Neutral Citation No:  NICh 10
Judgment: approved by the Court for handing down
(subject to editorial corrections)*
"These particulars must include (a) when the debt was incurred, (b) the consideration for the debt, (or if there is no consideration the way in which it arose), and (c) the amount due as at the date of this demand.
The creditor claims the amount of £1M being an agreed sum due immediately by the debtor to the creditor in respect of monies which were being held on trust for the creditor by the debtor since on or about April 2010 and February 2011, being the respective dates of settlement agreements reached in respect of claims made against numerous insurance policies in relation to pyrite litigation incepted in Dublin (which sets some of its demands as being immediately due without prejudice to the creditor's entitlement to claim such further sums which are due and owing to the creditor from the debtor pursuant to the aforesaid insurance monies).
The said sum was payable on demand and has been duly demanded by the creditor by letters dated 02 and 23 August 2018 and thereafter by the creditor's solicitors by letters dated 14 and 28 September 2018, and it is thereby due by virtue of an account stated.
The agreed sum of £1M is further recorded as liability due by the debtor to the creditor in the last set of accounts filed by the debtor at Companies House for the year ended 30 June 2017 which it is recorded as an amount falling due within one year."
(a) Events pre-agreement,
(b) Events surrounding the agreement, and
(c) Events post-agreement.
(a) Michael and Kevin Lagan, who are brothers, operated a group of businesses known as the Lagan Group of Companies. ("The Lagan Group"). The Lagan Group included, inter alia, Irish Asphalt Limited, Linstock Limited, (both of whom are registered in the Republic of Ireland), Lagan Cement Group Limited, Lagan Holdings Limited and Lagan Construction Limited.
(b) The Lagan Group conducted a range of commercial activities. For the most part they focused on the construction industry and related activities including the supply of aggregate in-fill material for use in the construction industry.
(c) Prior to 2010 Kevin Lagan held 55% of the shares in the Lagan Group and Michael Lagan held 45% of the shares.
(d) On 9 July 2010 the two brothers and a number of the Lagan Group of Companies entered into an agreement ("the Separation Agreement") which provided for the corporate re-organisation of the Lagan Group. Pursuant to the Separation Agreement the Lagan Group was effectively split between the ultimate ownership of the two brothers. Kevin Lagan owned the entirety of the shares in some Lagan Group companies and Michael Lagan owned the entirety of the shares in other Lagan Group companies. The two brothers in addition retained joint shareholdings in other Lagan Group companies including Irish Asphalt Limited and Linstock Limited.
(e) The plaintiff is a limited liability company. It was incorporated on 18 February 2009. It has four directors, one of whom is Kevin Anthony Lagan. The entire shareholding is held by Runlin Limited. Kevin Lagan holds 55% of the shareholding in Runlin Limited. Michael Lagan owns 45% of the shareholding in Runlin Limited.
(f) The defendant is a limited liability company. It has four directors one of whom is Jill Harrower-Steele.
(g) Prior to the Separation Agreement a number of claims had been issued against a number of companies in the Lagan Group. These included claims against the plaintiff, the defendant, Irish Asphalt Limited and Linstock Limited. The claims arose out of the supply of in-fill materials sourced from a quarry in County Dublin known as Bay Lane Quarry. The in-fill allegedly was contaminated with pyrite and allegedly caused extensive and serious building defects. ("the pyrite litigation", also known as "Bay Lane claims").
(h) In 2009 the two insurance companies who had insured the Lagan Group entered into agreements dated 13 April 2010 and 24 February 2011 with the Lagan Group whereby the insurers agreed to pay a total sum of £54.5M ("the Insurance Fund") in consideration of the Lagan Group releasing them from their liability to indemnify them.
Deed of Contribution and Conduct
(i) On 1 September 2010 the plaintiff, the defendant, Lagan Cement, Irish Asphalt and Linstock, all of whom had been named as defendants in the existing pyrite litigation, entered into a Deed of Contribution and Conduct ("the Deed") to "regulate the conduct of the existing Bay Lane claims and any future Bay Lane claims".
