearing/adjourned hearing and to the best of my knowledge and belief the debt on which the petition is founded is still due and owing and has not been paid or secured or compounded for save as to … Signed ………            Dated ……”

12.5.2 For convenience, in the Royal Courts of Justice this certificate is incorporated in the attendance sheet for the parties to complete when they come to Court and is to be filed at the hearing. A fresh certificate will be required on each adjourned hearing.

12.5.3 On any adjourned hearing of a petition, in order to satisfy the Court that the petitioner has complied with rule 10.23, the petitioner will be required to file evidence of when (the date), how (the manner), and where (the address), notice of the adjournment order and notification of the venue for the adjourned hearing was sent to:

(1)  the debtor, and

(2)  any creditor who has given notice under rule 10.19 but was not present at the hearing when the order for adjournment was made or was present at the hearing but the date of the adjourned hearing was not fixed at that hearing.

12.5.4 For convenience, in the Royal Courts of Justice this certificate is incorporated in the attendance sheet for the parties to complete when they come to Court and is to be filed at the hearing. A fresh certificate will be required on each adjourned hearing. It is as follows:

“I certify that the petitioner has complied with rule 10.23 of the Insolvency Rules 2016 by sending notice of adjournment to the debtor [supporting/opposing creditor(s)] on [date] at [address]”.

12.6 Extension of hearing date of petition

12.6.1 Late applications for extension of hearing dates under rule 10.22, and failure to attend on the listed hearing of a petition, will be dealt with as follows:

(1)  If an application is submitted less than two clear working days before the hearing date (for example, later than Monday for Thursday, or Wednesday for Monday), the costs of the application will not be allowed under rule 10.22.

(2)  If the petition has not been served and no extension has been granted by the time fixed for the hearing of the petition, and if no one attends for the hearing, the petition may be dismissed or re-listed for hearing about 21 days later. The Court will notify the petitioning creditor’s solicitors (or the petitioning creditor in person), and any known supporting or opposing creditors or their solicitors, of the new date and time. A witness statement should then be filed on behalf of the petitioning creditor explaining fully the reasons for the failure to apply for an extension or to appear at the hearing, and (if appropriate) giving reasons why the petition should not be dismissed.

(3)  On the re-listed hearing the Court may dismiss the petition if not satisfied it should be adjourned or a further extension granted.

12.6.2 All applications for an extension should include a statement of the date fixed for the hearing of the petition.

12.6.3 The petitioning creditor should contact the Court (by solicitors or in person) on or before the hearing date to ascertain whether the application has reached the file and been dealt with. It should not be assumed that an extension will be granted.

12.7 Service of bankruptcy petitions other than by personal service

12.7.1 Where personal service of the bankruptcy petition is not practicable, service by other means may be permitted. In most cases, evidence that the steps set out in the following paragraphs have been taken will suffice to justify an order for service of a bankruptcy petition other than by personal service:

(1)  One personal call at the residence and place of business of the debtor. Where it is known that the debtor has more than one residential or business addresses, personal calls should be made at all the addresses.

(2)  Should the creditor fail to effect personal service, a letter should be written to the debtor referring to the call(s), the purpose of the same, and the failure to meet the debtor, adding that a further call will be made for the same purpose on the [day] of [month] 20[  ] at [ ] hours at [place]. Such letter may be sent by first class prepaid post or left at or delivered to the debtor’s address in such a way as it is reasonably likely to come to the debtor’s attention. At least two business days’ notice should be given of the appointment and copies of the letter sent to or left at all known addresses of the debtor. The appointment letter should also state that:

(a)  in the event of the time and place not being convenient, the debtor should propose some other time and place reasonably convenient for the purpose;

(b)  in the case of a statutory demand as suggested in paragraph 11.2 above, reference is being made to this paragraph for the purpose of service of a statutory demand, the appointment letter should state that if the debtor fails to keep the appointment the creditor proposes to serve the demand by advertisement/ post/ insertion through a letter box as the case may be, and that, in the event of a bankruptcy petition being presented, the Court will be asked to treat such service as service of the demand on the debtor;

(c)  (in the case of a petition) if the debtor fails to keep the appointment, an application will be made to the Court for an order that service be effected either by advertisement or in such other manner as the Court may think fit.

(3) when attending any appointment made by letter, inquiry should be made as to whether the debtor is still resident at the address or still frequents the address, and/or other enquiries should be made to ascertain receipt of all letters left for them. If the debtor is away, inquiry should also be made as to when they are returning and whether the letters are being forwarded to an address within the jurisdiction (England and Wales) or elsewhere.

(4)  If the debtor is represented by a solicitor, an attempt should be made to arrange an appointment for personal service through such solicitor. The Insolvency Rules permit a solicitor to accept service of a statutory demand on behalf of their client but not the service of a bankruptcy petition.

12.8 Validation orders

12.8.1 A person against whom a bankruptcy petition has been presented may apply to the Court after presentation of the petition for relief from the effects of s.284(1) – (3) of the Act by seeking an order that a certain disposition or dispositions of that person’s property, including payments out of their bank account (whether such account is in credit or overdrawn), shall not be void in the event of a bankruptcy order being made at the hearing of the petition (a validation order).

12.8.2 Save in exceptional circumstances, notice of the making of the application should be given to (a) the petitioning creditor(s) or other petitioner, (b) any creditor who has given notice to the petitioner of their intention to appear on the hearing of the petition pursuant to rule 10.19, (c) any creditor who has been substituted as petitioner pursuant to rule 10.27 and (d) any creditor who has carriage of the petition pursuant to rule 10.29.

12.8.3 The application should be supported by a witness statement which, save in exceptional circumstances, should be made by the debtor. If appropriate, supporting evidence in the form of a witness statement from the debtor’s accountant should also be produced.

12.8.4 The extent and contents of the evidence will vary according to the circumstances and the nature of the relief sought, but in a case where the debtor is trading or carrying on business it should include, as a minimum, the following information:

(1)  when and to whom notice has been given in accordance with paragraph 12.8.2 above;

(2)  brief details of the circumstances leading to presentation of the petition;

(3)  how the debtor became aware of the presentation of the petition;

(4)  whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;

(5)  full details of the debtor’s financial position including details of their assets (including details of any security and the amount(s) secured) and liabilities, which should be supported, as far as possible, by documentary evidence, e.g. accounts, draft accounts, management accounts or estimated statement of affairs;

(6)  a cash flow forecast and profit and loss projection for the period for which the order is sought;

(7)  details of the dispositions or payments in respect of which an order is sought;

(8)  the reasons relied on in support of the need for such dispositions or payments to be made;

(9)  any other information relevant to the exercise of the Court’s discretion;

(10)  details of any consents obtained from the persons mentioned in paragraph 12.8.2 above (supported by documentary evidence where appropriate);

(11)  details of any relevant bank account, including its number and the address and sort code of the bank at which such account is held and the amount of the credit or debit balance on such account at the time of making the application.

12.8.5 Where an application is made urgently to enable payments to be made which are essential to continued trading (e.g. wages) and it is not possible to assemble all the evidence listed above, the Court may consider granting limited relief for a short period, but there must be sufficient evidence to satisfy the Court that the interests of creditors are unlikely to be prejudiced.

12.8.6 Where the debtor is not trading or carrying on business and the application relates only to a proposed sale, mortgage or re-mortgage of the debtor’s home, evidence of the following will generally suffice:

(1)  when and to whom notice has been given in accordance with 12.8.2 above;

(2)  whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;

(3)  details of the property to be sold, mortgaged or re-mortgaged (including its title number);

(4)  the value of the property and the proposed sale price, or details of the mortgage or re-mortgage;

(5)  details of any existing mortgages or charges on the property and redemption figures;

(6)  the costs of sale (e.g. solicitors’ or agents’ costs);

(7)  how and by whom any net proceeds of sale (or sums coming into the debtor’s hands as a result of any mortgage or re-mortgage) are to be held pending the final hearing of the petition;

(8)  any other information relevant to the exercise of the Court’s discretion;

(9)  details of any consents obtained from the persons mentioned in 12.8.2 above (supported by documentary evidence where appropriate).

12.8.7 Whether or not the debtor is trading or carrying on business, where the application involves a disposition of property the Court will need to be satisfied that any proposed disposal will be at a proper value. An independent valuation should be obtained for this purpose and exhibited to the evidence.

12.8.8 The Court will need to be satisfied by credible evidence that the debtor is solvent and able to pay their debts as they fall due or that a particular transaction or series of transactions in respect of which the order is sought will be beneficial to or will not prejudice the interests of all the unsecured creditors as a class.

12.8.9 A draft of the order should accompany the application.

12.8.10 Similar considerations to those set out above are likely to apply to applications seeking ratification of a transaction or payment after the making of a bankruptcy order.

13. Applications

13.1 In accordance with rule 12.2(2), in the Royal Courts of Justice an officer acting on behalf of the Operations Manager or chief clerk has been authorised to deal with applications:

(1)      by petitioning creditors to extend the time for hearing petitions (rule 10.22);

(2)  by the official receiver:

(a)  to transfer proceedings from the High Court to a specified hearing centre within the meaning of rule 12.30.

(b)  to amend the title of the proceedings (rule 10.165).

13.2 Outside of the Royal Courts of Justice, applications listed in paragraph 13.1 must be made to a District Judge Sitting in a District Registry or in the County Court to a District Judge.

13.3 Where an application is to be made under 13.1(2)(a) above, the official receiver must comply with rule 12.32, and give any incumbent office-holder 14 days’ written notice of the application.

14. Orders without attendance

14.1 In suitable cases the Court will normally be prepared to make orders under Part VIII of the Act (Individual Voluntary Arrangements), without the attendance of the parties, provided there is no bankruptcy order in existence and (so far as is known) no pending petition. The orders are:

(1)  A 14 day interim order adjourning the application for 14 days for consideration of the nominee’s report, where the papers are in order, and the nominee’s signed consent to act includes a waiver of notice of the application or the consent by the nominee to the making of an interim order without attendance.

(2)  A standard order on consideration of the nominee’s report, extending the interim order to a date seven weeks after the proposed decision date, directing the implementation of the decision procedure and adjourning to a date about three weeks after the decision date. Such an order may be made without attendance if the nominee’s report has been delivered to the Court and complies with s.256(1) of the Act, and proposes a decision date not less than 14 days from that on which the nominee’s report is filed in Court under rule 8.15, nor more than 28 days from that on which that report is considered by the Court under rule 8.18.

(3)  A ‘concertina’ order, combining orders as under (1) and (2) above. Such an order may be made without attendance if the initial application for an interim order is accompanied by a report of the nominee and the conditions set out in (1) and (2) above are satisfied.

(4)  A final order on consideration of the report of the creditors’ consideration of the proposal. Such an order may be made without attendance if the report has been filed and complies with rule 8.24. The order will record the effect of the report and may discharge the interim order.

14.2 Provided that the conditions under sub-paragraphs 14.1(2) and 14.1 (4) above are satisfied and that the appropriate report has been lodged with the Court in due time the parties need not attend or be represented on the adjourned hearing for consideration of the nominee’s report or of the report of the creditors’ giving consideration of the proposal (as the case may be), unless they are notified by the Court that attendance is required. Sealed copies of the order made (in all four cases in paragraph 14.1 above) will be posted by the Court to the applicant or their solicitor and to the nominee.

14.3 In suitable cases the Court may make consent orders without attendance by the parties. The written consent of the parties endorsed on the consent order will be required. Examples of such orders are as follows:

(1)  on applications to set aside a statutory demand, orders:

(a)  dismissing the application, with or without an order for costs as may be agreed (permission will be given to present a petition on or after the seventh day after the date of the order, unless a different date is agreed);

(b)  setting aside the demand, with or without an order for costs as may be agreed.

(2)  On petitions where there are no supporting or opposing creditors (see rule 10.19), and there is a statement signed by or on behalf of the petitioning creditor confirming that no notices have been received from supporting or opposing creditors, orders:

(a)  dismissing the petition, with or without an order for costs as may be agreed; or

(b)  if the petition has not been served, giving permission to withdraw the petition (with no order for costs).

(3)  On other applications or orders:

(a)  for sale of property, possession of property, disposal of proceeds of sale;

(b)  giving interim directions;

(c)  dismissing the application, with or without an order for costs as may be agreed;

(d)  giving permission to withdraw the application, with or without an order for costs as may be agreed.

14.4 If, as may often be the case with orders under sub-paragraphs 3(a) or (b) above, an adjournment is required, whether generally with liberty to restore or to a fixed date, the order by consent may include an order for the adjournment. If adjournment to a date is requested, a time estimate should be given and the Court will fix the first available date and time on or after the date requested.

14.5 The above lists should not be regarded as exhaustive, nor should it be assumed that an order will be made without attendance as requested.

14.6 Applications for consent orders without attendance should be lodged at least two clear working days (and preferably longer) before any hearing date.

14.7 Whenever a document is lodged or a letter sent, the correct case number should be quoted. A note should also be given of the date and time of the next hearing (if any).

15. Bankruptcy restrictions undertakings

15.1 Where a bankrupt has given a bankruptcy restrictions undertaking, the Secretary of State or official receiver must file a copy in Court and send a copy to the bankrupt as soon as reasonably practicable (rule 11.11). In addition the Secretary of State must notify the Court immediately that the bankrupt has given such an undertaking in order that any hearing date can be vacated.

16.  Persons at risk of violence

16.1 Where an application is made pursuant to rules 8.6, 20.2, 20.3, 20.4, 20.5, 20.6 or otherwise to limit disclosure of information as to a person’s current address by reason of the possibility of violence, the relevant application should be accompanied by a witness statement which includes the following:

(1)  The grounds upon which it is contended that disclosure of the current address as defined by rule 20.1 might reasonably be expected to lead to violence against the debtor or a person who normally resides with them as a member of their family or where appropriate any other person.

(2)  Where the application is made in respect of the address of the debtor, the debtor’s proposals with regard to information which may safely be given to potential creditors in order that they can recognise that the debtor is a person who may be indebted to them, in particular the address at which the debtor previously resided or carried on business and the nature of such business.

(3)  The terms of the order sought by the applicant by reference to the Court’s particular powers as set out in the rule under which the application is made and, unless impracticable, a draft of the order sought.

(4)  Where the application is made by the debtor in respect of whom a nominee or supervisor has been appointed or against whom a bankruptcy order has been made, evidence of the consent of the nominee/supervisor, or, in the case of bankruptcy, the official receiver or any other person appointed as trustee in bankruptcy.  Where such consent is not available the statement must indicate whether such consent has been refused.

16.2 . Any person listed in 16.1(4) shall be made a respondent to the application.

16.3 The application shall be referred to a District Judge Sitting in a District Registry, ICC Judge, or High Court Judge where it will be considered without a hearing in the first instance but without prejudice to the right of the Court to list it for hearing if:

(1) the Court is not persuaded by the written evidence, and consequently may refuse the application;

(2) the consent of any respondent is not attached; or

(3) the Court is of the view that there is another reason why listing is appropriate.

PART FOUR: APPEALS

17. appeals.

17.1 CPR Part 52 and its attendant practice directions apply to insolvency appeals unless dis-applied or inconsistent with the Act or the Insolvency Rules. This IPD provides greater detail on the routes of appeal as applied to insolvency proceedings under the Act, the Insolvency Rules and CPR Part 52.

17.2 Appeals in Personal Insolvency Matters

17.2(1) Paragraph 17.2 applies to all applications for permission to appeal and appeals from decisions made in personal insolvency matters, save those that arise from s.263N of the Act relating to bankruptcy applications to an adjudicator.

17.2(2) An application for permission to appeal relating to a decision made in a personal insolvency matter by a District Judge lies to a High Court Judge.

17.2(3) An application for permission to appeal relating to a decision made in a personal insolvency matter by a District Judge Sitting in a District Registry, a Circuit Judge, or an ICC Judge lies to a High Court Judge, but not to a Deputy.

17.2(4) An appeal from a decision in a personal insolvency matter made by a District Judge lies to a High Court Judge.

17.2(5) An appeal from a decision in a personal insolvency matter made by a District Judge Sitting in a District Registry, a Recorder, a Circuit Judge, or an ICC Judge lies to a High Court Judge, but not to a Deputy. Supervising Judges for the Business and Property Courts may, in circumstances they consider to be appropriate, allow for an appeal from a decision in a personal insolvency matter made by a District Judge Sitting in a District Registry to be handled by a Circuit Judge acting as a judge of the High Court under s.9(1) of the Senior Courts Act 1981.

17.3 Appeals from Decisions of Adjudicators

17.3(1) An application under s.263N(5) of the Act appealing the decision of an adjudicator to refuse to make a bankruptcy order is made to the Court, in accordance with the provisions in rule 10.48.

17.3(2) No prior application for permission to appeal is required.

17.3(3 ) An application under s.263N(5) of the Act will be treated as the first hearing of the matter.

17.3(4) It is the responsibility of the applicant to obtain from the adjudicator a copy (digital or otherwise) of the original application reviewed by the adjudicator (including the adjudicator’s notice of refusal to make a bankruptcy order and notice confirming that refusal) and a record of (a) the verification checks undertaken under rule 10.38 by the adjudicator and (b) any additional information provided under rule 10.39(3) and available to the adjudicator at the date when the adjudicator refused to make a bankruptcy order.

17.3(5) Prior to making a final decision the Court may:

(a) direct that notice of the application be given to any interested person;

(b) give permission to any interested person and the petitioner to file evidence;

(c) make any case management order to assist in determining whether to dismiss the application or make a bankruptcy order.

17.4 Appeals in Corporate Insolvency Matters

17.4(1) Routes of appeal for appeals from decisions in corporate insolvency matters under Parts 1 to 7 of the Act (and the corresponding Insolvency Rules) are specified in rule 12.59.

17.4(2) An application for permission to appeal relating to a decision made in a corporate insolvency matter by a District Judge lies to a High Court Judge or an ICC Judge but not to a Deputy ICC Judge. Whether it lies to a High Court Judge or an ICC Judge depends on the location from which the decision being appealed originates, in conformity with Schedule 10 of the Insolvency Rules.

17.4(3) An application for permission to appeal relating to a decision made in a corporate insolvency matter by a District Judge Sitting in a District Registry or a Circuit Judge lies to a High Court Judge, but not to a Deputy.

17.4(4) An application for permission to appeal relating to a decision made at first instance in a corporate insolvency matter by an ICC Judge lies to a High Court Judge, but not to a Deputy.

17.4(5) An application for permission to appeal relating to a decision made by an ICC Judge on appeal from a District Judge in a corporate insolvency matter lies to the Civil Division of the Court of Appeal.

17.4(6) An appeal from a decision in a corporate insolvency matter made by a District Judge lies to a High Court Judge or to an ICC Judge, depending on the location from which the decision being appealed originates, in accordance with Schedule 10 of the Insolvency Rules.

17.4(7) An appeal from a decision in a corporate insolvency matter made by a District Judge Sitting in a District Registry lies to a High Court Judge but not to a Deputy. Supervising Judges for the Business and Property Courts may, in circumstances they consider to be appropriate, allow for an appeal from a decision in a corporate insolvency matter made by a District Judge Sitting in a District Registry to be handled by a Circuit Judge acting as a judge of the High Court under s.9(1) of the Senior Courts Act 1981.

17.4(8) An appeal from a decision in a corporate insolvency matter made by a Recorder or a Circuit Judge lies to a High Court Judge, but not to a Deputy.

17.4(9) An appeal from a decision in a corporate insolvency matter made at first instance by an ICC Judge lies to a High Court Judge, but not to a Deputy.

17.4(10) An appeal from a decision in a corporate insolvency matter made by an ICC Judge on appeal from a District Judge in a corporate insolvency matter lies to the Civil Division of the Court of Appeal.

18 Permission to Appeal

18.1 A first appeal is subject to the permission requirements of CPR Part 52, rule 3.

18.2 An appeal from a decision of a High Court Judge, or from a decision of an ICC Judge which was itself made on appeal, requires the permission of the Court of Appeal.

19 Filing Appeals

19.1 An application for permission to appeal or an appeal from a decision of an ICC Judge which lies to a High Court Judge must be filed at the Royal Courts of Justice.

19.2 An application for permission to appeal or an appeal from a decision of a District Judge Sitting in a District Registry must be filed in that District Registry.

19.3 An application for permission to appeal or an appeal from a decision of a District Judge must be filed in its corresponding appeal centre, as identified in the table in Schedule 10 of the Insolvency Rules.

PART FIVE: FINANCIAL MARKETS AND INSOLVENCY (SETTLEMENT FINALITY) REGULATIONS 1999 – REQUIRED INFORMATION

20. In any case in which the Court is asked to make an order to which regulation 22(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (SI 1999/2979) applies, the party applying for the order must include in the petition or application a statement to that effect, identifying the system operator of the relevant designated system, the relevant designating authority, and the email or other addresses to which the Court will be required to send notice pursuant to regulation 22(1) if an order is made.

20.1 At the date of this IPD, the Regulations apply where, in respect of “a participant in a designated system” (as those terms are defined in the Regulations), an order is made for administration, winding-up, bankruptcy, sequestration, bank insolvency, bank administration, building society insolvency, building society special administration or investment bank special administration. Applicants must, before making the application, check for any amendments to the Regulations.

PART SIX: APPLICATIONS RELATING TO THE REMUNERATION OF OFFICE-HOLDERS

21 . This IPD sets out the governing principles and court practice. Reference should also be made to the Act and the Insolvency Rules.

21.1 The objective in any remuneration application is to ensure that the amount and/or basis of any remuneration fixed by the Court is fair, reasonable and commensurate with the nature and extent of the work properly undertaken or to be undertaken by the office-holder in any given case and is fixed and approved by a process which is consistent and predictable.

21.2 .  The guiding principles which follow are intended to assist in achieving the objective:

(1) “Justification”. It is for the office-holder who seeks to be remunerated at a particular level and / or in a particular manner to justify their claim. They are responsible for preparing and providing full particulars of the basis for, and the nature of, their claim for remuneration.

(2) “The benefit of the doubt”. The corollary of the “justification” principle is that if after having regard to the evidence and guiding principles there remains any doubt as to the appropriateness, fairness or reasonableness of the remuneration sought or to be fixed (whether arising from a lack of particularity as to the basis for and the nature of the office-holder’s claim to remuneration or otherwise), such element of doubt should be resolved by the Court against the office-holder.

(3) “Professional integrity”. The Court should (where this is the case) give weight to the fact that the office-holder is a member of a regulated profession and as such is subject to rules and guidance as to professional conduct and the fact that (where this is the case) the office-holder is an officer of the Court.

(4) “The value of the service rendered”. The remuneration of an office-holder should reflect the value of the service rendered by the office-holder, not simply reimburse the office-holder in respect of time expended and cost incurred.

