England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Court 6 Chancery Division Birmingham District Registry
		21st January 2009

HHJ PURLE QC:

1. This is an application brought on very short notice to restrain the further prosecution of a winding up petition. I am not going to grant the relief that is sought. It is clear that the petition came to the attention of the company on the 15^th of this month and I can see no justification for not having made this application on proper notice. The petition is to be advertised on Friday. There is, however, a problem which Mr Richmond's clients (who are the petitioners) may wish to consider. The form of the proposed advertisement at the moment is apposite to a petition to be heard in the Leicester County Court. I have at the request of the parties transferred the petition to the High Court in Birmingham, as Leicester did not have the appropriate judicial resources available to hear this application at short notice. In those circumstances, Mr Richmond can either ask me to retransfer the petition to Leicester or he can have the advertisement amended. I will invite him to address me on that once I have given judgment.
2. It appears from the evidence of a Mr Williams, who is a legal assistant at Dass, Solicitors for the petitioner, that Mr Thakor, of the respondent company, called his firm on 9^th October in response to a letter that had been sent chasing payment of the alleged debt. Mr Thakor spoke to a partner, whose attendance note records the following.

"i. he said that he was happy for us to put the company into liquidation;

ii. he said that the company had no money anyway;"

There is, therefore, evidence before the court that the debt was implicitly admitted in that conversation and just as importantly that the company has no money.

3. Mr Thakor has made a written statement under which he endeavours to explain why he said that he was happy for the company to be put into liquidation. He said it really was not a serious comment. The impression he sought to give in his evidence was that he was feeling irritated at the time. However, elsewhere in his evidence, it appears that a Mr Cheema of the respondent company has also acknowledged, apparently in writing, the indebtedness upon which the petition is now based. That notwithstanding, there is solid evidence, presently unanswered, to the effect that the outstanding indebtedness is undermined by the inclusion in the trading account of substantial amounts in respect of the supply of goods which did not exist. The evidence is second hand and is derived from the investigations of HMRC. Those investigations indicate that substantial indebtedness forming the basis of VAT input claims may be bogus because certain mobile telephones (the subject of purported sales) had either (in some cases) not been released at that time or (in other cases) there were not enough telephones around to justify the total indebtedness that has been claimed, which exceeds £5 million. That raises the prospect not only that the current claimed indebtedness of some £3 million is wrong but there may have been an overpayment in the past.
4. I am prepared to proceed for the purposes of today upon the basis that there is a dispute in relation to the debt. However, that takes us back to the second element of the solicitor's attendance note, namely Mr Thakor saying that the company had no money anyway. The petition having been presented by a person claiming to be a creditor on a disputed debt, it is the normal rule of practice that the court will not entertain such a petition if, having heard the evidence, it considers that the debt is bona fide disputed. Whether or not the court will be of that view depends upon what answer Mr Richmond's client (he appeared for the petitioner) may have to the evidence of Mr Thakor. His client has not yet had the opportunity to put in proper evidence in answer. One of the reasons is because of the lateness of this application before the court.
5. There has, it is true, been an ongoing correspondence but I do not consider that this excuses the delay that has taken place. Moreover, the company could have sought relief restraining the presentation of the petition (which was clearly flagged in advance) but did not do so. The petition having been presented, it is for the court to manage its own process in the way which has regard not only to the interests of the company, but also to the interests of the petitioner, who has a claim which, at lowest, could be dealt with in any ensuing liquidation, and to the interests of all other creditors. Given the presently unchallenged statement that the company has no money there seems to be limited prejudice which is likely to affect the company (which is not trading) if the petition is now advertised and the matter is brought to the attention of other creditors.
6. Advertisement has another important purpose, which is to bring the petition to the attention of those who may be thinking of doing business with the company. That does not apply in this case because the company is not trading. It is said that it has the intention to do so as soon as a VAT appeal has been concluded. It is implicitly assumed in this statement that the appeal will be resolved in its favour. That of course is not known. It is asserted that any advertisement will damage the applicant's reputation within the industry but I am not persuaded that I should attach any weight to that assertion given the complete absence of any explanation in the evidence (as opposed to what I have heard from counsel) of the nature of the industry and why an advertisement would be so damaging. What advertisement will also do is bring the petition potentially to the notice of other creditors who may wish to support or oppose the petition.
7. It seems to me that the convenient course is for the petition to run its course. If at the hearing of the petition the debt still appears to be properly disputed it will then be for the court to decide whether or not, that notwithstanding, the company should be wound up. In the case of an insolvent company which is not trading it is not at all clear that the normal rule of practice requiring the dismissal of the petition would apply. Professor Keay of the University of Wolverhampton in McPherson's Law of Company Liquidation, records this at page 105:

'The damaging publicity which attends the presentation of a petition may be sufficient in circumstances where there is a bona fide dispute of the debt found in the petition to support an action by the company against the petitioner for malicious prosecution. There is conflicting authority on the question as to whether the court will exercise the foregoing powers…'

The foregoing powers to which he refers are the powers to restrain advertisement and the like.

'…in the case of an application based on a disputed debt, even where the company is admittedly or indisputably insolvent. The better view is, it is submitted, where the company is insolvent, it has no credit or trading reputation which requires or deserves to be protected by injunction, and companies which are insolvent should in the public interest be prevented from continuing to trade. After saying that, it is likely that this view will not be applied.'

8. I must not be taken to wed myself to the likelihood that Professor Keay expresses in that last sentence. In my judgment, if, in the case of a non-trading company which is shown to be insolvent, there is someone who has an interest to pursue the alleged debt in the liquidation process, then it may well be that the proper course will be to wind the company up, even though the debt is disputed. The dispute can just as well be resolved through the proof of debt process in the liquidation. The company (which is not trading) would suffer no injustice. Were, on the other hand, the company trading whilst unquestionably insolvent, that might also be a reason for winding-up, notwithstanding the dispute. In all events it does not seem to me to be established that it would be proper to interfere with advertisement in such a case and in those circumstances I decline the relief that is sought.
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