(j) Clause 4 of the Deed provided for the treatment of the Insurance Fund as follows:-
"4.1 The parties shall procure that all monies paid by liability insurers to any of the defendants or any member of the KL Group, the ML Group or the Irish division in connection with any existing Bay Lane claims and future Bay Lane claims shall (subject to any conditions agreed with the relevant insurance companies) be paid into an escrow account in the joint names of the defendants or as shall otherwise to be agreed by ML and KL and shall be retained on that account unless determined by the Committee.
4.2 It is the intention of the parties that any such insurance recoveries referred to in Clause 4.1 shall be applied towards the conduct of the existing Bay Lane claims and future Bay Lane claims. The manner in which they are to be applied shall be agreed by the Committee."
(k) Clause 3 provided for the conduct of claims. It provided as follows:
"3.1 The parties agree that, subject to the remaining provisions of this Clause 3, a Committee comprising the following persons shall be empowered and authorised by each of the defendants that the sole management of the conduct of the existing Bay Lane claims and any future Bay Lane claims on behalf of (and insofar as they relate to) each of the defendants;
3.1.1 KL (and his nominated legal representative from time to time); and
3.1.2 ML (and his nominated legal representative from time to time): ("the Committee") PROVIDED THAT the Committee may delegate the management of the conduct of those claims in accordance with the provisions of Clause 3.11.
3.2 Each of the defendants shall carry out, execute and be bound by any decisions made by the Committee in relation to the conduct of the existing Bay Lane claims and any relevant future Bay Lane claims by each of the defendants and hereby irrevocably delegates the management of the conduct of the existing Bay Lane claims and any future Bay Lane claims to the Committee exclusively PROVIDED THAT the Committee may delegate the management of the conduct of those claims in accordance with the provisions of Clause 3.11.
3.3 For the avoidance of doubt each of KL and ML (or their respective alternates) shall (subject to Clause 3.5) be required to form the quorum required for a meeting of the Committee and each of KL and ML (or their respective alternates) shall have one vote in any decisions to be made by the Committee but none of the other attendees referred to in Clause 3.1 above shall have a right to vote. In the event of a deadlock in relation to any manner to be determined by the Committee the provisions of Clause 3.9 (sic) shall apply.
3.4 Each of KL and ML shall be entitled to appoint an alternate to attend and vote at meetings of the Committee by notice in writing to the other and to Lagan Holdings. Each of KL and ML shall attend or procure that his alternate attends at all meetings of the Committee of which he has been given notice in writing. Such notice shall be reasonable in the circumstances, having the regard to the nature and urgency of the matters to be discussed thereat.
3.9 Meetings of the Committee may consist of a conference between members (or their respective alternates) who are not all in one place, but each of which is able (directly or by telephonic communication) to speak to each of the others, and to be heard by each of the others simultaneously. …
3.10 In the event of a deadlock …
3.11 The Committee shall be authorised and empowered to delegate any non-strategic aspects of the conduct of the existing Bay Lane claims and future Bay Lane claims on such terms as may be agreed by the Committee but subject always to the provisions of Clauses 3.1 and 3.2."
(l) The Insurance Fund was initially paid to Maples and Calder, solicitors who acted for the parties named as defendants in the pyrite litigation. The Insurance Fund was then later transferred to the plaintiff.
Events relating to the agreement
"5. From insurance proceeds – allocated £1M to Lagan Construction
6. From insurance proceeds – allocated £1M to Lagan Cement."
"It would be my opinion that within each of the financial statements of Lagan Construction Limited for the years ended 31 March 2012 to 31 March 2017, it has been the opinion the directors of Lagan Construction Limited, that the date of approving and the signing the accounts, that a debt of £1m is owing to Lagan Construction Limited by Lagan Holdings Limited and payable within one year. I further note that the accounts were independently audited by BDO Northern Ireland for each period. …
As outlined in detail in Section 4.3 it would be my opinion that within the financial statements of Lagan Holdings for the year ended 30 June 2017, it has been the opinion of the directors of Lagan Holdings Limited as of 26 July 2018 … that a debt of £1m is owing to Lagan Construction Limited by Lagan Holdings Limited and is payable within one year.