(5) “Fair and reasonable”. The amount and basis of the office-holder’s remuneration should represent fair and reasonable remuneration for the work properly undertaken or to be undertaken.

(6) “Proportionality of information”. In considering the nature and extent of the information which should be provided by an office-holder in respect of a remuneration application to the Court, the office-holder and any other parties to the application shall have regard to what is proportionate by reference to the amount of remuneration to be fixed, the nature, complexity and extent of the work to be completed (where the application relates to future remuneration) or that has been completed by the office-holder and the value and nature of the assets and liabilities with which the office-holder will have to deal or has had to deal.

(7) “Proportionality of remuneration”. The amount and basis of remuneration to be fixed by the Court should be proportionate to the nature, complexity and extent of the work to be completed (where the application relates to future remuneration) or that has been completed by the office-holder and the value and nature of the assets and/or potential assets and the liabilities and/or potential liabilities with which the office-holder will have to deal or has had to deal, the nature and degree of the responsibility to which the office-holder has been subject in any given case, the nature and extent of the risk (if any) assumed by the office-holder and the efficiency (in respect of both time and cost) with which the office-holder has completed the work undertaken.

(8) “Professional guidance”. In respect of an application for the fixing and approval of the amount and/or basis of the remuneration, the office-holder may have regard to the relevant and current statements of practice promulgated by any relevant regulatory and professional bodies in relation to the fixing of the remuneration of an office-holder. In considering a remuneration application, the Court may also have regard to such statements of practice and the extent of compliance with such statements of practice by the office-holder.

(9) “Timing of application”. The Court will take into account whether any application should have been made earlier and if so the reasons for any delay.

21.3 Hearing of a remuneration application. The general rule applies for the listing of hearings as set out in paragraph 3 of this IPD. The judge hearing the application may summarily determine the application or adjourn with directions including (but not confined to) directions as to (i) whether an assessor or costs judge should prepare a report to the Court in respect of the remuneration (ii) or whether the application should be heard by a judge and an assessor or a costs judge.

21.4. On any remuneration application, the office-holder should provide the information and evidence referred to in paragraphs 21.4.1 to 21.4.12 below.

21.4.1 A narrative description and explanation of:

(a) the background to, the relevant circumstances of, and the reasons for their appointment;

(b) the work undertaken or to be undertaken in respect of the appointment; the description should be divided, insofar as possible, into individual tasks or categories of task (general descriptions of work, tasks, or categories of task should (insofar as possible) be avoided);

(c) the reasons why it is or was considered reasonable and/or necessary and/or beneficial for such work to be done, giving details of why particular tasks or categories of task were undertaken and why such tasks or categories of task are to be undertaken or have been undertaken by particular individuals and in a particular manner;

(d) the amount of time to be spent or that has been spent in respect of work to be completed or that has been completed and why it is considered to be fair, reasonable and proportionate;

(e) what is likely to be and has been achieved, the benefits that are likely to and have accrued as a consequence of the work that is to be or has been completed, the manner in which the work required in respect of the appointment is progressing and what, in the opinion of the office-holder, remains to be achieved.

21.4.2 Details sufficient for the Court to determine the application by reference to the criteria which are required to be taken into account by reference to the Insolvency Rules and any other applicable enactments or rules relevant to the fixing of the remuneration.

21.4.3 A statement of the total number of hours of work undertaken or to be undertaken in respect of which the remuneration is sought, together with a breakdown of such hours by individual member of staff and individual tasks or categories of tasks to be performed or that have been performed.  Where appropriate, a proportionate level of detail should also be given of:

(a) the tasks or categories of tasks to be undertaken as a proportion of the total amount of work to be undertaken in respect of which the remuneration is sought and the tasks or categories of tasks that have been undertaken as a proportion of the total amount of work that has been undertaken in respect of which the remuneration is sought; and

(b) the tasks or categories of task to be completed by individual members of staff or grade of personnel including the office-holder as a proportion of the total amount of work to be completed by all members of staff including the office-holder in respect of which the remuneration is sought and the tasks or categories of task that have been completed by individual members of staff or grade of personnel as a proportion of the total amount of work that has been completed by all members of staff including the office-holder in respect of which the remuneration is sought.

21.4.4 A statement of the total amount to be or likely to be charged for the work to be undertaken or that has been undertaken in respect of which the remuneration is sought which should include:

(a) a breakdown of such amounts by individual member of staff and individual task or categories of task performed or to be performed;

(b) details of the time expended or to be expended and the remuneration charged or to be charged in respect of each individual task or category of task as a proportion (respectively) of the total time expended or to be expended and the total remuneration charged or to be charged.

In respect of an application pursuant to which some or all of the amount of the office-holder’s remuneration is to be fixed on a basis other than time properly spent, the office-holder shall provide (for the purposes of comparison) the same details as are required by this paragraph 19.4.4, but on the basis of what would have been charged had they been seeking remuneration on the basis of the time properly spent by the office-holder and their staff.

21.4.5 Details of each individual to be engaged or who has been engaged in work in respect of the appointment and in respect of which the remuneration is sought, including details of their relevant experience, training, qualifications and the level of their seniority.

21.4.6 An explanation of:

(a) the steps, if any, to be taken or that have been taken by the office-holder to avoid duplication of effort and cost in respect of the work to be completed or that has been completed in respect of which the remuneration is sought;

(b) the steps to be taken or that have been taken to ensure that the work to be completed or that has been completed is to be or was undertaken by individuals of appropriate experience and seniority relative to the nature of the work to be or that has been undertaken.

21.4.7 Details of the individual rates charged by the office-holder and members of their staff in respect of the work to be completed or that has been completed and in respect of which the remuneration is sought.  Such details should include:

(a) a general explanation of the policy adopted in relation to the fixing or calculation of such rates and the recording of time spent;

(b) where, exceptionally, the office-holder seeks remuneration in respect of time spent by secretaries, cashiers or other administrative staff whose work would otherwise be regarded as an overhead cost forming a component part of the rates charged by the office-holder and members of their staff, a detailed explanation as to why such costs should be allowed or should be provided.

21.4.8 Where the remuneration application is in respect of a period of time during which the charge-out rates of the office-holder and/or members of their staff engaged in work in respect of the appointment have increased, an explanation of the nature, extent and reason for such increase and the date when such increase took effect.

21.4.9 Details of any basis or amount of remuneration previously fixed or approved in relation to the appointment (whether by the Court or otherwise) including in particular the bases or amounts that were previously sought to be fixed or approved and the bases or amounts that were in fact fixed or approved and the method by which such amounts were fixed or approved.

21.4.10 Where the application is for approval to draw remuneration in excess of the total amount set out in the fees estimate, their evidence must exhibit a copy of the fees estimate and address the matters listed in rule 18.30(3).

21.4.11 In order that the Court may be able to consider the views of any persons who the office-holder considers have an interest in the assets that are under their control and of any other persons who are required by the Insolvency Rules to be notified of the hearing of the application, the office-holder must provide details of:

(a)  the names and contact details for all such persons;

(b)what (if any) consultation has taken place between the office-holder and those persons and if no such consultation has taken place, an explanation as to the reason why;

(c)  the number and value of the interests of the persons consulted including details of the proportion (by number and by value) of the interests of such persons by reference to the entirety of those persons having an interest in the assets under the control of the office-holder.

21.4.12 Such other relevant information as the office-holder considers, in the circumstances, ought to be provided to the Court.

21.5 This paragraph applies to applications where some or all of the remuneration of the office-holder is to be fixed and/or approved on a basis other than time properly spent.  On such applications in addition to the matters referred to in paragraph 21.4, the office-holder shall:

(a) Provide a full description of the reasons for remuneration being sought by reference to the basis contended for.

(b) Where the remuneration is sought to be fixed by reference to a percentage of the value of the property with which the office-holder has to deal or of the assets which are realised or distributed, provide a full explanation of the basis upon which any percentage rates to be applied to the values of such property or the assets realised and/or distributed have been chosen.

(c) Provide a statement that to the best of the office-holder’s belief the percentage rates or other bases by reference to which some or all of the remuneration is to be fixed are similar to the percentage rates or other bases that are applied or have been applied in respect of other appointments of a similar nature.

(d) Provide a comparison of the amount to be charged by reference to the basis contended for and the amount that would otherwise have been charged by reference to the other available bases of remuneration, including by reference to rule 18.22 and Schedule 11 to the Insolvency Rules (scale of fees).

21.6 The witness evidence may exclude matters set out in paragraph 21.4 above but an explanation as to why a decision to exclude such material should be included in the witness evidence.

21.7 The evidence placed before the Court by the office-holder in respect of any remuneration application should also include the following documents:

(a) a copy of the most recent receipts and payments account;

(b) copies of any reports by the office-holder to the persons having an interest in the assets under their control relevant to the period for which the remuneration sought to be fixed and approved relates;

(c) any fees estimate, details of anticipated expenses or other relevant information given or required to be given to the creditors in relation to remuneration by the office-holder pursuant to the Insolvency Rules;

(d) any other schedules or such other documents providing the information referred to in paragraphs 21.4 above, where these are likely to be of assistance to the Court in considering the application;

(e) evidence of any consultation or copies of any relevant communications with those persons having an interest in the assets under the control of office-holder in relation to the remuneration of the office-holder.

21.8 On any remuneration application the Court may make an order allowing payments of remuneration to be made on account subject to final approval whether by the Court or otherwise.

21.9 Unless otherwise ordered by the Court (or as may otherwise be provided for in any enactment or rules of procedure), the costs of and occasioned by an application for the fixing and/or approval of the remuneration of an office-holder, including those of any assessor, shall be paid out of the assets under the control of the office-holder.

PART SEVEN: UNFAIR PREJUDICE PETITIONS, WINDING UP AND VALIDATION ORDERS

22 unfair prejudice petitions.

22.1 Attention is drawn to the undesirability of asking as a matter of course for a winding up order as an alternative to an order under s.994 of the 2006 Act. The petition should not ask for a winding up order unless that is the remedy which the petitioner prefers, or it is thought that it may be the only remedy to which the petitioner is entitled.

22.2 . Whenever a winding up order is asked for in a contributory’s petition, the petition must state whether the petitioner consents or objects to a validation order under s.127 of the Insolvency Act 1986 in the standard form. If the petitioner objects, the written evidence in support must contain a short statement of the petitioner’s reasons.

22.3. If the petitioner objects to a validation order in the standard form but consents to such an order in a modified form, the petition must set out the form of order to which the petitioner consents, and the written evidence in support must contain a short statement of the petitioner’s reasons for seeking the modification.

22.4. If the petition contains a statement that the petitioner consents to a validation order, whether in the standard or a modified form, but the petitioner changes their mind before the first hearing of the petition, the petitioner must notify the respondents and may apply on notice to the court for an order directing that no validation order or a modified order only (as the case may be) shall be made by the Court, but validating dispositions made without notice of the order made by the Court.

22.5. If the petition contains a statement that the petitioner consents to validation order, whether in the standard or a modified form, the Court shall without further enquiry make such an order at the first hearing unless an order to the contrary has been made by the Court in the meantime.

22.6. If the petition contains a statement that the petitioner objects to a validation order in the standard form, the company may apply (in the case of urgency, without notice) to the Court for an order.

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MORE CORONAVIRUS LAW: ORDER TO RESTRAIN WINDING UP PETITION: WHERE THERE’S A BILL THERE IS A WAY

The judgment of mr justice morgan today in a company (injunction to restrain presentation of petition) [2020] ewhc 1406 (ch) is another example of “coronavirus law”.  the judge made an order restraining the presentation of a winding up petition not on the basis of existing law, but on the basis that the corporate insolvency and governance bill 2020 is likely to become law in the near future. .

The company is a high street retailer. It rents promises from the landlord.  The company has not paid its rent and service charges for the latest quarter. It cannot trade because of coronavirus.  The landlord cannot seek forfeiture of the lease due to the provisions of s. 82 of the Coronavirus Act 2020. The landlord issued a winding up petition by e-filing, but had yet to pay the fee. The company applied for an order restraining the winding up petition.

THE JUDGMENT

Mr Justice Morgan granted the company’s application.  The judgement is particularly interesting because the judge considered the provisions of a Bill yet to be enacted.

The company has applied for an injunction to restrain the presentation of the petition on various grounds. Those grounds are set out in detail in a witness statement from a director of the company and are further explained in a detailed skeleton argument from Ms Toube QC and Mr Al-Attar on behalf of the company. The grounds rely on the established law to the effect that a winding up order is a class remedy for the benefit not of the petitioner alone but for the benefit of creditors generally. It is submitted that a winding up order in this case would be harmful to the interests of the creditors generally and would confer no benefit on the proposed petitioning creditor. It is further submitted that the petition is bound to fail, is brought for a collateral purpose and is an abuse of the process of the cour t. These submissions referred to a substantial body of evidence which had been filed and referred in detail to the history of the finances of the company. At the hearing of this application, I invited counsel for the company to concentrate on a further ground on which the application is based and, in the event, I did not hear full submissions on the other matters to which I have referred. The basis for the application on which counsel for the company then concentrated relates to the significance of the provisions as to winding up contained in the Corporate Insolvency and Governance Bill 2020 (“the CIG Bill”).

At the end of the hearing, i indicated that i would make an order, until the hearing of the company’s application for a final order to the like effect, restraining the presentation of the winding up petition on the ground that i was satisfied that that was the appropriate order to make in the light of the submissions based on the cig bill. i considered that i ought to give a short judgment dealing with those submissions. i also took the view that, even though the hearing was ex parte, that i ought to give the judgment in open court as the points which were argued in this case might arise in other cases in the near future. as the hearing had been in private to protect the interests of the company, this judgment has been anonymised., the relevant provisions of the cig bill are contained in schedule 10 . when i refer to what schedule 10 “provides”, i am referring to the terms of the bill in its current form, even before it has been enacted., paragraph 1 of schedule 10 provides that no petition for the winding up of a registered company may be presented under section 124 of the 1986 act on or after 27 april 2020 on the ground specified in section 123(1)(a) (i.e. non-compliance with a statutory demand) where the demand is served during the relevant period which begins on 1 march 2020 and ends on 30 june 2020 (or one month after the coming into force of schedule 10, whichever is later). paragraph 1 of schedule 10 states that it is to be regarded as having come into force on 27 april 2020., paragraph 2 provides for there to be restrictions on the presentation of winding up petitions. paragraph 2(1) refers to petitions based on various grounds including the ground in section 123(1)(a) (non-compliance with a statutory demand) and paragraph 2(3) refers to a petition based on the ground in section 123(1)(e) (where it is proved that the company is cash flow insolvent) or section 123(2) (where it is provided that the company is balance sheet insolvent). paragraph 2 is to be regarded as having come into force on 27 april 2020., both paragraph 2(1) and paragraph 2(3) require a creditor who seeks to present a petition pursuant to those provisions to satisfy a condition expressed in paragraph 2(2) or paragraph 2(4), as the case may be. the condition in paragraph 2(2) is expressed as follows:.

“(2) The condition referred to in sub-paragraph (1) is that the creditor has reasonable grounds for believing that— (a) coronavirus has not had a financial effect on the company, or (b) the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company.”

The condition in paragraph 2(4) is in slightly different terms but appears to have a similar effect to the condition in paragraph 2(2).

Paragraph 4 of schedule 10 deals with winding up petitions presented on or after 27 april 2020 but before the day on which schedule 10 comes into force. if the court to which the petition is presented without the condition in paragraph 2(2) or 2(4) being met, the court may make such order as it thinks appropriate to restore the position to what it would have been if the petition had not been presented., paragraph 5 of schedule 10 provides:.

“5 (1) This paragraph applies where—

(a) a creditor presents a petition for the winding up of a registered company under section 124 of the 1986 Act in the relevant period,

(b) the company is deemed unable to pay its debts on a ground specified in section 123(1) or (2) of that Act, and

(c) it appears to the court that coronavirus had a financial effect on the company before the presentation of the petition.

(2) The court may wind the company up under section 122(1)(f) of the 1986 Act on a ground specified in section 123(1)(a) to (d) of that Act only if the court is satisfied that the facts by reference to which that ground applies would have arisen even if coronavirus had not had a financial effect on the company.

(3) The court may wind the company up under section 122(1)(f) of the 1986 Act on the ground specified in section 123(1)(e) or (2) of that Act only if the court is satisfied that the ground would apply even if coronavirus had not had a financial effect on the company.

(4) This paragraph is to be regarded as having come into force on 27 April 2020.”

If these provisions of the CIG Bill are enacted in their present form, then their effect will be clear. The policy of these provisions in the CIG Bill is self-evident.

At the hearing, i was given information as to the stage in the parliamentary procedures which the cig bill has reached and also information as to when it is expected that the cig bill will receive the royal assent. counsel for the company explained that the current expectation is that the cig bill will receive the royal assent by the end of june 2020. a s to the likelihood that schedule 10 of the cig bill will be enacted in more or less its current form, i have been referred to a number of ministerial statements as to the government’s commitment to enact this legislation and i feel a high degree of confidence that schedule 10 will be enacted in more or less its current form and on the timetable referred to above., it the petition were presented today or in the near future, it is most unlikely that it would be heard before the cig bill is enacted. as indicated earlier, once enacted, the relevant provisions are to be regarded as having come into force on 27 april 2020. this means that, on the hearing of the petition, a court must ask itself whether coronavirus has had a financial effect on the company before the presentation of the petition. if that is held to be the case, then the court can only wind up the company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) would have arisen even if coronavirus had not had a financial effect on the company., i have been provided with a substantial body of evidence as to the effect of coronavirus on the finances of the company and whether the facts on which the petition would be based would have arisen even if coronavirus had not had a financial effect on the company . on that evidence there is a strong case (at the lowest) that coronavirus has had a financial effect on the company before the presentation of the petition and, further, that the facts on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company. this means that it appears that a petition to wind up the company would not result in the court making a winding up order., the evidence before me shows that the presentation of a petition which would ultimately fail would nonetheless have a seriously damaging effect on the company., it is in these circumstances that the company asks the court to restrain the presentation of a winding up petition which, so far as one can tell, will ultimately fail but which will in the meantime seriously damage the company., the response put forward in correspondence by the creditor is that even if the court reaches the conclusion which i have just expressed, in advance of the cig bill being enacted, there is absolutely nothing to stop the creditor presenting its petition and giving notice of it and continuing with it until a hearing. it will only be at the hearing that one will know the fate of the petition and that will depend on whether the cig bill has been enacted in its present form in the meantime., counsel for the company rely on a number of authorities for the proposition that in certain circumstances and for certain purposes the court can take into account, when reaching its decision, the possibility of a change in the law. the authorities cited were  hill v c a parsons  [1972] ch 305,  sparks v holland  [1997] 1 wlr 143 and  travelodge ltd v prime aesthetics ltd  [2020] ewhc 1217 (ch). the first two of those cases concerned facts and circumstances very different from the present case but the third case is a recent case where the facts were essentially the same as the case before me., i derive from the first two of those cases, supported by the third case, the proposition that when the court is deciding whether to grant relief and, in particular, relief which involves the court controlling or managing its own processes, that it can take into account its assessment of the likelihood of a change in the law which would be relevant to its decision., in the present case, the creditor wishes to invoke the procedures of the court to present a winding up petition. on my assessment of the relevant circumstances, the creditor wishes to do so where it is improbable that the court will make a winding up order but where the existence of a presented petition will cause serious damage to the company. in those circumstances, i consider that, as a matter of law, i am able to take into account my assessment of the likelihood of the change in the law represented by schedule 10 to the cig bill . having taken that assessment into account, i consider that the court should control its own processes by restraining the presentation of this petition in the present circumstances. i do not see that the court is powerless to act to prevent its procedures being used otherwise than for the purpose of obtaining a winding up order (because it is improbable that such an order will be made) but for the purpose of, or at any rate with the effect of, causing serious damage to the company. i also consider that the grant of an injunction to restrain the presentation of the petition is powerfully supported by the clear policy objectives of the cig bill., birss j reached essentially the same conclusion in travelodge ltd v prime aesthetics ltd [2020] ewhc 1217 (ch) although that decision was before the publication of the cig bill and was based on what had been said in ministerial statements. the position at the present time is more clear now that the cig bill has been published and is being actively and speedily considered by parliament and i can form a confident assessment as to when it will receive royal assent., the decision in travelodge does not appear to be available on the usual websites or on bailii.org. the judgment in the present case may help to notify practitioners of the attitude which birss j took in the travelodge case and which i have taken in this case., there is one final matter with which i wish to deal. counsel for the company submitted that the company should not be required to give a cross-undertaking in damages in relation to the injunction which i will grant. they submitted that there was authority that when the court granted an injunction to restrain presentation of a winding up petition, it was not appropriate to require the applicant for the injunction to give an undertaking in damages. they accepted that the authority they had in mind concerned a situation where the court granted a final injunction. in the present case, i am not granting a final injunction but am granting an interim injunction until the insolvency application for a final injunction is heard., it was then pointed out that when birrs j in travelodge granted an interim injunction restraining the presentation of a petition, he had not required the applicant to give a cross-undertaking in damages . the judge based that decision on the ground that it was unlikely that the injunction would cause loss to the respondent for which the applicant would not already be liable. i confess i felt uneasy about this reasoning which seemed to me to be out of line with other authority. i indicated that i would look into the point further overnight and give my decision in the form of this judgment., in that way, i turned up the line of authority which was in my mind at the hearing and which is referred to in  jsc mezhdunarodniy promyshlenniy bank and another v pugachev   [2016] 1 wlr 160  where lewison lj said at [75]-[78]:.

“75.  The first of these points raises the question whether it is necessary for a defendant to establish a likelihood of the freezing order causing loss in order to become entitled to a cross-undertaking unlimited in amount. In  Sinclair Investment Holdings SA v Cushnie   [2004] EWHC 218 (Ch)  at [25] Mann J said that a failure to establish a sufficient risk of loss was “no reason for not extracting a cross-undertaking”. The same point emerges from  Financial Services Authority v Sinaloa Gold plc  [2013] 2 AC 28  which is a recent decision of the Supreme Court about when a law enforcement agency should be required to give a cross-undertaking in damages. At para 29, Lord Mance JSC said:

“The purpose of a cross-undertaking in favour of a defendant is to cover the possibility of loss in the event that the grant of an injunction proves to have been inappropriate. To refuse to require a cross-undertaking because it appears, however strongly, unlikely ever to be capable of being invoked misses the point. The remoteness of the possibility of loss might indeed be thought to be a reason why the public authority would be unlikely to be inhibited from seeking injunctive relief by fear that public funds may be exposed to claims for compensation.”

76.  At para 30, he continued:

“In private litigation, a claimant acts in its own interests and has a choice whether to commit its assets and energies to doing so. If it seeks interim relief which may, if unjustified, cause loss or expense to the defendant, it is usually fair to require the claimant to be ready to accept responsibility for the loss or expense. Particularly in the commercial context in which freezing orders commonly originate, a claimant should be prepared to back its own interests with its own assets against the event that it obtains unjustifiably an injunction which harms another’s interests.”

77.  It is, then, fairness rather than likelihood of loss that leads to the requirement of a cross-undertaking. At the stage when a freezing order is granted nothing has been decided. The court cannot be seen to prefer the interests of one litigant over another. In addition, as mentioned, the cross-undertaking is regarded as the price that must be paid for the interim interference with the defendant’s freedom. Moreover, cross-undertakings in damages are required to be given by applicants for freezing orders (and other injunctions) on without notice applications. Necessarily the cross-undertaking is required and given before the defendant has had the opportunity to give any evidence about loss (or indeed anything else). Nor in my experience is it usual for defendants to set out the prospective loss that they might suffer as a reason for requiring the cross-undertaking. Evidence of that kind is often deployed on the question of the balance of convenience, but that is a different point.

78.  I do not, therefore, consider that the claimants are correct in their submission that the defendant must show that the freezing order is likely to cause him a loss before a cross-undertaking of unlimited amount is required.”

That reasoning applies in this case. The injunction in this case will be on terms that the company provides the usual cross-undertaking in damages.”

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

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

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The Corporate Insolvency and Governance Act 2020 does not apply to creditor winding up petitions presented on or after 1 April 2022. For petitions presented prior to this date, see this footnote [0] . For unpaid commercial rent based creditor winding up petitions, see The Commercial Rent (Coronavirus) Act 2022 (which came into force on 24 March 2022), in particular: (a) section 27 entitled 'Temporary restriction on winding-up petitions and petitions for bankruptcy orders'; and (b) Schedule 3, paragraph 1, entitled 'Prohibition on presenting a winding-up petition solely in relation to a protected rent debt'

Widespread knowledge that a company is subject to a creditor’s winding up petition can cause that company serious harm [1a] . Where the creditor’s winding up petition is warranted [1b] , 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 [2a] subject to a winding up petition (or a threatened [2b] winding up petition) of applying to the court for an injunction to restrain the would-be (or prospective) [3]  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 [4a] . Where there is an extant petition, a company can also apply, as they often do, for an order striking out the petition [4b] .

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 make 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 [11a]  on the petition. Depending on where the petition has reached, this may mean, prohibiting advertisement (in its wide meaning; which is wider than prohibiting giving 'notice' of the petition pursuant to r.7.10 of the Insolvency Rules 2016 [11b] ) of the petition or further prosecution of it (there is a limited window of time provided before advertisement can occur [11c] ). The Companies Court may also go a step further, and strike out the petition. 

Note, the mere filing of an application for such injunctive relief (without more), does not preclude a winding up petition subsequently being presented (or render the winding up petition liable to be struck out). In Time GB Group Ltd v Yarwell Mill Country Park Ltd [2023] EWHC 1887 (Ch), ICC Judge Barber rejected, stridently, a contention put forward that '. ..the petition should not have been treated as having been presented in circumstances where the [company/applicant] filed its application to restrain presentation before the date of presentation .' (paragraph 34) [11d] .

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.’ [12a]

A petition clearly pursued for an ulterior purpose might be one that would fall into this wide jurisdiction [12b]

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 (typically, but see Covid different/additional requirements), the petition will be well-founded, and so the presentation, advertisement and pursuance of that petition will not be 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 N L (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. It was applied in Signature Living Hotel Ltd v Sulyokby [2020] Bus. L.R. 588 by HHJ Hodge QC, sitting as a Judge of the High Court, at paragraphs 22 and 29.

A 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] . See also Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3203, [2016] BPIR 1129 (' Coilcolour '), paragraphs 31-42 [21c] and the set of 'uncontroversial propositions' drawn from the cases [21d] by Mr David Stone, sitting as a deputy High Court Judge in Re LDX International Group LLP [2018] EWHC 275 (Ch)(successfully appealed but not on the law: Misra Ventures Ltd v LDX International Group LLP [2019] BCC 739, paragraphs 14-16). See HHJ David Cooke sitting as a Judge of the High Court in JT Developments Solutions Ltd v Secretary of State for Education acting through the Education Skills Funding Agency [2021] EWHC 2943 (Ch), at paragraphs 2 to 6 inclusive [21e] . Also ICCJ Barber in The Petitioner v The Company [2021] EWHC 3249 (Ch), at paragraphs 80-81 [21f] , ICC Judge Burton in Fenton Whelan Ltd v Swan Campden Hill Ltd [2021] EWHC 2470 (Ch) [21g] , Deputy ICC Judge Baister in Re Swindon Town Football Co Ltd [2022] EWHC 2071 (Ch), at paragraphs 26 to 32 [21h] ; and ICC Judge Barber in Re Glocin Ltd Glocin Ltd v Bancibo SE [2022] EWHC 1858 (Ch), at paragraph 29 [21i] . See Asplin LJ in the High Court in Town and County Properties (GB) Ltd v Patel [2023] EWHC 1168 [21j] (a bankruptcy case), ICC Judge Greenwood in Re Property Services LDN Ltd [2023] EWHC 1778 (Ch) [21k] , and ICC Judge Barber in A Company v The Respondent [2023] EWHC 1779 (Ch) [21l] ; Time GB Group Ltd v Yarwell Mill Country Park Ltd [2023] EWHC 1887 (Ch) [21m] and Re a Company [2024] EWHC 1070 (Ch) [21n] .

These principles will be considered in more detail below

Underlying Tension

Speaking generally, it should be appreciated that, in the author's view, there is a tension at the heart of creditor winding up petitions.

On the one hand, advertised creditor winding up petitions cause harm to the company whether or not the winding up petition is found eventually to have merit. Where the petition is found to lack merit, this harm will have been unwarranted and will likely be irreversible. The law should find ways to avoid such unwarranted and irreversible harm being inflicted on the company in the first place.

On the other hand, the creditors winding up petition is a representative action, pursued by a petitioner for all with an interest (usually the unsecured creditors of the company). All those with an interest are entitled to make representations to the court about whether or not a winding up order should be imposed on the company. But for those interested to be able to make such representations, they need to know that a winding up petition exists and is being pursued, before it is determined. That requires some form of advertisement of the petition, to the public, to alert any such creditors to the situation, but of course, that brings with it the risk of unwarranted harm being inflicted to the company.

These two aspects create the tension at the heart of creditor winding up petitions. The 'solution' - this injunctive jurisdiction - is not a perfect fit [22a] .

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:

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.’ [22b]

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 , 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 ground 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. 

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 etc.. However, a tax assessment can be subject to a statutory appeal, and, where there is an appeal, the Companies Court will apply an equivalent test [34b] at the discretionary stage of the winding up petition. 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.’

In (1) Christine Harper (2) Shorts Gardens LLP v London Borough of Camden Council; Preston City Council (re Saint Benedict's Land Trust Ltd) [2020] EWHC 1001 (Ch) (' Saint Benedict's '), Snowden J said, at paragraph 62:

'...in contrast to a case in which the petition debt is itself subject to a genuine and substantial dispute, where the company simply alleges in answer to an undisputed debt that it has a cross-claim, the court has a discretion to allow the petition to proceed.'

The fact the petitioner has a judgment (and the company asserts a cross-claim/set off) does not seem to make a difference, see  In re Victory House General Partner Ltd  [2019] Ch. 1, paragraph 31 (Morgan J), not following Re Douglas (Griggs) Engineering Ltd [1963] Ch 19.

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 ’).

The quantum of the cross-claim would need to exceed (i.e. 'overtop' or 'eclipse') the undisputed petition debt (or, at least to be within £750 of the undisputed petition sum). See  Saint Benedict's , paragraph 64.

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 became the correct understanding of the law.

In Dennis Rye Ltd v Bolsover District Council [2010] BCC 248 (' Dennis Rye ')(a permission to appeal case), Mummery LJ stated:

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

In Re Swan Campden Hill Ltd [2021] EWHC 2470 (Ch), ICCJ Burton said, at paragraph 9:

'Even in cases where the petition debt is not disputed, as established by the Court of Appeal in Re Bayoil SA [1999] 1WLR 147, the court has a discretion and may decline to order winding up where there is a genuine and serious cross-claim that the respondent has been unable to litigate that equals or exceeds the amount of the petition debt. [Counsel for the petitioner] highlights that although a failure to litigate a cross-claim is not necessarily fatal, in deciding whether a crossclaim is genuine and serious, the court is entitled to take into account all the relevant circumstances, including the fact that a company has not attempted to litigate it.'

ICCJ Burton then quoted the above passage from Dennis Rye , with apparant approval.

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] . 

Variation to Interim Injunction - to permit limited notice to identified individual

In an 'unusual application' (paragraph 25), the petitioner in Re Glocin Ltd Glocin Ltd v Bancibo SE [2022] EWHC 1858 (Ch) applied (21.4.22), between the without notice hearing (19.1.22) and the return date hearing (27.6.22), for an order varying the without notice hearing order (which restained advertisement until after the return date hearing), so as to permit the petitioner to notify the company's director's (CEO)'s trustee in bankruptcy, of the existence of the petition. The variation application came on in the interim applications list (25.4.22) but was adjourned (without a decision on its merits) to the existing return date hearing (27.6.22). It was, by that point, rendered redundant (paragraph 27). However, ICCJ Barber did state, necessarily obiter, her view on the merits of the variation application. She said, at paragraph 25:

'[The Petitioner] maintained that [the Company's Director's] bankruptcy trustee was investigating the transfer by [the Company Director] of shares in [the Company] to a [another person] and that a variation of the restraint on advertisement would ‘allow the trustee in bankruptcy to take such steps as are appropriate to preserve the value of his claim to the shares in [the Company]’...This was not a good reason for varying or lifting a restraint on advertisement of the petition ahead of determination of the issue whether [the Petitioner] had locus to present it in the first place. Another point raised by [the Petitioner] in the evidence in support of its application was the possible impact of [the Company Director's] Czech insolvency process on his ability to represent or give instructions on behalf of [the Company]. That, however, was not a matter requiring notice of the petition to be given to [the Company Director's] trustee either. Any issue as to the impact of [the Company Director's] Czech insolvency process on his ability to represent or give instructions on behalf of [the Company] could easily have been addressed in the submissions of the existing parties to the [strikeout/restrain advertisement] application, without any involvement of [the Company Director's] trustee. In the event, the point was not pursued in the strikeout application before me.'

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 Sykes & 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.

The finding of exceptional circumstances from, in part, the late production of important documents by the company, might be seen as recalibrating how the law approaches such late production. In  Re a Company No. 007356/98 (ITC Infotech Ltd) [2000] B.C.C. 214 (1999), Hart J heard an application by a company for costs against a would-be petitioner. In that case, the would-be petitioner had served a statutory demand on the company. The company then applied for an injunction restraining presentation of a petition. At the first hearing, before the matter was called on, the company served ' ...further evidence of a detailed nature first as to the solvency of the applicant (and I should say at once that that evidence establishes beyond any doubt at all that the applicant is a substantial and solvent company) and, secondly, a detailed affidavit as to the circumstances in which, as alleged by the applicant, the claims made by the respondent came to be made and the reasons why the applicant had refused to make the payments.'  (215). The case was not called on for reasons unconnected with the service of the further evidence, but was called on the next day. By which time, the would-be petitioner/respondent had offered an undertaking to the company not to present a petition. The applicant company sought costs and the would-be petitioner/respondent resisted '...essentially on the basis that until service of that additional evidence it had been reasonable for them to proceed on the basis that the applicant would find itself unable, on the substantive hearing of its application, to satisfy the court that there was a bona fide dispute...' (216). Hart J then said, at 216:

'That, I am bound to say, seems to me to have been an understandable attitude at least for the respondent's lawyers to have taken on the basis of the information they then apparently had. However, I am not persuaded that that means that I should treat the result of this application as having been in the event anything less than a victory for the applicant with the usual consequences as to costs. It has been said on many occasions that a person who claims to be a creditor and who elects to pursue his claim by the machinery of a petition for the winding-up of the alleged debtor rather than by writ proceedings runs the risk that in the course of that process the alleged debtor will be able to prove in a manner sufficient for the court that the procedure adopted is inappropriate because of the existence of a bona fide dispute as to the debt. It seems to me that this is a case where however reasonably, from its own point of view, those advising the respondent may have calculated the risks of that eventuality, the fact of the matter remains that the risk has in this case eventuated in the sense that on the evidence as it now stands while the respondents do not concede that there is a bona fide dispute as to the whole of the claim which they make, they do not wish to put that question to the test and have therefore, on that evidence, been willing to offer the undertakings.... It seems to me that if the respondents wished to succeed in a submission that there was no bona fide dispute as to the whole of this alleged debt, that they cannot do so by offering an undertaking which can only be justified on the basis that there is, and seeking to test the matter in argument on costs. Having embarked on the course of serving a statutory demand and refusing initially to offer any undertaking not to present a petition based on it, they have run the risk of finding themselves in a position where they wish to halt a train which they have themselves put in motion and in my judgment they can only do so on the basis of giving the undertaking and submitting to an order that they pay the costs incurred as a result of the applicant having had to make the application to stop them.' [bold added]

Separately, Hart J further held that there should be no special (i.e. different) orders for costs incurred by the applicant company: (1) due to the adjournment of the first hearing; nor (2) for putting together evidence as to the company's solvency. [51]

An issue based approach to costs was adopted in Re Sunbird Business Services Ltd  [2020] 7 WLUK 341 (' Sunbird '). In  Sunbird , the company had applied for an injunction restraining advertisement of a winding up petition on 3 grounds: (i) petiton was for collateral purpose; (ii) debt was disputed on substantial grounds; and (iii) Corporate Insolvency and Goverance Bill 2020 (as it then was) meant, in effect, the petition could not proceed. An insolvency judge dismissed (i) and (ii) at a hearing as hopeless, but insufficient time meant (iii) was decided, at a later hearing. At that later hearing, before a different judge, (iii) was decided in the company's favour. Deputy ICCJ Agnello QC awarded costs on an issue based approach as the matters, dealt with by two different judges, were suitably circumscribed. They had been dealt with at two different hearings and they were very different issues. Company to pay petitioner on (i) and (ii), which amounted to 75% of the costs; petitioner to pay company on (iii).

Improper, Unreasonable and/or Negligent verification of Petition by Solicitor

A company against whom a creditors winding up petition is dismissed on the basis it is an abuse of process, could consider whether the Court might make a wasted costs order against the petitioner's solicitor, if that solicitor verified the contents of the petition and such verification was improper, unreasonable and/or negligent. Such a jurisdiction exists under section 51 of the Senior Court Act 1981. Subsection (6) empowers the Court to order the legal or other representative concerned to meet the whole of any wasted costs, or such part of them as may be determined in accordance with rules of court. Wasted costs means, inter alia, any costs incurred by a party as a result of any improper, unreasonable or negligent act on the part of any legal or other representative or any employee of such a representative - see generally Ridehalgh v Horsefield [1994] Ch 205 [52] .

In  In Re A Company (No 006798 of 1995) [1996] 1 WLR 491, Chadwick J dismissed a petition '...on the grounds that its presentation had been an abuse of process of the court' (493), ordered indemnity costs against the petitioner (493), and after a further hearing, found the petitioner's solicitor had acted unreasonably when he swore an affadavit verifying the petition, and ordered the petitioner's solicitor to pay the whole of the company's costs (506). After outlining how the threat of advertisement of a petition can exercise commercial pressure on the threatened company, Chadwick J said, at 506: 'I am satisfied that the matters to which I have referred were perfectly well known to [the petitioner's solicitor]; that they formed part of the thinking ... and that he allowed himself to be party to a course of action which was thought to be in his client's commercial interest in circumstances in which he knew, or must be taken to have known, that this was a petition which, if fought on its merits, would fail. I do not hold that a solicitor who, on his client's express instructions, presents a petition in those circumstances must, necessarily, be said to have acted unreasonably or improperly. I do hold that a solicitor who, in swearing an affidavit in the short statutory form to support a winding up petition, asserts on his oath a belief that a debt is owing and that the company is insolvent acts improperly if he does not have that belief; and acts unreasonably if there are no grounds upon which a competent solicitor could reach that view on the material available to him.' [53]

For an example, see Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1416 (Ch), a decision of HHJ Paul Matthews sitting as a judge of the High Court, on 15.6.22. In that case, an application 'by' a company for an injunction prohibiting the presentation of a creditors winding up petition, was struck out by the Court, because the director of the company directing the application, had not and did not, have authority from the company, to cause the company to make/pursue the application. The respondent/would-be petitioner, sought a costs orders against: (i) the company (which was granted); (ii) the director directing the application (refused jointly); and, importantly for present purposes, (iii) a wasted costs order against the (purported - since they were not actually the) company's solicitors (a firm 'NRG'), on a jointly liable basis with the company (paragraph 3). On the return date in respect whether or not to make a wasted costs order against NRG, HHJ Paul Matthews sitting as a judge of the High Court, on 4.7.22, proceeded to make a wasted costs order against NRG ( Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1687 (Ch); the judgment also includes a helpful summary of the law) [54]

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

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.

[0] Corporate Insolvency and Governance Act 2020, Schedule 10, introduced additional hurdles to pursuing a creditors winding up petition. The contents of Schedule 10 has changed over time. For creditor winding up petitions presented:

(1) prior to 1 October 2021, readers should read the Corporate Insolvency and Governance Act 2020, Schedule 10  and the connected  Insolvency Practice Direction . Particular reference is made to Schedule 10, paragraph 19(2): 

'Any provision of the 2016 Insolvency Rules which requires or permits (or authorises the court to require or permit) notice, publication or advertisement of the petition does not apply until such time as the court has made a determination in relation to the question of whether it is likely that the court will be able to make an order under section 122(1)(f) or 221(5)(b) of the 1986 Act.'

There is also the  Temporary Insolvency Practice Direction supporting the Insolvency Practice Direction  (updated on 30 June 2021), with Practice Direction - Insolvency Proceedings.  

(2) on or after 1 October 2021 (but before 30 March 2022), readers should read about the latest content in Schedule 10, here ;

(3) after 31 March 2022, the Corporate Insolvency and Governance Act 2020 imposes no additional hurdles to presenting a creditors winding up petition.

However, for unpaid commercial rent debts, see The Commercial Rent (Coronavirus) Act 2022 (which came into force on 24 March 2022), in particular: (a) section 27 entitled 'Temporary restriction on winding-up petitions and petitions for bankruptcy orders'; and (b) Schedule 3, paragraph 1, entitled 'Prohibition on presenting a winding-up petition solely in relation to a protected rent debt'

[1a]  In  PGH Investments Ltd v Sean Ewing [2021] EWHC 533(Ch), Deputy ICC Judge Passfield referred, at paragraph 33, to these as: '...the well-known adverse consequences that would flow from advertisement, including the freezing of the company's bank accounts and potentially significant reputational damage .'

In  In Re A Company (No 006798 of 1995) [1996] 1 WLR 491, a construction case, Chadwick J said, at 505/506:

'It is a feature of the winding up process that the presentation of a petition may have very serious consequences for the company against which it is presented whether or not, on the hearing of the petition, it is held the petitioner is entitled to a winding up order. Those consequences arise by virtue of the provisions of sections 127 and 129 of the Insolvency Act 1986. Section 129(2) provides that, in the absence of some prior resolution for voluntary winding up, if a winding up order is eventually made, the winding up of a company is deemed to commence at the time of the presentation of the petition for winding up, and section 127 provides that where a winding up order is eventually made any disposition of a company's property made after the commencement of a winding up is, unless the court otherwise orders, void.

The effect is that a person dealing with the company after a petition has been presented is at risk that any disposition of the company's property effected in the course of that dealing will be held void if a winding up order is eventually made. In practice, once a third party comes to know of the presentation of a petition, it may very well refuse to have further dealings with the company until the petition has been disposed of. It is common for a company's banker to freeze its bank account once the bank learns of the presentation of a petition.

It is, perhaps, for that reason, amongst others, that a petition may not be advertised during a period of seven days from service on the company. A company upon whom a winding up petition is served, or against whom a petition is threatened, must pay the debt, or must incur the expense of an application to strike out or to restrain presentation of the petition. If the company allows the petition to be advertised then there is a serious danger that the damage that will be done to the company by the advertisement will far outweigh any commercial advantage in disputing a genuinely disputed debt. Those facts lead to the opportunity for abuse. The presentation of the petition, or the threat to present the petition, imposes on the company a commercial pressure which is different in kind from the issue of a writ. It is, of course, that opportunity to exert commercial pressure which leads to the creditor's decision to present a petition rather than to take proceedings in the official referees' corridor.'

A separate matter, is that the petitioner owes the company no common law duty of care for its conduct in the litigation, so a company harmed by the petitioner's behaviour in litigation cannot sue for damages from breach of a common law duty of care. In Business Computers International Ltd v Registrar of Companies [1988] Ch. 229 (' Business Computers '), Scott J heard an application by a former petitioner, for an order, striking out a claim brought by a company (former respondent to a winding up petition). The petitioner had presented a winding up petition against the company, but had addressed and served the petition, in error, at the wrong address. The petition was advertised and at a hearing a winding up order was made. Subsequently, the company learnt of the winding up order, and successfully applied to have it set aside. The company then issued an ordinary civil claim against the former petitioner for damages said to have been caused by the winding up order. As stated, the petitioner applied to strike out the claim - arguing that it disclosed no reasonable cause of action.

Scott J acceded to the application and struck out the claim. Scott J stated, at 240-241:

'...the damage of which the [company] complains was caused by the legal process instituted by the [former petitioner] and by the winding up order made by the court. Damage of this character is not, in my judgment, apt to be remediable in an action based on tortious negligence.

In my judgment, there is no duty of care owed by one litigant to another as to the manner in which the litigation is conducted, whether in regard to service of process or in regard to any other step in the proceedings. The safeguards against impropriety are to be found in the rules and procedure that control the litigation and not in tort.'

Separately, falsity of evidence given in judicial proceedings (for instance, the verification of the petition by an affidavit sworn) cannot be the foundation for a civil claim (see Scott J in Business Computers , at 235)

If there is malice or, it seems, improper motive, the situation is different. Scott J said, in Business Computers , at 235:

'In Radivojevic v. L.R. Industries Ltd. (unreported), 22 November 1984; Court of Appeal (Civil Division) Transcript No. 514 of 1984...May LJ said:

"Although such a claim does not come frequently before the courts, an action does lie in respect of injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company, or bankruptcy proceedings against an individual. It is necessary to show, first, that the proceedings terminated favourably in favour of the plaintiff; secondly that there was absence of reasonable and probable cause for bringing them; and thirdly, that there was malice or improper motive."