It would be my opinion that the debt has not been treated as a contingent liability in the accounts of Lagan Holdings Limited nor a contingent asset in the accounts of Lagan Construction Limited or Lagan Cement Group Limited. As outlined in further detail in Section 4.3, the treatment of the debt within each of the accounts at each of the three entities appears to be the same and … in contradiction to the position outlined by BMK Accountants (accountants for Lagan Holdings Limited) in correspondence dated 22 November 2018. I would again note that the accounts of Lagan Construction Limited and Lagan Cement Group Limited were audited by BDO Northern Ireland and Price Waterhouse Coopers LLP respectively."
"It is our understanding that a £1m allocation was created in or around mid-2011 and disclosed within the relevant financial statements of Lagan Holdings Limited at 31 December 2011 and year ended 31 March 2012 within the financial statements of Lagan Construction Limited. A similar allocation was made in that year in favour of Lagan Cement Group Limited.
Both allocations were presented by the Lagan Holding Limited directors as being dependent on:
- Having available liquidity within Lagan Holdings Limited, and
- The finalisation of all litigation relating to pyrite.
As such the allocated amount would only be payable if sufficient funds were available and litigation had successfully concluded.
We note from the review of the year ended 31 March 2012 financial statements of Lagan Construction Limited reference is made within note 21:
'During the year the company agreed a loan of £1M to Lagan Holdings.' …"
"The debt due is £1,020,400 and we are surprised your client has asked for evidence of liability and circumstances where the liability is recorded in the last set of accounts filed by your own client at Companies House. It had seriously been suggested by your client that it needs an explanation from our client about a liability which your client has itself recorded in your client's own accounts?"
"…either by the company, or the directors or by any creditor …"
"(1) A company is deemed unable to pay its debts—
(a ) If a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a demand (known as 'the statutory demand') in the prescribed form requiring the company to pay the sum due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor …"
"In an application to restrain the presentation of a winding up petition such as the present the applicant must demonstrate that it would be an abuse of process for the defendants to proceed with the petition. It is thus necessary for the company to establish that if the defendants presented a winding up petition it would be bound to fail. It is clear from the authorities such as Mann v Goldstein  2 All ER 769 that if the debt claimed by a petitioner is disputed on grounds showing a substantial defence requiring investigation the petitioner will be unable to establish that he is a creditor and accordingly does not have locus standi to present the petition." (emphasis added).
In that case, Girvan J granted the application as he was satisfied there were "triable issues".
"The court is not holding a full trial of the matter; it must only decide if the grounds appear to be substantial. They must be genuine. The grounds of dispute must not consist of some ingenious pretext invented to deprive a creditor of his just entitlement. It must not be a mere quibble."
"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  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 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  1WLR 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.
(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  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 cross-examination.
(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."
"The courts have recognized on numerous occasions that such proceedings are not the place for resolving genuinely disputed debt claims which the court cannot properly determine, either as to merits or as to quantum … While the court must be astute to avoid having the wool pulled over its eyes by a debtor trying to escape its obligations, it must be equally astute to avoiding injustice being caused by a potential creditor using insolvency proceedings to make it less likely that a justified defence or counterclaim will be pursued because the alleged debtor will be pressurized into paying the claim in full before that can be done."
Submissions of the parties
"That 'Pyrite Committee' has not formally been convened since 2010 and I understand the insurance settlement proceeds have at all material times been under the control of Lagan Holdings Limited as trustee, and that at no time did any Pyrite Committee discuss any allocation of, or manage any of, the insurance proceeds with Lagan Holdings Limited as held."
"That the 'Pyrite Committee' has not formally been convened since 2010, and I understand the insurance settlement proceedings have at all times been under the control of Lagan Holdings Limited as trustee and that at no time did any Pyrite Committee discuss any allocation of, or manage any of the insurance proceeds with (sic) Lagan Holdings Limited has held."