'It is implicit in the decision that the commencement of bankruptcy proceedings or the presentation of a winding up petition cannot found an action in damages unless associated with malice.'

In Partizan Ltd v OJ Kilkenny & Co Ltd [1998] B.C.C. 912 (1997) '( Partizan '), Rimer J (922) relies upon May LJ and Slade LJ's judgments in Radivojevic for the ingredients for the tort.

Partizan is also interesting procedurally. In Partizan a creditors (Kilkenny) compulsory winding up petition was dismissed (as the debt was disputed on substantial grounds). The respondent company (Partizan) to that petition, asked Ferris J to '...give directions as to the making of a claim by [the respondent company] in the same proceeding for damages against [the former petitioner] for the malicious presentation of the petition ' (917). Ferris J ' ...expressed the view that he had never heard of that being done' (917), but was later persuaded to grant leave '...to make an application to the registrar in the existing proceedings for damages against [the former petitioner] for malicious presentation of the petition...' (917). Subsequently, the application came before Rimer J.

The respondent company' counsel argued (919), amongst other points, that the words ‘any other order that it thinks fit’ in s.125(1) of the Insolvency Act 1986 '...empowered Ferris J to authorise [the respondent company] to make its present claim by ordinary application in the then existing proceeding s.' but Rimer J rejected this. Rimer J said, at 919:

'In my judgment, those words are intended to do no more than to confer upon the court the widest jurisdiction to make appropriate orders for the disposal one way or another of the petition itself. They cannot naturally be interpreted as empowering it also to give directions as to the bringing of separate claims in the Companies Court for damages in tort arising out of the circumstances in which the petition came to be presented in the first place. They cannot naturally be interpreted as empowering it also to give directions as to the bringing of separate claims in the Companies Court for damages in tort arising out of the circumstances in which the petition came to be presented in the first place. I can see no reason at all why they should be interpreted as having the width which [counsel for the respondent company] seeks to attach to them. There is simply no need. If the company considers that it has a claim in tort for the malicious presentation of the petition, then the procedure for pursuing it is comprehensively covered in the RSC, and the company's proper course, if it chooses to proceed in the High Court, is to issue a writ. In my judgment, s. 125(1) does not confer any jurisdiction on the court to give directions for the making of such claims by way of an application made in the proceedings commenced by the petition.' [RSC has since been replaced by the CPR].

In the event, because the former petitioner had not promptly applied to have the application struck out, the irregular way of pursuing the claim was allowed to proceed to determination on the merts (921 + 923)

See also the bankruptcy case of Jacob v Vockrodt [2007] BPIR 1568, where HHJ Coulson sitting as a Judge of the High Court said, at 32 and 33, under the general heading 'The Relevant Legal Principles':

' D1 General

32. An action lies in respect of injury caused by the malicious and unreasonable commencement of bankruptcy proceedings against an individual: see Gregory v. Portsmouth City Council [2000] 1 AC 419 at 427, House of Lords. Such an action shares many similarities with the tort of malicious prosecution, under which head a number of the relevant authorities occur. The tort of malicious presentation of a bankruptcy petition was described in Gregory as an exceptional class of civil proceedings which would not be extended and could be regarded as something of an anomaly.

D2 The Necessary Elements

33. There are five elements to a successful claim of this type. They are:

(a) the presentation of a bankruptcy petition;

(b) the termination of that petition in favour of the party against whom it was made;

(c) the absence of reasonable and probable cause for the presentation of that petition;

(d) the malicious presentation of that petition;

(e) the identification of damage caused by the malicious presentation of that petition.'

The Judge then set out each of these 5 elements, from paragraph 34 to 44.

For collateral improper purpose, see: (1) Hall (Liquidator of Ethos Solutions Ltd) v Nasim [2021] EWHC 142 (Ch); [2021] B.P.I.R. 550, where ICCJ Barber said, at paragraph 30:

'It is ... an abuse of process to pursue a claim for an improper collateral purpose. However, what is an improper collateral purpose is not easy to define and few cases have been struck out solely on this basis: see Goldsmith v Sperrings Ltd 1977 1 WLR 478 CA per Bridge LJ.'

In Goldsmith v Sperrings Ltd [1977] 1 W.L.R. 478, Bridge LJ said, at 503B to 503H:

'[Counsel for the distributors] relied, in support of the submissions which I have summarised in paragraphs 1 and 2 above, on the dictum of Lord Evershed M.R. in In re Majory [1955] Ch. 600, 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 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."

For the purpose of Lord Evershed's general rule, what is meant by a " collateral advantage "? The phrase manifestly cannot embrace every advantage sought or obtained by a litigant which it is beyond the court's power to grant him. Actions are settled quite properly every day on terms which a court could not itself impose upon an unwilling defendant. An apology in libel, an agreement to adhere to a contract of which the court could not order specific performance, an agreement after obstruction of an existing right of way to grant an alternative right of way over the defendant's land - these are a few obvious examples of such proper settlements. In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process. These two cases are plain; but there is, I think, a difficult area in between. What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired byproduct of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it. But on the view I take of the facts in this case the question does not arise and it is neither necessary nor desirable to try to lay down a precise criterion in the abstract.

In Re Swindon Town Football Co Ltd [2022] EWHC 2071 (Ch), Deputy ICC Judge Baister said, at paragraph 35:

'...the presentation of a petition by a person who has an undisputed debt will only be an abuse in two situations:

"The first is where the petitioner does not really want to obtain the liquidation or bankruptcy of the company or individual at all, but issues or threatens to issue the proceedings to put pressure on the target to take some other action which the target is otherwise unwilling to take. The second is where the petitioner does want to achieve the relief sought but he is not acting in the interests of the class of creditors of which he is one or where the success of his petition will operate to the disadvantage of the body of creditors" (Maud v Aabar Block Sarl (supra)).

The reference to here is to Maud v Aaber Block Sarl [2015] BPIR 819

[1b] For a case where the petition was warranted, see Micom International Ltd v HTS TEL Ltd [2014] EWHC 4455 (Ch) ('Micom'), a decision of HHJ Pelling KC sitting as a Judge of the High Court. In Micom , the company applied for an injunction restraining (amongst other things) presentation of a creditors winding up petition. The company argued that (a) there was a bona fide dispute, on substantial grounds, as to the debt which was to found the (threatened) winding up petition; and (b) a governing law clause (to UAE) mean the English Court could not determine the issue. The application for the injunction failed as each (a) and (b) argument failed.

It would be proper for the would be petitioner to present and pursue the (threatened) winding up petition; any harm to the company (in particular, from advertisement of the petition), would not be unwarranted.

[2a] Three points here:

(1) It is the company's right, not the right of any director or shareholder of the company, to make the application;

(2) those who cause the company to issue and pursue an application for an injunction, must have authority to so act for the company. In Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1110 (Ch), HHJ Paul Matthews (sitting as a Judge of the High Court) struck out the company's application '...on the basis that the director of the applicant who gave instructions to the solicitors to launch these proceedings had no authority on behalf of the company to do so...' (paragraph 2); and

(3) a company subject to a general civil restraint order must first comply with the permission requirements in the general civil restraint order, before applying for an injunction to restrain presentation or advertisment of a winding up petition. 

The first and third points were addressed by Snowden J in  (1) Christine Harper (2) Shorts Gardens LLP v London Borough of Camden Council; Preston City Council (re Saint Benedict's Land Trust Ltd)  [2020] EWHC 1001 (Ch) ( Saint Benedict's) .

(1) In Saint Benedict's , an application was made for an injunction restraining the presentation of a petition against Saint Benedict's Land Trust Ltd (the 'SBLT Petition'), but it was not made by the company ('SBLT') itself, but by a director/trustee of SBLT (a company incorporated under the Co-operative and Community Benefit Societies Act 2014).

Snowden J posed the question, at paragraph 14, ' ...whether an application can be made by [the director/trustee applicant] to restrain presentation of a petition against SBLT at all.. '

Snowden J said, at paragraphs 15 - 21:

' [The director/trustee's] application expressly states that it is made under r.7.24(1) Insolvency (England and Wales) Rules 2016. That provides,

"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." (emphasis added)

Rule 7.24(1) does not envisage an application for an injunction being made by any person other than the company. That is not surprising. In general, an injunction will only be granted where there is a threat to do an act which constitutes an invasion of a legal or equitable right of the applicant: see e.g. Fourie v Le Roux [2007] 1 WLR 320 at [25]-[30].

In the context of winding up proceedings, an injunction is granted to restrain the presentation of a winding up petition where the debt is genuinely disputed on substantial grounds. The reason for that is that under the Insolvency Act 1986, a creditor's winding up petition can only be presented by a creditor; that until a person has established that they are a creditor they are not entitled to invoke the statutory process; and the winding up procedure is not for the purpose of deciding a disputed debt: see Stonegate Securities v Gregory [1980] Ch 576 at pages 579-580 referring to Mann v Goldstein [1968] 1 WLR 1091 at pages 1098-1099. The legal right being invaded in such a case is the right of a company not to be subjected to the statutory winding up process other than at the instigation of an undisputed creditor. But that is the company's right, not the right of any director or shareholder.

What [the director/trustee applicant] contends in her statement – and [Counsel for SBLT] reiterated in submissions – was that as a director and shareholder [the director/trustee applicant] would be affected by a petition to wind-up the company and that she should therefore be regarded as having a sufficient interest in the subject-matter of the case so as to justify the grant of an injunction. When pushed on the nature of that interest, however, [Counsel for SBLT] could not point to any additional factors that went beyond the mere holding of office as a director or the holding of shares.

I do not consider that the mere holding of office as a director or the holding of shares in a company gives an individual a sufficient personal interest to apply for an injunction to prevent winding up proceedings being commenced against the company.

A director is an office-holder with powers and duties owed to the company under the company's constitution and the general law, and who may be given authority to act as agent on the company's behalf. But directors are not personally entitled to any remuneration or other benefit simply by virtue of holding office.

A share is a piece of property which consists of a bundle of rights against the company and the other shareholders under the company's constitution, but the making of a winding up order does not deprive the shareholder of his shares. It is simply that different rights apply under the company's articles in a winding up, and the shares may be valueless if the company has insufficient assets to pay its liabilities in full.'

Counsel for SLBT relied upon Mann v Goldstein , but Snowden J said, at paragraph 22:

'I do not consider that this case supports his proposition that holding office or shares gives a person an individual right to apply for an injunction. '

See further, paragraphs 23 - 26 of Saint Benedict's , on respresentative actions.

(2) SLBT was already subject to a live General Civil Restraint Order ('GCRO'), not subject to appeal. Snowden J stated at paragraph 30, that:

'...the GCRO plainly does prevent SBLT from making a pre-emptive application to restrain presentation or applying in the winding up proceedings to restrain the advertisement of a petition without first obtaining the permission of the nominated judge to do so.' [underlying in judgment]

At paragraphs 35 and 36, Snowden J said:

'I can see that the mechanics for giving notice to the other parties and making an application to the nominated judge for permission under a GCRO do not easily lend themselves to a situation where the company may have a limited time to apply to prevent the presentation or advertisement of a winding-up petition. But that is the consequence of the company incurring a civil restraint order by making repeated applications that are totally without merit, and the company only has itself to blame.

Accordingly, in my judgment SBLT would clearly be barred by the GCRO from making an application either to restrain presentation of a winding up petition against it or from making an application to restrain advertisement of an existing petition unless it has first followed the procedure under the GCRO for giving notice to Camden and Preston and then has obtained the permission of the nominated judge.'

A company subject to the winding up petition can defend itself (without seeking permission under the GCRO) when the winding up is heard in the normal way. Snowden J said in Saint Benedict's , at paragraph 30, after referring to Neuberger J in Glyn v Mathew (unreported). 

'To apply Neuberger J's point, the GCRO does not require SBLT to obtain permission merely to defend the winding up petition brought against it. That it is entitled to do by putting in evidence in opposition and appearing at the hearing of the petition to argue that the order should not be made. But the GCRO plainly does prevent SBLT from making a pre-emptive application to restrain presentation or applying in the winding up proceedings to restrain the advertisement of a petition without first obtaining the permission of the nominated judge to do so. '

Snowden J in Camden LBC v St Benedict's Land Trust Ltd  [2019] EWHC 3576 (Ch) said, at paragraph 69:

' A civil restraint order does not prevent a person from defending themselves in court proceedings by, for example, filing a defence, or evidence seeking to resist an order being made against them: c.f. Sartipy v Tigris at [31] in relation to what constitutes a claim or application for the purposes of determining whether the jurisdiction to make a civil restraint order is made out. A civil restraint order does, however, seek to prevent a defendant from making improper and meritless applications with a view to derailing or disrupting proceedings brought against it. '

Combining the above two issues, Snowden J said, at paragraph 39:

'In any event, whatever reason has been given, it is obvious that a civil restraint order against a company should not be capable of being evaded, or its efficacy diminished, by the simple expedient of a director or shareholder making the application instead of the company. Whatever [the director/trustee applicant's] alleged motivation, in my judgment her application was a clear abuse of process.'

[2b]  One prelude to a winding up petition being presented against a company, is for the would-be petitioner to serve a statutory demand on the company. In corporate insolvency, serving a statutory demand is but only one way of attempting to show ' the company is unable to pay its debts... ' under section 122(1)(f) and s123 of the Insolvency Act 1986.

Where a company receives a statutory demand, there is no procedure, like with personal insolvency, for the recipient (the statutory demandee) to apply to Court for an order setting aside the statutory demand. In Corporate Insolvency: Law and Practice, 5th Edition, paragraph 14:44, footnote 1, the authors state that ‘ There is no procedure similar to that in bankruptcy for applying to set aside the statutory demand (IR 2016 r.10.4). The proper course of action is to seek the restraint of the petition by way of application (IR 2016 r.7.24) '

As an aside, statutory demands tend to be used much in personal insolvency than in corporate insolvency. In personal insolvency, sectio 268 of the Insolveny Act 1986, entitled 'Definition of “inability to pay”, etc.; the statutory demand' applies, requiring either:

(a) a statutory demand (section 268(1)); or

(b) execution or other process on a judgment debt, along with it returning unsatisfied in whole or in part.

'For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either- (a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory demand”) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or (b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.'

On execution or other process, and returning unsatisfied, see: (i) Re a Debtor (No.340 of 1992) [1996] 2 All E.R. 211; and (ii) Skarzynski v Chalford Property Co Ltd [2001] BPIR 673.

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

[4a]  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. 

[4b] See for an example, Re Glocin Ltd Glocin Ltd v Bancibo SE [2022] EWHC 1858 (Ch), wherein ICC Judge Barber heard an application by a company facing an extant creditors winding up petition, for an order ' to strike out the Petition as an abuse of process and/or to restrain advertisement' (paragraph 2(1))

For more examples, see: (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 because the debt founding the petition is said to lack the substantiality, 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),

[11a]  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 the 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.'

[11b] 'advertise' has two meanings. In Sealy & Milman: Annotated Guide to the Insolvency Legislation 26th Ed. - 2023, in the commentary entitled 'General Note to r.7.4 to 7.12', the learned authors put it this way:

'The word “advertised” (and in this context, “notice”) has two meanings: (1) a paid announcement in a general publication; and (2) notifying the existence of the matter in question. Where the court has made an order restraining the advertisement of a winding-up petition, the word is to be construed in a wide sense, and any communication to an unauthorised party (e.g. informing the company’s bank) of the fact that the petition has been presented will be a breach of the order'

In other words, in an injunctive order restraining 'advertisement' or 'advertising' - the word 'advertisement' or 'advertising' is given a wide meaning. It prohibits any notification being given to any unauthorised third parties about the presentation/existence of the winding up petition. The prohibition is not limited to not putting an advert in the Gazette.

In Re a Company No. 00687 of 1991 [1991] BCC 210, Harman J deal with a case where:

(1) there had been ' an ordinary contributory's petition under sec. 459, although coupled...with an application for a just and equitable winding up ' (paragraph 1)

(2) a registrar had '...made the normal form of order that there be no advertisement of the petition without further order...' (paragraph 1), as well as section 127 order, validating any ' ...payments into and out of the company's bank account in the ordinary course of business between presentation and judgment...' (paragraph 1);

(3) the solicitors for the petitioner had written to Barclays Bank, the branch at which the respondent/company had a bank account, and had stated (paragraph 2)

'“We write on behalf of our client to bring to your attention the fact that he has presented a petition which seeks, amongst other things, the winding up of the company…”

Harman J said:

'That sentence plainly adverts to the petition seeking a winding up when an order had been made that no advertisement of that petition should be made.' (paragraph 3);

'The result was that the bank – quite wrongly in view of the sec. 127 order which had been made – froze the company's bank account. In my judgment, that would not have happened had the solicitors omitted the reference to the petition to the court seeking a winding-up order. With respect to them, it was not a necessary statement...the reference to a winding up was one which was unnecessary, I believe, and, in my judgment, was, although I accept inadvertently, a breach of the registrar's order that there be no advertisement of the petition.'

See also Re Doreen Boards Ltd [1996] 1 BCLC 501.

[11c] Advertisement of the petition is permitted/required only within prescribed time limits. Insolvency Rules 2016, r.7.10(4) is the important part but, for completeness, r.7.10, entitled 'Notice of petition', is set out in full below:

'(1) Unless the court otherwise directs, the petitioner must give notice of the petition.

(2) The notice must state–

(a) that a petition has been presented for the winding up of the company;

(b) in the case of an overseas company, the address at which service of the petition was effected;

(c) the name and address of the petitioner;

(d) the date on which the petition was presented;

(e) the venue fixed for the hearing of the petition;

(f) the name and address of the petitioner’s solicitor (if any); and

(g) that any person intending to appear at the hearing (whether to support or oppose the petition) must give notice of that intention in accordance with rule 7.14.

(3) The notice must be gazetted.

(4) The notice must be made to appear–

(a) if the petitioner is the company itself, not less than seven business days before the day appointed for the hearing; and

(b) otherwise, not less than seven business days after service of the petition on the company, nor less than seven business days before the day appointed for the hearing.

(5) The court may dismiss the petition if notice of it is not given in accordance with this rule.'

Business days mean Saturday, Sunday and Public Holidays are excluded. 

The reason why this window of time exists, was neatly put in the relatively old case of Re Signland [1982] 2 All ER 609 ('Signland'), wherein Slade J said of the introduction of the delayed advertisment rule:

'...the principal reasons why the rules have directed that advertisement shall take place not less than seven clear days after service on the company are (1) to give a company served with a winding-up petition the opportunity to discharge the debt in question, if it is undisputed, before advertisement takes place, with all the necessarily potentially damaging consequences to the company, and (2) to enable the company, if it wishes to dispute the debt, to apply to the court to restrain advertisement. As a matter of indulgence, however, it has been my practice during this term to accept premature advertisement where it has taken place less than seven clear days after service on the company and the company has not appeared to take the point.'

In Re Roselmar Properties Ltd  [1986] Lexis Citation 1118; [1986] BCC 99, 156 (' Roselmar '), Harman J summarised this, without demur.

Premature advertisement is contrary to the rules:

(1) In Roselmar, Harman J said:

'In this matter the petition was presented on 13th January and answered for today. Upon the papers being checked in chambers it appeared that the petition was advertised only four days after service. That, of course, is in breach of the Rules of the Companies Court, which now provide that seven clear days must elapse between service and advertisement. The matter is of considerable significance because the winding-up rules were deliberately changed in order, as Mr Justice Slade (as he then was) said in Re Signland Ltd [1982] 2 All ER 609 G-H, firstly that a company which did not dispute the debt could pay off the debt before advertisement, because the court knows very well how damaging advertisement is. Secondly, to enable the company, if it disputed the debt, to apply to restrain advertisement and to put before the court the substantial grounds upon which the debt is said to have been disputed.'

(2) In Signland , the breach was more significant, because advertisement occured before the petition had even been served. This warranted, as against the petitioner, the petition being struck out. Slade J started by stating:

'This is a petition seeking the usual compulsory winding-up order in respect of a company, Signland Ltd. It was presented by Billing & Sons Ltd, the petitioner, on 5 January 1982. Rule 28 of the Companies (Winding-up) Rules 1949, SI 1949/330 (amended by SI 1979/209; SI 1981/1309), provides that, unless the court otherwise directs, every petition shall be advertised once in the London Gazette not less that seven clear days after it has been served on the company and not less than seven clear days before the day fixed for the hearing.'

[Note Rule 28 of the Companies (Winding-up) Rules 1949, SI 1949/330 (amended by SI 1979/209; SI 1981/1309) has subsequently been repealed]

'As a matter of indulgence, however, it has been my practice during this term to accept premature advertisement where it has taken place less than seven clear days after service on the company and the company has not appeared to take the point. '

Slade J continued later:

'In the present case, I understand, not only was there a failure to allow the company seven clear days after service of the petition before advertisement took place, but the advertisement in fact took place two days before the petition was served. Furthermore the company has appeared to take the point. While I am quite content to accept the assurance of counsel appearing on behalf of the petitioner to the effect that this breach of the rules was not deliberate, it seems to me to have been a flagrant and serious breach and one of a type which the court must take every step to discourage.

Rule 28(3) of the 1949 rules, which was recently added by the Companies (Winding-Up) (Amendment) (No 2) Rules 1981, SI 1981/1309, now expressly empowers the court to order the removal from the file of a petition if it is not duly advertised in accordance with r 28.

In the past, as I have indicated, I have not ordinarily exercised this power in cases where advertisement has been premature but the company has taken no objection. However, in none of the earlier cases before me, so far as I can remember, has advertisement actually preceded the presentation of the petition. To advertise before service of the petition appears to me not only an infringement of the rules but a serious abuse of the whole process of advertisement.

In the circumstances, I would ordinarily strike out this petition. But counsel for the Inland Revenue Commissioners has indicated that his clients, whose names appear on the list as supporting creditors, wish to be substituted as petitioners. Subject to further submissions, I propose to give them leave to be substituted and make the usual directions.

Advertisement gives constructive notice of the existence of the petition - see Re London, Hamburg and Continental Exchange Bank ( 1866) LR 2 Eq 231.

[11d] In Time GB Group Ltd v Yarwell Mill Country Park Ltd [2023] EWHC 1887 (Ch), ICC Judge Barber said, under the heading 'submissions and conclusions' and subheading '(1) Timing of Presentation', at paragraph 34:

'The first ground relied upon by the [company/applicant] in support of the strike-out limb of its application was the extraordinary proposition that the petition should not have been treated as having been presented in circumstances where the Company filed its application to restrain presentation before the date of presentation. On that basis, [counsel for the company/applicant] contended that the court should simply dismiss the petition: skeleton argument, paragraph 3. This was an utterly hopeless argument which I have no hesitation in rejecting. The mere filing of an application to restrain presentation of a petition does not of itself preclude presentation.'

[12a]  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.

In Signature Living Hotel Ltd v Sulyok  [2020] Bus. L.R. 588, HHJ Hodge QC sitting as a High Court Judge said, at paragraph 15:

'... I accept, that an injunction would be granted where a petition is bound to fail as a matter of law. '

[12b] For an authority on a company (unsuccessfully) applying for an injunction to restrain presentation of a creditors winding up petition, on (amongst others) the ground that the would-be petitioner would be pursuing it for ulterior purposes, see Astra Resources plc v Credit Veritas USA LLC [2015] EWHC 1830 (Ch) (23 June 2015)

[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, at 576e:

‘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, at 579a: 

‘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.

In Khan v Singh-Sall [2023] EWCA Civ 1119, CA (' Singh-Sall ') Nugee LJ quoted from: (1) Re Claybridge Shipping Company SA [1997] 1 BCLC 572 ( Singh-Sall , paragraph 38); and (2) Parmalat Capital Finance Ltd v Food Holding Ltd (In Liquidation)  [2008] BCC 371, PC, Lord Hoffman, paragraph 9 ( Singh-Sall, paragraph 39) with apparent approval, since he said that same approach applied to personal insolvency as well ( Singh-Sall, paragraph 40), stating:

'In my judgement the same is true in bankruptcy. The normal practice of the Court is to dismiss a creditor's petition if the petitioner's debt is bona fide disputed on substantial grounds. ...this is a rule of practice rather than law, and the Court had power to entertain the [petitioning creditor's] petition. The dispute therefore on any view did not prevent the Court having jurisdiction to hear the petition.'

[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…’

In  Botleigh Grange Hotel Limited v Her Majesty's Revenue and Customs  [2018] EWCA Civ 1032, in the Court of Appeal, Asplin LJ said, at paragraph 8:

'It is now also accepted that the approach of the Companies Court in not determining the merits of genuine disputes that are based on substantial grounds is a matter of practice and not one of jurisdiction and that the court retains a discretion to do so: Brinds Ltd v Offshore Oil NL (1986) 2 BCC 98 ,916 per Lord Brightman at 98,921 and 98,922; Claybridge Shipping Co SA [1997] 1 BCLC 572 per Oliver LJ at 578h; Parmalat Capital Finance Ltd v Food Holdings Ltd (in liquidation) [2008] BCC 371 per Lord Hoffmann at [9]; and Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2014] BCC 327 per David Richards J (as he then was) at [5] and [41] with whom Patten and Thorpe LJJ agreed. There may be cases in which it is in accordance with the overriding objective to exercise the Court's discretion to determine the merits of the underlying dispute because: it is clear that all of the relevant evidence is before the court; the matter can be decided on the documents alone and that is accepted to be the case; counsel is fully prepared to argue the merits of the substantive dispute; and there is sufficient court time to do so.'

It should be noted though that this was a statement aimed at describing an issue that was no longer a subject of the appeal, as Asplin LJ said earlier, in paragraph 1:

'It is no longer argued that it was not open to the court on such an application to determine the merits of the underlying dispute in relation to the petition debt or an alleged cross claim rather than merely to decide whether the debt was the subject of a genuine and substantial dispute or was subject to a cross claim which was genuine and of substance...'

The 1st instance judgment of Andrew Simmonds QC (sitting as a deputy judge of the High Court) in Botleigh Grange Ltd v Revenue and Customs Commissioners [2016] EWHC 3081 (Ch) does not seem to be available. Only a summary is available: [2016] 11 WLUK 170

[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.’

It is interesting to note, though only of tangential relevance, that the Court of Appeal in Global 100 Limited v Maria Laleva [2021] EWCA Civ 1835 held that, the test under CPR r.55.8(2) for whether a possession claim was genuinely disputed on grounds which appeared to be substantial (and so the defence should be allowed to be pursued further, to trial), was the same as for summary judgment. It seems that the threshold for summary judgment is useful in many areas of the law. 

[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.'

[21c] In  Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3203, [2016] BPIR 1129, Hildyard J said, at paragraphs 31 to 42:

'31 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): Mann v Goldstein [1968] 1 WLR 1091. See also Buckley LJ in Bryanston Finance Ltd v De Vries (No. 2) [1976] Ch 63 at p. 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 .”

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.

33 The court will also restrain a company from presenting a winding-up petition in circumstances where there is a genuine and substantial cross-claim such that the petition is bound to fail and is an abuse of process: see e.g. Re Pan Interiors [2005] EWHC 3241 (Ch) 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.

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

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

36 As stated by Chadwick J (as he then was) in Re a Company (No. 6685 of 1996) [1997] BCC 830 at 838:

“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.”

37 There was some disagreement between the parties before me as to the relevance of proof of the relevant company's solvency. The question has not infrequently been considered, primarily because the ground for winding up is not a company's continued indebtedness but that company's insolvency: it is the inference that may be drawn from its failure to discharge undisputed or substantially indisputable indebtedness which is the true basis of the petition.

38 Mr Ashworth on behalf of Camtrex relied especially (and repeatedly) in that regard on the Court of Appeal's decision in Re Taylor's Industrial Flooring Ltd [1990] BCC 44 , where it was emphasised that (a) “if a debt is due and an invoice is sent and the debt is not disputed, then the failure of the debtor company to pay the debt is itself evidence of inability to pay”; (b) that inference is permissible even in the case of a company which is known to be in a strong financial position (see Cornhill Insurance plc v Improvement Services Ltd [1986] 1 WLR 114 ), lest otherwise solvent companies be insulated from the process and encouraged to spin out the time for payment; and (c) to displace the inference, the reason for non-payment must be substantial: “It is not enough if a thoroughly bad reason is put forward honestly.”

39 Mr Alexander, for the Company, submitted that the court should take into account all the circumstances, including whether (a) the alleged debt was entirely undisputed, or had been the subject of a stated objection and (b) the subject company appeared otherwise to be in good financial state, if so minimising any justification for a winding up (especially since a petition is a class remedy (being a remedy brought by a creditor for the protection not of himself but, whether appreciated or not, all other creditors)). Mr Alexander particularly relied on the judgment of Hoffmann J (as he then was) in Re a Company no. 0012209 of 1991 [1992] 1 WLR 351 , in which he stated:

“I do not for a moment wish to detract from anything which was said in the Cornhill Insurance 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 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 RSC Ord 14 procedure.”

40 There is a measure of policy in all this. In the Cornhill Insurance case, the court's approach was to deprecate and discourage large companies standing on their size and treating and flaunting their obvious solvency as a shield or insulation against petitions even when based on undisputed debts. So too in Taylor's Industrial Flooring , the judge had found, and the Court of Appeal proceeded on the basis, that there was no substantial ground of defence; the principal purpose of the Court of Appeal's judgments was to make clear that the fact of solvency was not itself an answer to a petition based on an undisputed or indisputable debt.

41 But the point made by Hoffmann J, which I respectfully adopt, is that 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 .

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.'

In  Colt Technology Services v SG Global Group SRL [2020] EWHC 1417 (Ch), Joanne Wicks QC, sitting as a Judge of the High Court, said both counsel before her relied upon these above paragraphs from Coilcolour. She referred expressly, at paragraphs 30 to 32, to paragraphs 31-34, and 41 to 42.

[21d] In Re LDX International Group LLP [2018] EWHC 275 (Ch) - a decision successfully appealed but not on the law: Misra Ventures Ltd v LDX International Group LLP [2019] BCC 739 - Mr David Stone, sitting as a deputy High Court Judge, said, at paragraph 22:

'It seems to me that a number of uncontroversial propositions can be drawn from these cases. Given the clarity of the language of the Court of Appeal and judges of this court, it is appropriate, where possible, for me simply and respectfully to repeat their remarks:

a. In the absence of special circumstances, it will be appropriate to issue an injunction to prevent the presentation and advertisement of a winding up order where there is a genuine and serious cross-claim in an amount exceeding the petitioner's debt. The cross-claim must be genuine and serious, or, in other words, one of substance: In re Bayoil, at page 155.

b. If there is a genuine and serious cross-claim, the company should be allowed to establish its cross-claim in ordinary civil proceedings: the Companies Court is not the right court in which to engage in a detailed examination of claim and counterclaim: Dennis Rye, at paragraph 19.

c. It is incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim is genuine and serious: Orion Media, at paragraph 31. Bare assertions will not suffice: there is a minimum evidential threshold: Re a Company, at paragraph 33.

d. But it is not practical or appropriate to conduct a long and elaborate hearing, examining in minute detail the case made on each side. A lengthy hearing is likely to result in a wasteful duplication of court time: Tallington Lakes, at paragraph 41.

e. If there is any doubt about the claim or the cross-claim, then the court should proceed cautiously. This is because a winding up order is a draconian order, which, if wrongly made, gives the company little commercial prospect of reviving itself: In re Bayoil, at page 156.

f. Petitioning creditors must take a realistic view of whether the company is likely to establish a genuine and substantial dispute: Tallington Lakes, at paragraph 41.

g. A company is not prevented from raising a cross-claim simply because it could have raised or litigated the claim earlier, or because it has delayed in bringing proceedings on the cross-claim. However, the court is entitled to take any delay into account in its assessment of whether the cross-claim is genuine and serious: Dennis Rye, at paragraph 19.'

In the Court of Appeal in Misra Ventures Ltd v LDX International Group LLP [2019] BCC 739, Sir Timothy Lloyd (with whom Newey LJ agreed) said, at paragraphs 14 to 16:

'The judge had received submissions on the relevant law which was not in doubt. He directed himself correctly that the court would restrain the presentation of a winding-up petition, even on an undisputed debt, if the debtor has a genuine serious cross-claim that exceeds the amount of the debt. He also said that an injunction application is not the occasion for a detailed analysis of the asserted cross-claim. If the determination of the cross-claim requires the resolution of substantial questions of fact or law, then it should be left to be decided in ordinary civil proceedings not on the winding-up petition or an injunction application.

It is not suggested that the judge erred in his self-directions as to the law.

...but it seems to me that it is an error of law for a judge, having identified the correct test, not to follow or apply it in the course of his reasoning in considering the material before him.'

It was on Mr David Stone' analysis of the evidence and facts, which resulted in the appeal being allowed. On the law, the Court of Appeal in Misra Ventures Ltd v LDX International Group LLP [2019] BCC 739 added little. Sir Timothy Lloyd said, at paragraph 17:

'The cases in this area are very familiar and not in dispute. I will only refer to a short passage from one case which itself refers back to another. The case is Re a Company (No.006685 of 1996) [1997] B.C.C. 830 , a decision of Chadwick J (as he then was), which refers back to a Court of Appeal decision and in particular the judgment of Oliver LJ in Re Claybridge Shipping Co SA , which had been decided in 1981 but was not reported until [1997] 1 B.C.L.C. 572 . Chadwick J at 835 cited passages from Oliver LJ in the Claybridge case from which I quote one sentence:

“On an application like this court necessarily has to take a view whether, on the evidence, there really is substance in the dispute which is raised.”

Later on the same page Chadwick J said:

“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; 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. Indeed, in the passage from the judgment of Oliver LJ to which I have just referred, he pointed out that the court necessarily has to take the view whether on the evidence there really is substance in the dispute which is raised by the alleged debtor.”'

Returning to Mr David Stone at first instance in Re LDX International Group LLP [2018] EWHC 275 (Ch), in getting to his uncontroversial propositions, he said, from paragraphs 13 to 21, under the subheading 'The Law':

'13. It is well established that the court will restrain the presentation of a winding up petition if the debt is disputed on genuine and substantial grounds. Even if the debt itself is not disputed, the court will restrain the presentation of a winding up petition if the debtor has a genuine and serious cross-claim that exceeds the value of the debt.

14. (I note in passing that, technically, the cross-claim need only equal the debt less £750. Whilst the £750 will be material in some cases, it is not in this case, and so I say no more about it.)

15. In In re Bayoil SA [1999] 1 WLR 147, Nourse LJ, with whom Ward and Mantell LJJ agreed, said this (at page 155):

"The ability of a petitioning creditor to levy execution against the company does not entitle him to have it wound up. Moreover, an order that a company be wound up, unlike a bankruptcy order, is often a death knell. Nor can it be certain that a liquidator, even with security behind him, will prosecute the company's claims with the diligence and efficiency of its directors. These, I believe, are considerations which go to justify the practice in cross-claim cases. 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 must be in an amount exceeding the amount of the petitioner's debt."

16. I note in passing that later courts have occasionally reworded slightly Nourse LJ's requirement that the cross-claim be "genuine and serious or , if you prefer, one of substance" (emphasis added) to a requirement that the cross-claim be "genuine and serious and of substance" (emphasis added): see, for example, Laddie J in Orion Media Marketing Limited v Media Brook Limited and Anor [2002] 1 BCLC 184 at paragraph 35. I have, below, adopted the Court of Appeal's formulation.

17. In In re Bayoil, Ward LJ added this (at page 156):

"Fourthly, a winding up order is a draconian order. If wrongly made, the company has little commercial prospect of reviving itself and recovering its former position. If there is any doubt about the claim or the cross-claim, that seems to me to require that the court should proceed cautiously."

18. As [counsel for the petitioner] rightly conceded, Lord Justice Nourse's remark that the company be "unable to litigate" its claim is not a barrier to injunctive relief. In Dennis Rye Limited v Bolsover District Council [2009] EWCA Civ 372 , Mummery LJ, with whom Elias LJ agreed, said this (at paragraph 19):

"Cases familiar to practitioners in the Companies Court were cited: Re Bayoil SA [1999] 1 WLR 147 at 155 per Nourse LJ; Re a Debtor (No 87 of 1999) [2000] BPIR 589 at 592H- 594G (Rimer J in a bankruptcy case); Montgomery v Wanda Modes Ltd [2003] BPIR 457 at paragraphs 28 to 36 (Park J). The authorities are illustrations of the well established practice of the Companies Court that, if a company has a genuine and serious cross-claim, which is likely to exceed the petition debt, the court will normally exercise its discretion by dismissing the winding up petition and allowing the company the opportunity to establish its cross-claim in ordinary civil proceedings. A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed in bringing proceedings on the cross-claim. The failure to litigate the crossclaim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so."

See also Popely v Popely [2004] EWCA Civ 463 at paragraph 123 per Jonathan Parker LJ, with whom Ward LJ and Moses J agreed.

19. This court, and the Court of Appeal, have also been clear that an application for injunctive relief is not the occasion for a detailed analysis of the claimed cross-claim. For example, in Tallington Lakes Limited v Ancasta International Boat Sales Limited [2012] EWCA Civ 1712 , David Richards J, with whom Thorpe and Patten LJJ agreed, said this (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 LJ 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 Part 7 claim underway. 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."

20. Park J put it this way in Montgomery (at paragraph 8):

"I wish to add one other point of legal principle which is in my view clearly established by the authorities. The point is familiar in cases where the company's ground of opposition to the petition is that it disputes the debt relied on by the petitioner. In the present case WML admits the debt but says that it has a cross-claim in a greater amount. However, I believe that the principle which I am about to state is equally applicable in either context. The principle is that, if the ground of opposition by the company raises substantial questions of fact or law (or both) which are genuinely disputed by it, the petition should be dismissed: a court hearing on a winding-up petition is not the appropriate forum to determine such questions. Rather they should be litigated in the normal forum for resolving them."

21. [Counsel for the petitioner] relied on the decision in Orion Media Marketing Limited v Media Brook Limited [2002] 1 BCLC 184 in which Laddie J said (at paragraph 31) "if the recipient of a statutory demand wishes to put forward a substantial defence to the sums claimed, or a cross-claim, it is incumbent upon it to show that the defence or the cross-claim is indeed genuine, serious and of substance". Bare assertions will not suffice for an injunction, he submitted, citing Warren J in In the matter of Pan Interiors Limited [2005] EWHC 3241 (Ch). As Mr David Foxton QC sitting as a Deputy High Court Judge put it in Re a Company [2016] EWHC 3811 (Ch) at paragraph 33:

"I accept Mr Davies' submission that 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. Nevertheless, 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."

Further, after his set of 'uncontroversial propositions', Mr David Stone, sitting as a deputy High Court Judge in Re LDX International Group LLP [2018] EWHC 275 (Ch) said, at paragraphs 23 to 27:

' 23. [Counsel for the company LDX] submitted that the threshold test for a genuine and serious cross-claim was a "relatively low one" – it must be "more than merely arguable" and have some substance to it. [Counsel for the petitioner] argued in response that "more than merely arguable" is not the test, and I agree. As I have set out above, I do not consider those suggestions to be an improvement on the language of the Court of Appeal. I have therefore applied the test set out by the Court of Appeal in In re Bayoil – is the cross-claim genuine and serious or one of substance?

24. In relation to winding up petitions presented for a collateral purpose, I was directed to In Re Majory [1955] Ch 600, where Evershed MR, Jenkins and Romer LJJ said this a page 623:

"…court proceedings may not be used or threatened for the purpose of obtaining for 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.

…the court will always look strictly at the conduct of a creditor using or threatening such proceedings; and if it concludes that the creditor has used or threatened the proceedings at all oppressively, for example, in order to obtain some payment or promise from the debtor or some other collateral advantage to himself properly attributable to the use of the threat, the court will not hesitate to declare the creditor's conduct extortionate and will not allow him to make use of the process which he has abused."

25. I accept [Counsel for the company LDX's] statement of the law that a petition being sought to secure some collateral purpose, such as to stifle related proceedings, would be an abuse of process, and therefore liable to be restrained.

26. For present purposes, the parties agreed that there is no difference in the principles that apply to (i) an injunction to restrain presentation of a winding up petition, (ii) an injunction to restrain the advertisement of a winding up petition, or (iii) an injunction to restrain other publicising of a winding up petition. I have proceeded on the basis that they stand and fall together.

27. Whilst [counsel for the petitioner] made detailed submissions as to LDX's solvency, I was not taken to any authority which suggests that solvency is part of the assessment to be made as to whether or not LDX has a genuine and serious cross-claim. Again, this application is not the appropriate forum in which to test LDX's solvency. I therefore say nothing further about it.'

[21e] In JT Developments Solutions Ltd v Secretary of State for Education acting through the Education Skills Funding Agency [2021] EWHC 2943 (Ch), HHJ David Cooke (sitting as a Judge of the High Court) said, at paragraphs 1 to 6 inclusive,:

'...the applicants seek to restrain presentation of any such petition, on the ground that their liability for the amounts demanded is disputed and should be determined in ordinary proceedings under CPR Pt 7 and not by the Companies Court.

The relevant law is well known. The court may restrain presentation of a petition to wind up a company if satisfied, on application by the company, that the petition would be an abuse of process. A petition based on a debt that is genuinely disputed, on substantial grounds, by the company is an abuse of process because the standing of the petitioner as a creditor is in dispute and the Companies Court is not equipped, by virtue of the nature of the proceedings before it, to resolve that dispute. It is the settled practice of the Companies Court to dismiss such petitions if they come before it.

Mere assertion of a dispute is not however sufficient, the court must be satisfied that the dispute is genuine and based on substantial grounds. It is prepared to examine the evidence to ascertain whether grounds put forward are substantial or a “cloud of objections” without substance. If the evidence raises a dispute of fact which must be resolved in order to establish the debt, and which is such as to require cross examination of witnesses, that must be done in a conventional trial. Again however not every asserted dispute of fact is such as to require trial; the court may in an appropriate case conclude that the evidence asserted to dispute the debt is incredible or, to put it another way, has no real prospect of being accepted at trial.

While the court may be able to deal with short points of construction on hearing an application for an injunction, where difficult points arise, and particularly any that may require consideration of the factual context, that is likely to require to be dealt with in ordinary proceedings.

The onus is on the company to establish that a petition would be an abuse. The exercise performed by the court is very similar to that which would be required if the company were facing an application for summary judgment, though of course unlike a summary judgment application, the company will not have set out its defence by way of pleadings.

As examples of cases setting out these propositions, [Counsel for the Secretary of State] referred me to Coilcolor Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch) at [32]-[35], Re a Company (No 006685 of 1996) [1997] 1 BCLC 639 and Angel Group Ltd v British Gas Trading Ltd [2012] EWHC 2702 (Ch), among others. [Counsel for the Applicants] do not dissent in any respect.'

[21f] In The Petitioner v The Company [2021] EWHC 3249 (Ch), ICCJ Barber said, under the subheading 'Principles to be applied', at paragraphs 80-81

The settled principles governing applications to restrain are helpfully summarised in Angel Group Ltd v British Gas Trading Ltd [2013] BCC 265 at [22] by Norris J as follows:

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

(a) A creditors 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 WLR 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 parts 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 WLR 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] BCC 830 at 832F.

(f) But the courts 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 affidavits 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 judgement: (ibid. at 837B).'

On behalf of the petitioner, [counsel for the Petitioner] also referred me to the cases of LDX International Group LLP v Misra Ventures [2018] EWHC 275 (Ch) and Re Swan Camden Hill Ltd [2021] EWHC 2470, in support of the propositions that:

(1) It is for the company to demonstrate, with evidence, that its defence is genuine, serious and of substance. Bare assertion will not suffice.

(2) In assessing that evidence, the court should take a realistic view of whether the company is likely to establish a genuine and substantial dispute: Re Swan, para 11.

(3) It is open to the court to reject evidence because of its inherent implausibility or because it is contradicted by or not supported by documents. The mere fact that a party asserts that a thing did or did not occur, is not sufficient in itself to raise a triable issue. That evidence must inevitably be considered against the background of all the admissible evidence and material in order to judge if it is an allegation of any substance: Re Swan, para 12.

[21g] In Fenton Whelan Ltd v Swan Campden Hill Ltd [2021] EWHC 2470 (Ch), a winding up petition case, ICC Judge Burton said, under the heading 'Relevant Legal Principles', at paragraphs 7 to

'7. The legal principles are well known and have been summarised in the skeleton arguments. Whilst each emphasised what they considered to be pertinent issues by reference to separate authorities, the key principles do not appear to be in dispute. The rule of practice, long rehearsed in this court, is that the court will dismiss a petition when it is satisfied that the debt on which the petition is based is bone fide disputed on substantial grounds.

8. Even in cases where the petition debt is not disputed, as established by the Court of Appeal in Re Bayoil SA [1999] 1WLR 147, the court has a discretion and may decline to order winding up where there is a genuine and serious cross-claim that the respondent has been unable to litigate that equals or exceeds the amount of the petition debt.

9. [Counsel for the petitioner] highlights that although a failure to litigate a cross-claim is not necessarily fatal, in deciding whether a cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, including the fact that a company has not attempted to litigate it. In Dennis Rye Ltd v Bolsover District Council [2010] BCC 248, Mummery LJ stated:

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

10. [Counsel for the company] referred me to LDX International Group LLP v Misra Ventures Ltd [2018] EWHC 275 Ch in which David Stone, sitting as a Deputy High Court Judge brought together the key uncontroversial propositions that can be drawn from the leading authorities concerning a company's opposition to the making of a winding-up order. [Counsel for the company] relied upon the summary as authority for two principal propositions. First, when considering whether to make a winding-up order in the face of opposition, it is not practical or appropriate for the court to conduct a long and elaborate hearing, examining in minute detail, the case made on each side. In Re Bayoil, cited in LDX International Group LLP, Ward LJ said:

a winding-up order is a draconian order. If wrongly made, the company has little commercial prospect of reviving itself and recovering its former position. If there is any doubt about the claim or the cross-claim, that seems to me to require that the court should proceed cautiously.

11. Secondly, [Counsel for the company] submitted that the court must take a realistic view of whether the Company is likely to establish a genuine and substantial dispute and/or cross claim. I accept his submission, noting also the third proposition set out in LDX, that:

It is incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim is genuine and serious: Orion Media, at paragraph 31. Bare assertions will not suffice: there is a minimum evidential threshold: Re a Company, at paragraph 33.

12. [Counsel for the petitioner] relies upon the Court of Appeal's judgment in Ashworth v Newnote Ltd [2007] BPIR 1012 as authority for the proposition that when considering a party's opposition to a winding-up petition, it is open to the court to reject evidence because of its inherent implausibility or because it is contradicted by or not supported by the documents. In reaching its conclusion, the Court relied upon paragraph 12 of Patten J's judgment in Portsmouth v Alldays Franchising Ltd and others [2005] EWHC 1006 (Ch):

[12] So far as the evidence is concerned the mere fact that a party in proceedings not involving oral evidence or crossexamination asserts that certain things did or did not occur, is not sufficient in itself to raise a triable issue. That evidence inevitably has to be considered against the background of all the other admissible evidence and material in order to judge whether it is an allegation of any substance. Once the court considers that the evidence is reliable in that sense, and not some attempt to obfuscate the real issues by raising a series of hopeless allegations then it does, of course, become necessary to consider what the legal consequences of it are.

13. In her skeleton argument and oral submissions, [Counsel for the petitioner] referred to the Company's decision, as time advanced, to raise points in opposition to the petition which were initially not mooted in any of the correspondence which preceded service of the statutory demand, nor in the first witness statement of the Company's solicitor, Andrew James Head dated 23 October 2020,

14. in opposition of the petition. She submitted that this gave rise to the archetypal case in which a company seeks to raise a cloud of objections to stave off a winding-up petition. I take this to be a reference to the observations of Oliver LJ in Re Claybridge Shipping Company SA, regarding an unwilling debtor raising in his affidavit, a cloud of objections 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. As noted by Chadwick J in Re a Company No. 006685 of 1996 [1997] B.C.C. 830, referring in turn to Staughton LJ in Re Taylor's Industrial Flooring Ltd anything that the law could do to discourage such behaviour should be done'

[21h] In Re Swindon Town Football Co Ltd [2022] EWHC 2071 (Ch), Deputy ICC Judge Baister said, at paragraphs 26-32:

'26. The starting point is that a petitioner with an undisputed debt is generally entitled to a winding up order as a matter of right: Maud v Aaber Block Sarl [2015] BPIR 819 has been cited, but the proposition is well established in earlier authority. The converse is that it is not entitled to a winding up order where the petition debt is disputed on substantial grounds. [Counsel for the Company] sets out Norris J's exposition of the relevant considerations in Angel Group Ltd v British Gas Trading Ltd [2012] BCC 265 at paragraph 22.

27. As [Counsel for the Petitioner] points out, the test as to whether a debt is disputed on substantial grounds is the same as that applicable to summary judgment, namely whether there is a real prospect of success: Bryce Ashworth v Newnote Ltd [2007] BPIR 1012, paragraphs 31-33. That means a realistic as opposed to a fanciful prospect, carrying some degree of conviction and not merely arguable: Swain v Hillman [2001] 1 All ER 91; ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472; or, as Norris J put it in Angel v British Gas (drawing on Re A Company (No 012209 of 1991) [1992] 1 WLR 351), "A dispute will not be 'substantial' if it has really no rational prospect of success;" and, "A dispute will not be put forward in good faith if the company is merely seeking for itself credit which it is not allowed…".

28. Bare assertions will not suffice: Re Swan Campden Hill Ltd [2021] EWHC 2470 (Ch), but again there is much authority to the same effect.

29. It is open to the court to reject evidence because of its inherent implausibility or because it is contradicted by or not supported by the documents: National Westminster Bank plc v Daniel [1993] 1 WLR 1453; Portsmouth v Alldays Franchising Ltd [2005] BPIR 1394.

30. The court must be alive to and ready to dismiss "a smokescreen of unfounded assertion" raised to avoid summary judgment or insolvency. [Counsel for the Petitioner] relies on a colourful observation of Megarry V-C in Lady Anne Tennant v Associated Newspaper Group Ltd [1979] FSR 298 :

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism."

As [Counsel for the Petitioner] referred in passing to the better known "cloud of objections" formulation adopted by Chadwick J in Re a Company (No 006685 of 1996) [1997] 1 BCLC 639; [1997] BCC 830, I should mention that too. (It was used by Norris J in the Angel case as well.)

31. Raising a bona fide dispute is to be distinguished from "going fishing." [Counsel for the Petitioner] points out that:

"[O]ne does not set aside a statutory demand merely because a party wishes to put the opponent to the trouble of further litigation" (Williamson v Governor of the Bank of Scotland [2006] BPIR 1085).

The same point must apply equally to the hearing of a winding up petition.

32. [Counsel for the Company] submits the court should not conduct a long and elaborate hearing, examining in minute detail the cases made on each side. He cites Re Swan Campden Hill Ltd (supra) again and LDX International Group LLP v Misra Ventures Ltd [2018] EWHC 274 (Ch) in support of that. I note, however, Norris J's dictum :

"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."

There is, of course, not necessarily a tension between the two propositions.'

[21i] ICC Judge Barber in Re Glocin Ltd Glocin Ltd v Bancibo SE [2022] EWHC 1858 (Ch) said, at paragraph 29, under the heading of '[Company's] Application: legal principles':

' It was common ground that the test on this application is whether the petition debt is genuinely disputed on substantial grounds: Re a Company [2013] EWHC 4291 (Ch). As explained by Hildyard J in Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch) at [32], [34] and [35] (a case on restraining presentation, but equally applicable on present facts):

'[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.

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

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

[21j] In Town and Country Properties (GB) Ltd v Patel [2023] EWHC 1168, Asplin LJ (in the High Court) heard an appeal from decisions of Deputy ICC Judge Agnello KC, in relation to: (1) a winding up petition against an unregistered company/partnership (Black Capital); (2) bankruptcy petitions against a Mr Ubhi, and Mr Patel; (3) the setting aside of a statutory demand.

In respect to Mr Ubhi and whether to set aside the statutory demand served on Mr Ubhi, the issue had arisen at first instance ' whether there was a dispute on substantial grounds as to whether Mr Ubhi was a partner in Black Capital' (paragraph 10). In her judgment, ICC Judge Agnello KC had set out the law on this area, which at the appeal, counsel for the appellant (Town and Country Properties (GB) Ltd) accepted was a correct direction as to the test to be applied (paragraphs 13 + 23). Consequently, it pays therefore to set out ICC Judge Agnello KC's summary of the law, as summarised by Asplin LJ in her judgment on the appeal. Asplin LJ said, at paragraph 10 that ICCJ Agnello KC had decided that '...the test which she had to apply...was a real prospect of success as to whether there was a dispute on substantial grounds [8] and [9]' (paragraph 10). Further, at paragraphs 10 to 12, that:

'In this regard, she quoted a passage from the judgment of Arden LJ in Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 at [21] confirming the test and commenting upon its application as follows:

“. . . In my judgment, the requirements of substantiality or (if different) genuineness would not be met simply by showing that the dispute is arguable. There has to be something to suggest that the assertion is sustainable. The best evidence would be incontrovertible evidence to support the applicant's case, but this is rarely available. It would in general be enough if there were some evidence to support the applicant's version of the facts, such as a witness statement or a document, although it would be open to the court to reject that evidence if it were inherently implausible or if it were contradicted, or were not supported, by contemporaneous documentation: see also per Lawrence Collins LJ in the Ashworth case, para 34. But a mere assertion by the applicant that something had been said or happened would not generally be enough if those words or events were in dispute and material to the issue between the parties. There is in the result no material difference on disputed factual issues between real prospect of success and genuine triable issue.”

The judge went on to note that it was not for her to conduct a mini trial and that where there are bare assertions in a witness statement which were contradicted by contemporaneous documents, it was open to the court to determine that the statements were inherently implausible but that such a determination is reserved for clear cases [10]. In that regard, she quoted a passage in Lord Hamblen’s judgment in the Supreme Court in HRH Emere Godwin Bebe Okpabi v Royal Dutch Shell Plc [2021] 1 WLR 1294 at [110] in which he had addressed the circumstances in which factual assertions might be rejected, as follows:

“110 In his judgment at para 190 the Chancellor rejected the complaint that Fraser J had conducted a mini-trial and considered that he was doing no more than subjecting the evidence to critical analysis. He cited para 10 of Potter LJ’s judgment in ED & F Man Liquid Products Ltd v Patel [2003] CP Rep 51 in which it was observed that factual assertions do not have to be accepted by the court if it is “clear” that there is “no real substance” in them, “particularly if contradicted by contemporary documents” - ie if they are demonstrably unsupportable. That is only going to be so in clear cases. As Carnwath LJ observed in Mentmore International Ltd v Abbey Healthcare (Festival) Ltd [2010] EWCA Civ 761 at [23], referring to both Potter LJ’s judgment in the ED & F Man case and Lord Hope’s judgment in the Three Rivers case [2003] 2 AC 1: ”

“If Mr Reza was hoping to find in those words some qualification of Lord Hope’s approach, he will be disappointed. The Three Rivers case was specifically cited by Potter LJ. He was in my view intending no more than a summary of the same principles. Lord Hope had spoken of a statement contradicted by “all the documents or other material on which it is based” (emphasis added). It was only in such a clear case that he was envisaging the possibility of rejecting factual assertions in the witness statements. It is in my view important not to equate what may be very powerful cross-examination ammunition, with the kind of “knock-out blow” which Lord Hope seems to have had in mind.””

Having considered the nature of the Opkapi case and its relevance in relation to the application of the summary judgment test, at [13] the judge held as follows:

“. . . It is only in clear cases that a court may determine that a particular defence etc is inherently implausible. Contemporaneous documentation which supports a particular defence in a case where there are contemporaneous documents which contradict that defence is an example of a case where a Judge would not necessarily be facing one of those clear cases. There may well be cases where the contemporaneous documentation relied on which contradict other documentation are clearly capable of being rejected, but this is not the time to speculate on those types of cases. In my judgment, the test to be applied remains as set out by Lady Justice Arden and is one which is well understood. The Supreme Court cases provides a useful reminder of these well known principles and also that courts must not fall into the mini trial trap and must ensure that an evaluation, or critical analysis by the court of the evidence before it does not lead to findings as occurred in Okpabi at first instance and also in the Court of Appeal.”'

Under the heading 'Legal Principles', Asplin LJ then added her summary of the relevant principles (starting with the rule for setting aside personal insolvency statutory demands, but then considering the similar situation for winding up petitions). Asplin LJ said, at paragraphs 23 to 24:

'Rule 10.5 (5)(b) of the Insolvency (England and Wales) Rules 2016 provides that the court may grant the application if “the debt is disputed on grounds which appear to the court to be substantial”. Similarly, a winding-up petition will not be made on the basis of a debt which is genuinely disputed on substantial grounds: Re a Company No. 006685 of 1996 [1997] BCC 830. Any dispute raised under rule 10.5(5)(b) must have a real prospect of success: Re Kerkar [2021] EWHC 3255 at [8] citing Ashworth v Newnote Ltd [2007] EWCA Civ 793.

It is also well known that for the purposes of the summary judgment test, the court considers whether the claim has a “realistic” as opposed to a “fanciful” prospect of success and that a realistic claim must carry some degree of conviction: ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 at [7] and [8]. Further, the court is not required to take at face value everything which a party states in his witness statement: Re Kerker at [34] and ED&F Man Liquid Products Ltd v Patel in which Potter LJ stated at [10] as follows:

“10. It is certainly the case that under both rules, where there are significant differences between the parties so far as factual issues are concerned, the court is in no position to conduct a mini−trial: see per Lord Woolf MR in Swain v Hillman [2001] 1 All ER 91 at 95 in relation to CPR 24. However, that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents. If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable: see the note at 24.2.3 in Civil Procedure (Autumn 2002) Vol 1 p.467 and Three Rivers DC v Bank of England (No.3) [2001] UKHL 16, [2001] 2 All ER 513 per Lord Hope of Craighead at paragraph [95].”

Furthermore, the court may find assertions in a witness statement unreliable without the benefit of cross-examination and reject them: CFL Finance Ltd v Bass [2019] EWHC 1839. All of this is clear from the passages which the judge quoted from the Collier and Okpabi cases which I have already set out.'

[21k] In Re Property Services LDN Ltd [2023] EWHC 1778 (Ch) , ICC Judge Greenwood was hearing a winding up petition, and said, at paragraphs 27 to 31:

'27. As to the relevant legal principles in respect of winding up petitions, there was no dispute:

27.1. first, that a winding-up order will not be made on the basis of a debt that is genuinely disputed on substantial grounds. As was said by Hildyard J in Colicolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch), at [32]: “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.”

27.2. second, that if to the same end, the debtor company asserts a cross-claim, it must be “genuine and serious …. one of substance”: Re Bayoil SA [1999] 1 WLR 147 , per Nourse J.

28. The principles were summarised by Norris J in Angel Group v. British Gas [2012] EWHC 2702 (in a passage which was not cited, but is not controversial) at [22]:

"The principles to be applied…. 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] 1WLR 1091;

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

c) A dispute will not be "substantial" if it has really no rational prospect of success: in Re A Company No.0012209 [1992] 1WLR 351 at 354B.

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 [1997] BCC 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 crossexamination (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).”

29. Similarly, in LDX International Group LLP v Misra Ventures Limited [2018] EWHC 275 (Ch) David Stone (sitting as a Deputy HCJ) stated at [22]: “It seems to me that a number of uncontroversial propositions can be drawn from these cases. Given the clarity of the language of the Court of Appeal and judges of this court, it is appropriate, where possible, for me simply and respectfully to repeat their remarks:… a. In the absence of special circumstances, it will be appropriate to issue an injunction to prevent the presentation and advertisement of a winding up order where there is a genuine and serious crossclaim in an amount exceeding the petitioner's debt. The cross-claim must be genuine and serious, or, in other words, one of substance…. c. It is incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim is genuine and serious: Orion Media , at paragraph 31. Bare assertions will not suffice: there is a minimum evidential threshold: Re a Company , at paragraph 33”.

30. Finally, in Winnington Networks Communications Ltd v HM Revenue & Customs [2015] B.C.C. 554 , Nicholas le Poidevin QC (sitting as a Deputy HCJ) at [11] quoted Rimer LJ in Revenue and Customs Commissioners v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116 : “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”.

31. Again, I should record that neither of the passages set out in the two preceding paragraphs were cited to me, but again, their content is uncontroversial.'

[21l] In A Company v The Respondent [2023] EWHC 1779 (Ch) (' Company 1779 '), before ICC Judge Barber, a company/applicant successfully applied for an injunction to retain a would-be petitioner from presenting a creditors winding up petition. The would-be petitioner (an employment business; not a subcontractor - paragraph 69) had served a statutory demand founded upon alleged debt based on unpaid invoices (for hours worked on two projects by electrician operatives supplied by the would-be petitioner). Subsequently, the would-be petitioner conceded that all of the statutory demand debt but c.£16K, was genuinely disputed on substantial grounds. The company/applicant (builder) alleged it had a cross claim for defective work done by the electrician operatives, of about £186K. The issue was therefore whether the would-be petitioner held the position/status of net creditor of the company/applicant (for at least £750), to the required level of substantiality (requisite degree of certainty).

Under the heading 'Legal Principles', ICC Judge Barber in Company 1779 said, at paragraphs 38 to 44:

'38. The legal principles applicable to the application were largely uncontroversial.

39. Both parties referred me to Coilcolour v Camtrex [2015] EWHC 3202, in which Hildyard J summarised the relevant principles as follows:

'31. The court will grant an injunction to restrain presentation of a winding up petition where it considers that the petition would be an abuse of process and/or that the petition is bound to fail (to the extent they are different): Mann v Goldstein [1968] 1 WLR 1091. See also Buckley LJ in Bryanston Finance Ltd v De Vries (No. 2) [1976] Ch 63 at p.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 prosecuted, would constitute an abuse: Charles Forte Investments Ltd v Amanda [1964] Ch 240."

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

33. The court will also restrain a company from presenting a winding up petition in circumstances where there is a genuine and substantial cross-claim such that the petition is bound to fail and is an abuse of process: see e.g. Re Pan Interiors [2005] EWHC 3241 (Ch) 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.

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

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

36. As stated by Chadwick J (as he then was) in Re a Company (No 6685 of 1996) [1997] BCC 830 at 838:

"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."'

40. [Counsel for the company/applicant] referred me to Tallington Lakes v South Kesteven District Council [2012] EWCA Civ 443, in which Etherton LJ (albeit on an obiter basis) considered the threshold that an applicant must cross in an application to restrain presentation. At paragraph 22 of his judgment, he observed as follows:

'it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition, and may be reached even if, on an application for summary judgment, the defence could be regarded as "shadowy"'.

41. [Counsel for the company/applicant] also referred me to the cases of Mulalley v Regent Building Services [2017] EWHC 2962 (at [44]) and Integral Law v Jason [2020] EWHC 3698 at [14], which take a similar approach.

42. [Counsel for the would-be petitioner] took me to the case of Ashworth v Newnote [2007] EWCA Civ 793 at [29-34] in which Lawrence Collins LJ held (in the context of an application to set aside a statutory demand) that:

(1) the test to be applied equates to the "real prospects of success" test applied in summary judgment applications;

(2) a "genuinely triable issue" means a realistic as opposed to fanciful prospect of success, carrying some degree of conviction (and not merely arguable);

(3) in each case it is open to the court to reject evidence because of its inherent implausibility or because it is contradicted by or not supported by the documents.

43. In LDX International Group LLP v Misra Ventures Ltd [2018] EWHC 275 (Ch) David Stone (sitting as a Judge of the High Court) set out certain propositions which could be drawn from the authorities, including (at 22(c)) that:

'It is incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim is genuine and serious … Bare assertions will not suffice: there is a minimum evidential threshold: Re a Company, at paragraph 33'

44. [Counsel for the would-be petitioner] also referred me to Poperly v Poperly [2004] EWCA Civ 463 at [66] per Jonathan Parker LJ (citing Re Bayoil [1999] 1 WLR 147 ) in support of the proposition that:

'Delay in putting forward a cross-claim may lead to an inference that it is not put forward in good faith, but only as a pretext in order to stave off bankruptcy.'

Later, ICC Judge Barber asked herself about the quality of certain evidence, commenting '[X's] written testimony is not manifestly incredible or inherently implausible; far from it. Nor is it contradicted by any documents in evidence.' (paragraph 82)

On the facts, ICC Judge Barber said in Company 1779 :

(1) 'In my judgment, it would not be legitimate to infer from the timing of the introduction of evidence on the cross claim in this case that the cross-claim was put forward in bad faith, as a pretext to stave off winding up proceedings.' (paragraph 65);

(2) 'In my judgment, the facts and matters now relied upon by the [company/applicant] in support of its cross-claim do clear the minimum evidential threshold. The Applicant has demonstrated on the evidence before this court a genuine, strongly arguable crossclaim in contract/misrepresentation which comfortably exceeds [£16K] and has real prospects of success.' (paragraph 72)

[21m] In Time GB Group Ltd v Yarwell Mill Country Park Ltd [2023] EWHC 1887 (Ch), ICC Judge Barber said, under the heading 'Legal Principles', at paragraphs 15 to 19:

'15. The legal principles applicable to the application were largely uncontroversial.

16. [Counsel for the petitioner/respondent] referred me to the useful summary of the circumstances in which the Companies Court will restrain the presentation of a winding up petition, as set out at [31-35] of Coilcolour v Camtrex [2015] EWHC 3202, in which Hildyard J confirmed:

(1) The court will 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 that they are different).

(2) The Court will restrain a company from presenting a winding up petition where the company disputes, on substantial grounds, the existence of the debt on which the petition is based.

(3) The Court will restrain a company from presenting a winding up petition where there is a genuine and substantial cross-claim which equals or exceeds the petition debt.

(4) 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 on substantial grounds as to whether that money is owed.

(5) 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 amounts will suffice. As put by Hildyard J at [35]:

'The court must be persuaded that there is substance in the dispute and in the Company's refusal to pay: a cloud of objections contrived to justify factual enquiry and suggest that in all fairness cross examination is necessary will not do'.

17. [Counsel for the company/applicant] referred me to Tallington Lakes v South Kesteven District Council [2012] EWCA Civ 443, in which Etherton LJ (albeit on an obiter basis) considered the threshold that an applicant must cross in an application to restrain presentation. At paragraph 22 of his judgment, he observed as follows:

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

18. [Counsel for the petitioner/respondent] referred me to Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2014] BCC 327, in which David Richards LJ approved the well-known passage in the judgment of Chadwick J in re a Company (No 00685 of 1996) [1997] BCC 830 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 of whether or not there are substantial grounds for dispute. Indeed, in the passage from the judgment of Oliver LJ to which I have just referred, he pointed out that 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'.

19. [Counsel for the petitioner/respondent] also took me to James Dolman & Co v Pedley [2004] BCC 504, in which Arden LJ at [10] confirmed that the jurisdiction to restrain advertisement is to be exercised to prevent a threatened abuse of process of the court and that, in the absence of evidence of a threatened abuse of process, it was 'erroneous in principle' to restrain advertisement. This dovetailed neatly with a further authority relied upon by [Counsel for the petitioner/respondent], that of In Re a Company (No 007923 of 1994), in which Nourse LJ (at 958D-H) stressed the dual purposes of advertisement, these being (1) to give notice of the petition to those who are entitled to be heard on it and (2) to give notice to those who might trade with the company during the period between the presentation of petition and its final determination and who might thus be adversely affected by the provisions of section 127 IA 1986.'

[21n] In Re a Company [2024] EWHC 1070, Deputy ICC Judge Jones heard an application to restrain presentation of a winding up petition based on a unsatisfied Lebanese judgment. Under the heading 'Basic Principles', the Judge said, at paragraphs 4 to 6:

'The basic principles of an application for an injunction to restrain presentation of a winding up petition are not in doubt and I bear firmly in mind the principles in Re Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA Civ 443, Argyle Crescent Limited v Definite Finance Co Limited [2004] EWHC 3422 (Ch) and Angel Group v. British Gas Trading [2013] B.C.C. 265. In short, a debt must be disputed on grounds which have substance.

My attention was also drawn to Applications to Wind Up Companies , 2.166, 7.344-7.345, 7.45, 7.39, 7.257, 7.263...which I have also found useful.

I bear in mind that I do not have to make a final determination of the issues but to assess whether or not there is a substantial dispute of a nature of which the result may be that the Lebanese judgment cannot be relied upon to found a winding up petition.'

[22a] In the author's view, the creditors' winding up process should be split into 2 stages:

(1) Stage 1 - establishing the eligibility of the petitioner to petition - this be done without any advertisement/notice at all - with adequate time provided to the company to prepare

Only if the petitioner is found by  the court to be eligible to so petition, does the petition move onto stage 2,

(2) Stage 2 - the petitioner to advertise (give notice of) the petition, with the court then determining whether, balancing the petitioner's right to a winding up order, against the voices of the supporting and opposing creditors, the court ought to exercise its discretion, and make the winding up order.

The voices of parties, other than the company and the petitioner, only come in at this second stage, so there is no need to advertise (give notice) prior to this second stage.

In summary: it should be for the petitioner to establish eligibility, before the court, as part of the petition process, prior to any suggestion of advertisement (notice). The process should not place the burden of seeking judicial determination on the petitioner's eligibility, upon the company, through an application for injunctive relief, especially with such a limited window of time to make the relevant application, before the petitioner is permitted to advertise, and so can cause irreparable damage. The current legal framework places an undue burden upon the company, to act quickly and bring the matter before the court. In the author's view, this is unfair to the company.

The above proposal was/is, loosely (due to one significant difference), the legal position for petitions subject Schedule 10 to the Corporate Insolvency and Governance Act 2020, prior to 1 October 2020. For those petitions, advertisment/notice of the petition was prohibited, until an issue had been judicially determined (in a particular direction) - the same as the author's proposal above. Where the situation was/is different, was that the preliminary issue to be determined was not the petitioner's eligibility (rather, it was whether the court was likely to be able to make an order under section 122(1)(f) or 221(5)(b) of the 1986 Act having regard to the coronavirus test), but it is the order/sequence of legal stages, that is being focused on for present purposes.

[22b] 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.’

In  Coilcolour Ltd v Camtrex Ltd  [2015] EWHC 3202 (Ch), 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.’

[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:

(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. '

In (1) Christine Harper (2) Shorts Gardens LLP v London Borough of Camden Council; Preston City Council (re St Benedict's Land Trust Ltd)  [2020] EWHC 1001 (Ch), Snowden J said, at paragraphs 43 to 45:

'The third component of the debt claimed by Camden and Preston relates to liability orders in respect of NNDR. A liability order is deemed a legally enforceable debt for the purpose of winding up proceedings until set aside pursuant to r.18(2) Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989, which provides;

"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."

In Yang v. Official Receiver [2018] Ch 178 at paragraph [55] Gloster LJ said that dictates of certainty and expediency require that a bankruptcy court should not go behind liability orders, except in the event of fraud or some miscarriage of justice. And in the corporate context in Bolsover District Council v Dennis Rye Ltd [2009] 4 All ER 1140 Mummery LJ said at paragraph [5], "…liability orders are orders of the court like ordinary civil judgments. If a winding up petition is based on such orders the court will seldom look into them, or go behind them, in the absence of fraud, or in the absence of jurisdiction in the court that made the orders, or some other truly compelling circumstance."

[Counsel for the Applicants] did not dispute this approach.'

See Camden LBC v St Benedict's Land Trust Ltd [2020] EWHC 3738 (Ch)(Judge Halliwell sitting as a Judge of the High Court), where the insolvency court refused to 'go behind' the business rates liability order founding the winding up petition, on the basis of miscarriage of justice (fraud, collusion and mistake (new category) was not argued/suggested)(paragraph 13). The insolvency court rejected the argument that the business rates liability order was invalid, because, subsequent to: (1) it being made; and (2) the winding up petition being presented, the amount of tax due had dropped by c.£5,000 (from about £29,800) due to a change (with retroactive effect) to the Rating List upon which the relevant hereditament appeared. There was no miscarriage of justice as the creditor/billing authorities had limited (paragraph 17), confined (paragraph 18), adjusted (paragraph 24), the Petition Debt, by this c.£5,000 amount, and so no miscarriage of justice arose.

The Court also noted, that the insolvency court was dealing with whether no payment could lead to the inference that the debtor/respondent was unable to pay its debts. But the fact the debtor/respondent did not now owe this c.£5,000 was not a good reason why no such inference would be drawn (paragraph 18).

The Judge said, at paragraph 24:

'The Company remains subject to an extant liability order of the Magistrates' Court for non-payment of non-domestic rates and is liable for the nonpayment of such rates. Having been made aware that the Petition debt has been adjusted downwards to reflect the alteration to the list, the court can reasonably infer, from non-payment, that the Company is unable to pay its debts. '

The Court proposed to make the usual compulsory winding up order against the debtor/respondent.

[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.'

In Aries GNH (Operations) Ltd v Robson Asset Management Manco Ltd  [2020] EWHC 2880 (Ch), the respondent (the 'Company') to a winding up petition opposed '...the making of a winding up order on the basis that it should not have to pay the petition debt as it has a cross-claim for a sum equal to or exceeding the debt. ' (paragraph 4) Chief ICCJ Briggs said, at paragraph 15:

'Although [the Petitioning Creditor] is not a judgment creditor, it is not disputed that it is a creditor, entitled to present the petition: Mann v Goldstein [1968] 1 W.L.R. 1091 . There is no substantial dispute as to the debt: Re A Company (No.012209 of 1991) [1992] 1 W.L.R. 351. In this matter the petition (and notion of a winding up order being made) is resisted on the ground of a cross-claim. There is no dispute that the legal burden of proof rests with [the Company] to demonstrate a cross-claim that is equal to or greater than the petition debt. The evidential burden is discharged on the balance of probabilities: Orion Media Marketing Limited v Media Brook Limited [2002] 1 BCLC 184. In Wilson and Sharp Investments Ltd v Harbour View Developments [2015] EWCA Civ 1030, Lady Justice Gloster, giving the lead judgment, said that the fact that a petition debt is not disputed does not prevent the debtor raising a cross-claim in a defence to a winding up petition: Re Bayoil SA [1999] 1 WLR 147. She used different language to describe the threshold test namely, asking whether the Respondent had “serious and genuine cross claim which exceed the sum alleged to be outstanding”.

[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.’

See also Morgan J in Victory House General Partner Ltd v RGB P&C Ltd [2019] Ch. 1, where he follows In re Bayoil SA [1999] 1 WLR 147 in respect to cross claims.

[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...'

In Partizan Ltd v OJ Kilkenny & Co Ltd [1998] B.C.C. 912 (1997), Rimer J noted by way of background that at an earlier hearing before Ferris J, the creditors winding up petition had been dismissed on the basis '...that the debt was disputed on substantial grounds...' and that Ferris J had '...ordered [the petitioner] to pay [the company's] costs on an indemnity basis, applying the well-known 'high risk strategy' observations of Hoffman J in Re a Company (No. 0012209 of 1991) [1992] 1 WLR 351 , at p. 354.'

The phrase 'high risk strategy' arose in Re Swindon Town Football Co Ltd [2022] EWHC 2071 (Ch)(' Swindon '), at paragraph 54, where a different point was made in relation to an (alleged) creditor's error in electing to present a winding up petition against an (alleged) debtor, rather than pursuing  ordinary civil proceedings and making an application for summary judgment therein. Deputy ICC Judge Baister dismissed the winding up petition in Swindon , on the basis that the debt had sufficient substance to warrant the petition being dismissed. When doing so, he said, at paragraph 54:

' If this had been an application for summary judgment, I would probably have given conditional leave to defend. That I am unable to do so is a consequence of the procedural route the Petitioner has chosen to adopt, one that, for a number of reasons, Hoffmann J once referred to as "a high risk strategy.".

[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.'

[51]  In  Re a Company No. 007356/98 (ITC Infotech Ltd) [2000] B.C.C. 214 (1999), Hart J held that there should be no special (i.e. different) orders for costs incurred by the applicant company: (1) due to the adjournment of the first hearing; nor (2) for putting together evidence as to the company's solvency. He said, at 216:

'So far as the adjournment from yesterday until today is concerned, the way in which the business of this court is organised is such that there is always a risk that a motion listed for the Monday will not in fact be heard on the Monday but will be heard later in the week and in those circumstances there is an attendant risk that a plaintiff may seek, before the substantive hearing of the motion, to improve his evidence by filing further evidence. If that causes injustice or risks causing injustice, the remedy for a respondent is either to oppose the admission of that evidence or to seek an adjournment in which to deal with it. I am not therefore persuaded that I should make any special order in relation to the costs of and occasioned by the adjournment from yesterday until today; nor am I persuaded that I should make any special order in relation to the costs incurred by the applicant in putting together the evidence of the company's solvency. The extent to which costs have been properly and reasonably incurred will be a matter for taxation.'

[52]  The leading case on wasted costs orders against legal representatives is still  Ridehalgh v Horsefield [1994] Ch 205 ('Ridehalgh'). In Ridehalgh , the Court of Appeal, gave guidance on the test to apply. Sir Thomas Bingham M.R. explained the terms “improper,” “unreasonable” and “negligent” in the context of an application for a wasted costs order, at pp. 232–233:

“‘Improper’ means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code. ‘Unreasonable’ also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable. The term ‘negligent’ was the most controversial of the three. It was argued that the Act of 1990, in this context as in others, uses ‘negligent’ as a term of art involving the well known ingredients of duty, breach, causation and damage. Therefore, it was said, conduct cannot be regarded as negligent unless it involves an actionable breach of the legal representative's duty to his own client, to whom alone a duty is owed. We reject this approach. (1) As already noted, the predecessor of the present Ord. 62, r. 11 made reference to ‘reasonable competence.’ That expression does not invoke technical concepts of the law of negligence. It seems to us inconceivable that by changing the language Parliament intended to make it harder, rather than easier, for courts to make orders. (2) Since the applicant's right to a wasted costs order against a legal representative depends on showing that the latter is in breach of his duty to the court it makes no sense to superimpose a requirement under this head (but not in the case of impropriety or unreasonableness) that he is also in breach of his duty to his client.”

'Negligent' requires something more than mere negligence (see Persaud v Persaud [2003] EWCA Civ 394; [2003] PNLR 519). Negligent handling of a client's case is not enough. The lawyer's conduct must also be a breach of duty to the court. A wasted costs order will only be made if there is something akin to a legal representative being guilty of an abuse of process. 

The Court will approach the application by considering the three points stated in Practice Direction 46, paragraph 5.5:

(a) Has the legal representative acted improperly, unreasonably or negligently?

(b) Has the legal representative's conduct caused a party to incur unnecessary costs (see R v Secretary of State for the Home Department, ex parte Mach [2001] EWCA Civ 645)?

(c) Is it just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs?

[53] Chadwick J in In Re A Company (No 006798 of 1995) [1996] 1 WLR 491 held that the petitioner's solicitor had not: (1) been negligent, finding ' he knew just what he was doing ' (504); (2) acted improperly (504). On this, Chadwick J said, at 504/505:

'I have no doubt that a solicitor who swears an affidavit in which he verifies that a debt is owing, or that a company is insolvent, when he does not have any belief that those facts are true, will be guilty of conduct which would be regarded as improper within the test indicated by Sir Thomas Bingham M.R. [The petitioner's solicitor] has gone on oath to verify that he believed on [date he swore the affidavit vertifying the petition as true] that £44,010.91 was owing by the company to the petitioner; and that he believed that the company was insolvent. He has not been cross-examined on his affidavit. Whatever I may think of the grounds on which he says he based his belief, I cannot hold that he did not truly believe that which he says, on his oath, that he did believe.'

On unreasonable conduct, Chadwick J held that 'He knew that his client was embarking on a high risk strategy; and that if a substantial dispute existed that strategy would result in the petition being struck out. He advised his client to that effect.' (504). This made his verification unreasonable. Chadwick J said, at 505:

'The question, in my view, is whether his conduct was unreasonable; that is to say whether he swore an affidavit in support of this petition asserting facts which any competent solicitor must have appreciated could not be established on the evidence available, and that he swore that affidavit not for the purpose of obtaining a winding up order but for the purpose of bringing pressure to bear upon the company so that it would pay what was claimed rather than suffer the consequences of the advertisement of the petition .'

Chadwick J relied upon:

(1) From the Court of Appeal's decision in Ridehalgh v. Horsefield [1994] Ch. 205, at 254-255: ' We do not suggest that there could never be circumstances in which a solicitor who advised his client to make use of the threat of proceedings that would (if brought) amount to an abuse of the process might be found to have been guilty of improper or unreasonable conduct.';

(2) the 1st instance decision of Knox J in Philex v Golban (A Company (No. 0022 of 1993) [1993] B.C.C. 726), later one the 5 cases under appeal in Ridehalgh v. Horsefield [1994] Ch. 205. Knox J concluding (as summarised by Chadwick J) that ' if the facts supported a finding that the solicitor had been party to a course of action designed to achieve a collateral object rather than to achieve the purpose for which the proceedings were ostensibly brought, that conduct might properly be described as “unreasonable.”'

[54] In Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1687 (Ch), HHJ Paul Matthews sitting as a Judge of the High Court, said, under the heading 'Wasted costs order', subheading 'The law', from paragraph 3:

3. Originally, there was an inherent jurisdiction in the court to require a solicitor for one party to pay to another party costs which had been wasted by the solicitor's undue delay or misconduct: see Myers v Ellman [1940] AC 282, HL. This jurisdiction was given statutory recognition by the Solicitors Act 1957, section 50(2). It was however regulated by the procedural rules only in 1960. The relevant rule later became RSC 1965 Ord 62, rule 8(1), and then in 1986 RSC Ord 62, rule 11. There were periodic amendments to the relevant rule, and a number of cases were decided, among them the important decision in Ridehalgh v Horsefield [1994] Ch 205, CA, to which I refer below.

4. Nowadays, however, wasted costs orders are governed by the Senior Courts Act 1981, section 51(6), (7), CPR rule 46.8, and CPR Practice Direction 46, para 5. The first of these provisions reads:

(6) In any proceedings mentioned in subsection (1), the court may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court.

(7) In subsection (6), wasted costs means any costs incurred by a party

(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or

(b) which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay.

5. CPR rule 46.8 reads:

(1) This rule applies where the court is considering whether to make an order under section 51(6) of the Senior Courts Act 1981 (court's power to disallow or (as the case may be) order a legal representative to meet, 'wasted costs').

(2) The court will give the legal representative a reasonable opportunity to make written submissions or, if the legal representative prefers, to attend a hearing before it makes such an order.

(3) When the court makes a wasted costs order, it will

(a) specify the amount to be disallowed or paid; or

(b) direct a costs judge or a district judge to decide the amount of costs to be disallowed or paid.

(4) The court may direct that notice must be given to the legal representative's client, in such manner as the court may direct

(a) of any proceedings under this rule; or

(b) of any order made under it against his legal representative.

6. CPR Practice Direction 46, para 5, reads:

5.1 A wasted costs order is an order

(a) that the legal representative pay a sum (either specified or to be assessed) in respect of costs to a party; or

(b) for costs relating to a specified sum or items of work to be disallowed.

5.2 Rule 46.8 deals with wasted costs orders against legal representatives. Such orders can be made at any stage in the proceedings up to and including the detailed assessment proceedings. In general, applications for wasted costs are best left until after the end of the trial.

5.3 The court may make a wasted costs order against a legal representative on its own initiative.

5.4 A party may apply for a wasted costs order

(a) by filing an application notice in accordance with Part 23; or

(b) by making an application orally in the course of any hearing.

5.5 It is appropriate for the court to make a wasted costs order against a legal representative, only if

(a) the legal representative has acted improperly, unreasonably or negligently;

(b) the legal representative's conduct has caused a party to incur unnecessary costs, or has meant that costs incurred by a party prior to the improper, unreasonable or negligent act or omission have been wasted;

(c) it is just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs.

5.6 The court will give directions about the procedure to be followed in each case in order to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.

5.7 As a general rule the court will consider whether to make a wasted costs order in two stages

(a) at the first stage the court must be satisfied

(i) that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved;

(b) at the second stage, the court will consider, after giving the legal representative an opportunity to make representations in writing or at a hearing, whether it is appropriate to make a wasted costs order in accordance with paragraph 5.5 above.

5.8 The court may proceed to the second stage described in paragraph 5.7 without first adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to make representations.

5.9 On an application for a wasted costs order under Part 23 the application notice and any evidence in support must identify

(a) what the legal representative is alleged to have done or failed to do; and

(b) the costs that the legal representative may be ordered to pay or which are sought against the legal representative.

Under subheading 'Breach of warranty of authority', he said:

7. In addition to the statutory wasted costs jurisdiction, the court also has an inherent jurisdiction over solicitors (as its officers) to require them summarily to compensate a person who suffers loss as a result of a breach of an implied warranty given by a solicitor that he or she was authorised by the party concerned to act on that party's behalf: see eg Yonge v Toynbee [1910] 1 KB 215; Re Sherlock Holmes International Society Ltd [2016] 4 WLR 173, [22]; Zoya Ltd v Ahmed [2016] 4 WLR 174, [28]-[41]. I refer to this jurisdiction briefly below.

Under subheading 'The application for an order', he said:

8. The respondent invited me to treat the application made in the written submissions as if it were an application made orally in the course of a hearing, under para 5.4. In Thames Chambers Solicitors v Miah [2013] EWHC 1245 (QB), Tugendhat J said:

47. In the circumstances of this case, it was not necessary that the Defendant issue a Part 23 application. The case against the Solicitors on whether they had acted improperly, unreasonably and negligently had been made sufficiently clear.

Under subheading 'The conditions for an order', he said:

10. A wasted costs order will only be made where the conditions set out in para 5.5 are satisfied. The first of these is that the legal representative's conduct was improper, unreasonable or negligent. Impropriety covers any significant breach of a substantial duty imposed by a relevant code of professional conduct: Ridehalgh v Horsefield [1994] Ch 205, 232 D-E, CA. As for unreasonableness, the acid test is whether the conduct permits a reasonable explanation: ibid, 232 F-G. And negligence simply refers to failure to act with the competence reasonably to be expected of ordinary members of the profession: ibid, 233 B-C.

11. In Thames Chambers Solicitors v Miah, to which I referred above, a litigant had issued a claim for a debt of some £23,000. A few days later he was declared bankrupt. Some months later, the litigant instructed solicitors to represent him in the claim thereafter. They accepted those instructions knowing him to be bankrupt, but did not seek or obtain the consent of his trustee in bankruptcy to carry on the proceedings. He was discharged from his bankruptcy in the usual way, on the anniversary of his adjudication. When the solicitors for the defendant to the claim found out about the claimant's bankruptcy, they applied to strike out the claim, and also for wasted costs against the claimant's solicitors. The claim was struck out, and a wasted costs order was made. In relation to the latter, the solicitors appealed. Tugendhat J dismissed the appeal.

12. He said:

44. In my judgment there was a strong prima facie case as from 16 March 2012 that the Solicitors had acted improperly, unreasonably and negligently. That was the first stage of the proceedings in accordance with para 53.6(1) of the Costs Practice Direction.

45. Mrs Ramasamy knew that when she accepted instructions from the Claimant he was a bankrupt. Any competent solicitor must know that the assets of a bankrupt vest in a trustee, and that proceedings to enforce a claim can be pursued only with the consent of the trustee. But she herself did not understand the need for that consent, as she made clear in the letter of 5 March 2012.

46. By 14 December 2012 HHJ Collender QC was clearly entitled to find that they acted improperly, unreasonably and negligently, and that they ought to be subject to a wasted costs order. Given the time during which the proceedings had been conducted by the Solicitors, and the number of applications that had been made, it was clear that the costs in question would be likely to be substantial.

13. The present case is not about a bankruptcy, or needing the consent of the trustee in bankruptcy. But, the respondent says, in the same way that the proceedings need to be properly authorised (because the litigant is a bankrupt), so too a solicitor proposing to act for a limited company must satisfy him- or herself that the company has properly authorised the proceedings. In my substantive judgment (at [29]) I referred to the Solicitors' Code of Conduct, which (at paragraphs 3.1 and 4.1) includes the words:

You only act for clients on instructions from the client, or from someone properly authorised to provide instructions on their behalf.

There are also professional duties imposed on solicitors in connection with informing their clients of various matters, such as complaints, and information about services and costs: see the Solicitors' Code of Conduct, paragraphs 8.2 to 8.11.

Before considering HHJ Paul Matthews analysis, it would be helpful to note:

(1) Mr McAndrew was the solicitor at NRG;

(2) Mr Steventon-Smith and Mr Lee Bryan were the 2 directors of the company. It was Mr Steventon-Smith who had approached NRG and purported to instruct NRG to represent the company and make the application for an injunction.

In deciding whether to make a wasted costs order againts NRG in the case before him, the HHJ Paul Matthews said:

14. In my judgment, there is prima facie evidence of a significant breach of a substantial duty imposed by a relevant code of professional conduct by the solicitors in this case. There is also prima facie evidence of unreasonable conduct. In my judgment, it is prima facie unreasonable for solicitors instructed by one director, at a time when the only two directors have fallen out and cannot agree on anything, to take instructions on behalf of the company to engage the company in legal proceedings without first satisfying themselves of the director's authority to do so. I also consider that this is prima facie evidence of negligence by the solicitors. A reasonably competent solicitor would regard it as fundamental to be clear at the outset on the authority of the person representing the client to instruct the solicitor.

15. ...[Mr McAndrew] produced a witness statement ... This explains, by way of background, that the relationship between the two directors and 50% shareholders of the company, Mr Steventon-Smith and Mr Lee Bryan, had broken down, and that a claim by Mr Steventon Smith against Mr Bryan had already been intimated. Indeed, Mr McAndrew understood from Mr Steventon-Smith that Mr Bryan had walked away from his duties to the company. In addition, Mr McAndrew said that, on 7 April 2022, he received an email from Mr Steventon-Smith enclosing a copy of an email received from Mr Bryan, attaching a copy of a statutory demand issued by the respondent against the company. Mr Steventon-Smith told Mr McAndrew that because he was not responsible for the day-to-day running of the business he could not confirm that the invoices were genuine, and therefore they were disputed on genuine grounds. Mr McAndrew wrote to the respondent advising it of this and seeking evidence that the invoices were genuine and the work had been completed.

16. Mr McAndrew says it was his honest and reasonably held belief that NRG Law were properly instructed and acting on behalf of the company. His statement does not however exhibit any letter of instruction. Nor does he say that legal professional privilege prevents his giving any relevant evidence (cf Ridehalgh v Horsefield, at 237B-E). He accepts that the court has now held that Mr Steventon-Smith did not by himself have the authority to give instructions on behalf of the company but nevertheless says that, at the time, he held the genuine and honest belief that NRG Law was properly instructed to act on behalf of the company. I add here that, in subsequent written submissions, Mr McAndrew confirmed that there was in fact no letter of instruction. Instructions were given orally by Mr Steventon-Smith.

17. Mr McAndrew considered that Mr Steventon Smith had sufficient authority to instruct the solicitors on behalf of the company because it would not have been possible to pass a board resolution owing to the deadlock between the directors and because of the clear perception that Mr Bryan was doing all he could to bring about the demise of the company. He also relied on what he called the lack of clear legal authority on the issue, and refers to Fusion Interactive Communication Solutions Ltd v Venture Investment Placement Ltd [2005] EWHC 736 (Ch). But there is no evidence in Mr McAndrew's statement that he considered the authorities at the time, rather than later, once the respondent had raised the issue of authority. Nor is there any evidence that he considered the articles of association of the company to see what provision they made for the situation, or consulted any textbooks to see what they said. I infer that he did none of these things.

18. I am afraid to say that I consider the first reason given (the impossibility of passing a board resolution) as a non sequitur. It does not follow from the fact that there was deadlock between the directors that that must mean that either one of them could take action which in the absence of deadlock could not be taken. Nor do I consider that there was a lack of clear legal authority on the issue. In particular, the case of Mitchell & Hobbs (UK) Ltd v Mill [1996] 2 BCLC 102, which is a reported case from more than 25 years ago, is very clear authority on the point. The subsequent Fusion case does not depart from it as a matter of law, but finds a sufficient reason for reaching an opposite conclusion on the facts of that case, namely a kind of estoppel. Smith v Butler [2012] EWCA Civ 314 is a different case, about a managing director, and the special position of such a director. There was no managing director in this case.

19. If Mr McAndrew is seeking to suggest that the wasted costs jurisdiction requires conduct  which is vexatious or designed to harass opponents, then I respectfully disagree. It requires conduct which is improper, unreasonable or negligent. Good faith on its own is not a defence. In my judgment Mr McAndrew provides no evidence to rebut my initial view that there was a significant breach of a substantial duty imposed by a relevant code of professional conduct (at least to be clear about the source of his instructions to act), and therefore his behaviour was improper, and also that it was unreasonable of him in the circumstances to assume that Mr Steventon-Smith had authority on his own on behalf of the company. On the face of it, it seems negligent as well, but I need not decide that.

20. The second requirement for a wasted costs order is that the representative's conduct has caused a party to incur unnecessary costs, or that costs already incurred by a party have been wasted. In the present case it is the former rather than the latter which is at stake. Mr Steventon Smith did not have the authority on behalf of the company to instruct the solicitors to issue the proceedings. Therefore, if the solicitors had satisfied themselves upon this point, the proceedings would not have been issued, and the respondent's costs would not have been incurred.

21. There is nothing in Mr McAndrew's witness statement to rebut my prima facie view. Mr McAndrew does appear to say that the respondent would not have suffered any loss if it had provided the evidence requested by him on 12 April 2022. But, apart from the fact that the respondent had already provided the relevant information to the other director, Mr Bryan, the relevant information was again provided on 6 May 2022, and yet the application for an injunction still went ahead on 9 May 2022. Given that the respondent's lawyers were only instructed on about 6 May 2022, the relevant costs appear to have been incurred after that date. Causation is therefore established.

22. The third requirement for a wasted costs order is that it is just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs. On the face of it, in circumstances where the company is or is likely to be insolvent, so that the respondent will not be able to recover its costs (in whole or in part) from the company, it seems to me obviously just that the solicitors who allowed these proceedings to go ahead by failing to satisfy themselves of the director's authority to give instructions should compensate the respondent for the expenditure of the unnecessary costs. It is the more so in circumstances where the respondent in pre-application correspondence expressly raised the issue of the authority of Mr Steventon-Smith to instruct solicitors on behalf of the company, but this was simply brushed aside. As before, there is nothing in the witness statement of Mr McAndrew to rebut this view. I quite accept the good faith of NRG. But that does not prevent a wasted costs order from being made, or prevent its being just to make one.

23. At this stage I do not think that I need to consider whether the wasted costs proceedings are justified despite the likely costs involved. But I will say this nevertheless. As summarily assessed by me, the costs involved amount to £6600, plus VAT of £1320, a total of £7920. That is well under the small claims threshold, although of course it does not follow that a claim for a debt of that amount would necessarily be allocated to the small claims track. The degree of difficulty and complexity would first have to be taken into account. But when I also take into account the importance generally of solicitors being clear on the authority of a person giving them instructions on behalf of another person, and the injustice of the respondent being left out of pocket to the tune of several thousand pounds because (as is likely) the company cannot pay these costs, I am quite satisfied that the wasted costs proceedings are justified. ' [words in bold are in italics in the original]

For completeness, HHJ Paul Matthews consider the alternative jurisdiction the Court held, for imposing an obligation on a solicitor to pay money to a person - namely, that arising from a breach of the implied warranty that they have their client's authority to bring proceedings. HHJ Paul Matthews said, at paragraph 24:

'24. As I said earlier, there is also another jurisdiction available, relating to the court's jurisdiction over solicitors to order them summarily to compensate persons who have suffered loss because of a breach of the implied warranty that they have their client's authority to bring the proceedings. As William Trower QC (as he then was) said in Zoya Ltd v Ahmed [2016] 4 WLR 174, [29], the authorities showed that

"in all cases, the liability was strict and that it was not necessary to prove that the agent knew or should have known of the want of authority."

Given my conclusion on the wasted costs order, I do not need, strictly speaking, to decide whether, if I had not decided to make such an order, I would have made an order under the breach of warranty jurisdiction. But, without finally deciding, I will indicate that at present I can see no reason why I would not have done so in this case. '

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A Company (Application to Restrain Advertisement of a Winding Up Petition), Re [2020] EWHC 1551 (Ch) (16 June 2020)

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The Insolvency (England and Wales) Rules 2016

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CHAPTER 3 Petition for winding-up order

[Notes: (1) for petitions by a contributory or relevant office-holder (an administrator, administrative receiver or supervisor of a CVA) see Chapter 4;

(2) a document required by the Act or these Rules must also contain the standard contents set out in Part 1.]

Application of this Chapter

7.4. —(1) This Chapter applies subject to rule 7.25 to—

(a) a petition for winding up presented by a contributory; or

(b) a petition for winding up presented by a relevant office-holder of the company.

(2) “Relevant office-holder” in this Part means an administrator, administrative receiver and supervisor of a CVA.

Contents of petition

7.5. —(1) The petition must contain—

(a) the name of the court (and hearing centre if applicable);

(b) the name and address of the petitioner;

(c) identification details for the company subject to the petition;

(d) the company’s registered office (if any);

(e) the date the company was incorporated and the enactment under which it was incorporated;

(f) the total number of issued shares of the company and the manner in which they are divided up;

(g) the aggregate nominal value of those shares;

(h) the amount of capital paid up or credited as paid up;

(i) a statement of the nature of the company’s business if known;

(j) the grounds on which the winding-up order is sought;

(k) where the ground for the winding-up order is section 122(1)(a), a statement that the company has by special resolution resolved that the company be wound up by the court and the date of such resolution;

(l) where the ground for the winding-up order is section 122(1)(f) or 221(5)(b) and a statutory demand has been served on the company, a statement that such a demand has been served and the date of service and that the company is insolvent and unable to pay its debts;

(m) a statement whether the company is an Article 1.2 undertaking;

(n) a statement whether the proceedings will be main, secondary, territorial or non-EC proceedings and that the reasons for so stating are given in a witness statement;

(o) a statement that in the circumstances it is just and equitable that the company should be wound up;

(p) a statement that the petitioner therefore applies for an order that the company may be wound up by the court under the Act, or that such other order may be made as the court thinks just;

(q) the name and address of any person on whom the petitioner intends to serve the petition; and

(r) the contact details of the petitioner’s solicitor (if any).

(2) The petition must also contain a blank box for the court to complete with the details of the venue for hearing the petition.

Verification of petition

7.6. —(1) The petition must be verified by a statement of truth.

(2) Where the petition is in respect of debts due to different creditors then the debt to each creditor must be verified separately.

(3) A statement of truth which is not contained in or endorsed upon the petition must identify the petition and must contain—

(a) identification details for the company;

(b) the name of the petitioner; and

(c) the name of the court (and hearing centre if applicable) in which the petition is to be presented.

(4) The statement of truth must be authenticated and dated by or on behalf of the petitioner.

(5) Where the person authenticating the statement of truth is not the petitioner, or one of the petitioners, the statement of truth must state—

(a) the name and postal address of the person making the statement;

(b) the capacity in which, and the authority by which, the person authenticates the statement; and

(c) the means of that person’s knowledge of the matters verified in the statement of truth.

(6) If the petition is based on a statutory demand, and more than four months have elapsed between the service of the demand and the presentation of the petition, a witness statement must explain the reasons for the delay.

(7) A statement of truth verifying more than one petition must include in its title the names of the companies to which it relates and must set out, in relation to each company, the statements relied on by the petitioner; and a clear and legible photocopy of the statement of truth must be filed with each petition which it verifies.

(8) The witness statement must give the reasons for the statement that the proceedings will be main, secondary, territorial or non-EC proceedings.

Petition: presentation and filing

7.7. —(1) The petition must be filed with the court.

(2) A petition may not be filed unless—

(a) a receipt for the deposit payable to the official receiver is produced on presentation of the petition; or

(b) the Secretary of State has given notice to the court that the petitioner has made suitable alternative arrangements for the payment of the deposit and that notice has not been revoked.

(3) A notice of alternative arrangements for the deposit may be revoked by a further notice filed with the court.

(4) The court must fix a venue for hearing the petition, and this must be endorsed on the petition and the copies.

(5) Each copy of the petition must have the seal of the court applied to it, and must be delivered to the petitioner.

Court to which petition is to be presented where the company is subject to a CVA or is in administration

7.8. —(1) A petition which is filed in relation to a company for which there is in force a CVA must be presented to the court or hearing centre to which the nominee’s report under section 2 was submitted or where the documents for a moratorium under section 1A were filed.

(2) A petition which is filed in relation to a company which is in administration must be presented to the court or hearing centre of the court having jurisdiction for the administration.

Copies of petition to be served on company or delivered to other persons

7.9. —(1) Where this rule requires the petitioner to serve a copy of the petition on the company or deliver a copy to another person the petitioner must, when filing the petition with the court, file an additional copy with the court for each such person.

(2) Where the petitioner is not the company the petitioner must serve a sealed copy of the petition on the company in accordance with Schedule 4.

(3) If, to the petitioner’s knowledge—

(a) the company is in the course of being wound up voluntarily, the petitioner must deliver a copy of the petition to the liquidator;

(b) an administrative receiver has been appointed in relation to the company, or the company is in administration, the petitioner must deliver a copy of the petition to the receiver or the administrator;

(c) there is in force for the company a CVA, the petitioner must deliver a copy of the petition to the supervisor of the CVA; or

(d) there is a member State liquidator appointed in main proceedings in relation to the company, the petitioner must deliver a copy to that person.

(4) If either the Financial Conduct Authority or Prudential Regulation Authority is entitled to be heard at the hearing of the petition in accordance with section 371 of the Financial Services and Markets Act 2000, the petitioner must deliver a copy of the petition to the Financial Conduct Authority or Prudential Regulation Authority (as appropriate).

(5) Where this rule requires the petitioner to deliver a copy of the petition to any other person that copy must be delivered within three business days after the day on which the petition is served on the company or where the petitioner is the company within three business days of the company receiving the sealed petition.

Notice of petition

7.10. —(1) Unless the court otherwise directs, the petitioner must give notice of the petition.

(2) The notice must state—

(a) that a petition has been presented for the winding up of the company;

(b) in the case of an overseas company, the address at which service of the petition was effected;

(c) the name and address of the petitioner;

(d) the date on which the petition was presented;

(e) the venue fixed for the hearing of the petition;

(f) the name and address of the petitioner’s solicitor (if any); and

(g) that any person intending to appear at the hearing (whether to support or oppose the petition) must give notice of that intention in accordance with rule 7.14.

(3) The notice must be gazetted.

(4) The notice must be made to appear—

(a) if the petitioner is the company itself, not less than seven business days before the day appointed for the hearing; and

(b) otherwise, not less than seven business days after service of the petition on the company, nor less than seven business days before the day appointed for the hearing.

(5) The court may dismiss the petition if notice of it is not given in accordance with this rule.

Persons entitled to request a copy of petition

7.11.   If a director, contributory or creditor requests a hard copy of the petition from the solicitor for the petitioner, or the petitioner, if acting in person, and pays the standard fee for copies the solicitor or petitioner must deliver the copy within two business days.

Certificate of compliance

7.12. —(1) The petitioner or the petitioner’s solicitor must, at least five business days before the hearing of the petition, file with the court a certificate of compliance with rules 7.9 and 7.10 relating to service and notice of the petition.

(2) The certificate must be authenticated and dated by the petitioner or the petitioner’s solicitor and must state—

(a) the date of presentation of the petition;

(b) the date fixed for the hearing; and

(c) the date or dates on which the petition was served and notice of it was given in compliance with rules 7.9 and 7.10.

(3) A copy of or, where that is not reasonably practicable, a statement of the content of, any notice given must be filed with the court with the certificate.

(4) The court may, if it thinks just, dismiss the petition if this rule is not complied with.

Permission for the petitioner to withdraw

7.13. —(1) The court may order that the petitioner has permission to withdraw the petition on such terms as to costs as the parties may agree if at least five business days before the first hearing the petitioner, on an application without notice to any other party, satisfies the court that—

(a) notice of the petition has not been given under rule 7.10;

(b) no notices in support or in opposition to the petition have been received by the petitioner; and

(c) the company consents to an order being made under this rule.

(2) The order must contain—

(b) the date the winding-up petition was presented;

(c) the name and postal address of the applicant;

(d) a statement that upon the application made without notice to any other party by the applicant named in the order the court is satisfied that notice of the petition has not been given, that no notices in support of or in opposition to the petition have been received by the petitioner and that the company consents to this order; and

(e) an order that, with the permission of the court, the petition is withdrawn.

Notice by persons intending to appear

7.14. —(1) A creditor or contributory who intends to appear on the hearing of the petition must deliver a notice of intention to appear to the petitioner.

(2) The notice must contain—

(a) the name and address of the creditor or contributory, and any telephone number and reference which may be required for communication with that person or with any other person (also to be specified in the notice) authorised to speak or act on the creditor’s or contributory’s behalf;

(b) the date of the presentation of the petition and a statement that the notice relates to the matter of that petition;

(c) the date of the hearing of the petition;

(d) for a creditor, the amount and nature of the debt due from the company to the creditor;

(e) for a contributory, the number of shares held in the company;

(f) a statement whether the creditor or contributory intends to support or oppose the petition;

(g) where the creditor or contributory is represented by a solicitor or other agent, the name, postal address, telephone number and any reference number of that person and details of that person’s position with or relationship to the creditor or contributory; and

(h) the name and postal address of the petitioner.

(3) The notice must be authenticated and dated by or on behalf of the creditor or contributory delivering it.

(4) Where the person authenticating the notice is not the creditor or contributory the notice must state the name and postal address of the person making the statement and the capacity in which, and the authority by which, the person authenticates the notice.

(5) The notice must be delivered to the petitioner or the petitioner’s solicitor at the address shown in the court records, or in the notice of the petition required by rule 7.10.

(6) The notice must be delivered so as to reach the petitioner (or the petitioner’s solicitor) not later than 4pm on the business day before that which is appointed for the hearing (or, where the hearing has been adjourned, for the adjourned hearing).

(7) A person who fails to comply with this rule may appear on the hearing of the petition only with the permission of the court.

List of appearances

7.15. —(1) The petitioner must prepare for the court a list of the creditors and contributories who have given notice under rule 7.14.

(2) The list must contain—

(a) the date of the presentation of the petition;

(b) the date of the hearing of the petition;

(c) a statement that the creditors and contributories listed have delivered notice that they intend to appear at the hearing of the petition;

(d) their names and addresses;

(e) the amount each creditor claims to be owed;

(f) the number of shares claimed to be held by each contributory;

(g) the name and postal address of any solicitor for a person listed; and

(h) whether each person listed intends to support the petition, or to oppose it.

(3) On the day appointed for the hearing of the petition, a copy of the list must be handed to the court before the hearing commences.

(4) If the court gives a person permission to appear under rule 7.14(7), then the petitioner must add that person to the list with the same particulars.

Witness statement in opposition

7.16. —(1) If the company intends to oppose the petition, it must not later than five business days before the date fixed for the hearing—

(a) file with the court a witness statement in opposition; and

(b) deliver a copy of the witness statement to the petitioner or the petitioner’s solicitor.

(2) The witness statement must contain—

(a) identification details for the proceedings;

(b) a statement that the company intends to oppose the making of a winding-up order; and

(c) a statement of the grounds on which the company opposes the making of the order.

Substitution of creditor or contributory for petitioner

7.17. —(1) This rule applies where the petitioner—

(a) is subsequently found not to have been entitled to present the petition;

(b) fails to give notice of the petition in accordance with rule 7.10;

(c) consents to withdraw the petition, or to allow it to be dismissed, consents to an adjournment, or fails to appear in support of the petition when it is called on in court on the day originally fixed for the hearing, or on a day to which it is adjourned; or

(d) appears, but does not apply for an order in the terms requested in the petition.

(2) The court may, on such terms as it thinks just, substitute as petitioner—

(a) a creditor or contributory who in its opinion would have a right to present a petition and who wishes to prosecute it; or

(b) a member State liquidator who has been appointed in main proceedings in relation to the company, and who wishes to prosecute the petition.

Order for substitution of petitioner

7.18.   An order for substitution of a petitioner must contain—

(b) the name of the original petitioner;

(c) the name of the creditor, contributory or member State liquidator (“the named person”) who is substituted as petitioner;

(d) a statement that the named person has requested to be substituted as petitioner under rule 7.17;

(e) the following orders—

(i) either—

(aa) that the named person must pay the statutory deposit to the court and that, upon such payment being made, the statutory deposit paid by the original petitioner is to be repaid to the original petitioner by the official receiver, or

(bb) where the named person is the subject of a notice to the court by the Secretary of State under rule 7.7(2)(b) (notice of alternative arrangements for the payment of deposit) that the statutory deposit paid by the original petitioner is to be repaid to the original petitioner by the official receiver;

(ii) that the named person be substituted as petitioner in place of the original petitioner and that the named person may amend the petition accordingly,

(iii) that the named person must within a period specified in the order file a statement of truth of the statements in the amended petition,

(iv) that not later than before the adjourned hearing of the petition, by a date specified in the order, the named person must serve a sealed copy of the amended petition on the company and deliver a copy to any other person to whom the original petition was delivered,

(v) that the hearing of the amended petition be adjourned to the venue specified in the order, and

(vi) that the question of the costs of the original petitioner and of the statutory deposit (if appropriate) be reserved until the final determination of the amended petition;

(f) the venue of the adjourned hearing; and

(g) the date of the order.

Notice of adjournment

7.19. —(1) If the court adjourns the hearing of the petition the petitioner must as soon as reasonably practicable deliver a notice of the making of the order of adjournment and of the venue for the adjourned hearing to—

(a) the company; and

(b) any creditor or contributory who has given notice under rule 7.14 but was not present at the hearing.

(2) The notice must identify the proceedings.

Order for winding up by the court

7.20. —(1) An order for winding-up by the court must contain—

(b) the name and title of the judge making the order;

(c) the name and postal address of the petitioner;

(d) the nature of the petitioner which entitles that person to present the petition (e.g. the company, a creditor, or a regulator);

(e) the date of presentation of the petition;

(f) an order that the company be wound up by the court under the Act;

(g) a statement whether the proceedings are main, secondary, territorial or non-EC proceedings;

(h) an order that the petitioner’s costs of the petition be paid out of the assets of the company (unless the court determines otherwise);

(i) if applicable, an order that the costs of other persons as specified in the order be paid out of the assets of the company;

(j) the date of the order; and

(k) a statement that an official receiver attached to the court is by virtue of the order liquidator of the company, or

(2) The order may contain such additional terms concerning costs as the court thinks just.

Notice to official receiver of winding-up order

7.21. —(1) When a winding-up order has been made, the court must deliver notice of the fact to the official receiver as soon as reasonably practicable.

(2) The notice must have the title “Notice to Official Receiver of Winding-up Order” and must contain—

(b) the company’s registered office;

(c) the date of presentation of the petition;

(d) the date of the winding-up order; and

(e) the name and postal address of the petitioner or the petitioner’s solicitor.

Delivery and notice of the order

7.22. —(1) As soon as reasonably practicable after making a winding-up order, the court must deliver to the official receiver two copies of the order sealed with the seal of the court.

(2) The official receiver must deliver—

(a) a sealed copy of the order to the company; and

(b) a copy of the order to the registrar of companies (in compliance with section 130(1)).

(3) As an alternative to delivering a sealed copy of the order to the company, the court may direct that the sealed copy be delivered to such other person or persons, as the court directs.

(4) The official receiver—

(a) must cause a notice of the order to be gazetted as soon as reasonably practicable; and

(b) may advertise a notice of the order in such other manner as the official receiver thinks fit.

(5) The notice must state—

(a) that a winding-up order has been made in relation to the company; and

(b) the date of the order.

Petition dismissed

7.23. —(1) Unless the court otherwise directs, when a petition is dismissed the petitioner must give a notice of the dismissal as soon as reasonably practicable.

(2) The notice must be—

(a) gazetted; or

(b) advertised in accordance with any directions of the court.

(3) The notice must contain—

(a) a statement that a petition for the winding up of the company has been dismissed;

(e) the date on which the petition was gazetted or otherwise advertised; and

(f) the date of the hearing at which the petition was dismissed.

(4) The company may itself gazette notice of the dismissal where—

(a) the petitioner is not the company; and

(b) the petitioner has not given notice in accordance with paragraphs (1) to (3) within 21 days of the date of the hearing at which the petition was dismissed.

Injunction to restrain presentation or notice of petition

7.24. —(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.