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Todd V. Watson [2004] ScotCS 153 (25 June 2004)

OUTER HOUSE, COURT OF SESSION

P1114/01

OPINION OF J GORDON REID

Q.C., F.C.I.Arb.

Sitting as a Temporary Judge

In the Petition

LYNDA ANNE TODD FOR WINDING UP OF VAN BENTLEY LIMITED

Petitioner:

against

JAMES WATSON

Respondent:

________________

Petitioner: Jones, Solicitor-Advocate; Brechin Tindal Oatts

Respondent: Party

25 June 2004

Introduction
[1] This is a proof in the petition of Lynda Todd for the winding up of Van Bentley Limited (the "Company") on the ground that it is unable to pay its debts as they fall due. I heard evidence on 9 June 2004. The petitioner was represented by Mr Jones, solicitor-advocate of Brechin Tindal Oatts, solicitors, Edinburgh who led the evidence of the provisional liquidator John M. Hall, C.A. of Messrs BKR Haines Watt, Chartered Accountants, Edinburgh. The respondent, James Watson, one of the Company's directors, represented himself. He neither gave nor led evidence.

[2] A number of preliminary matters arose. Mr Jones tendered a number of productions late to which there was no objection and which I therefore admitted. A Joint Minute agreeing various matters was also lodged.

Facts
[3] The Company was incorporated in Scotland under the Companies Acts on 27 July 1998. Its registered office is at 25 Castle Street, Edinburgh. The Petitioner is a director and the Company Secretary. She holds 150 £1 Ordinary Shares of the authorised share capital of £1000. The other directors and their shareholdings are the Petitioner's husband, Andrew Todd (350 Ordinary Shares), James Watson (500 Ordinary Shares) and his wife Mary Watson (500 Ordinary Shares). The Company was established as a property development company principally to develop land at Newburgh, Fife.

[4] The Petitioner is the largest (in value) creditor of the Company. The Company borrowed £75,000 from her, in terms of a Minute of Agreement dated 21/8/98 (6/14 of process), which was due to be repaid with interest by 14 August 2000. The loan is secured by a Standard Security (6/12 of process) in favour of the Petitioner dated 21/8/98 and registered on 9/9/98. The security subjects are an area of land at Mugdrum, on the south bank of the river Tay, Newburgh, Fife (6/12 of process). The loan and accrued interest have not been repaid.

[5] The land at Newburgh which the Company was proposing to develop consisted of three components. The first was Mugdrum, secured as aforesaid. The second was a contiguous area known as Robertson's Quay and the third was an adjacent or contiguous area of the foreshore; a Small Works licence in respect of that part of the foreshore instead of a lease appears to have been granted by the Crown Estates Commissioners in favour of Mr Watson rather than the Company. The second and third components appear to be areas of amenity land which compliment and may enhance the value of the land at Mugdrum. Outline planning permission was granted for a housing development although it is not clear over precisely what area of land planning permission was granted. The subjects at Robertson's Quay were conveyed by Disposition, dated 21/9/01, by the Company (6/9 of process), through the hand of Mr and Mrs Watson as directors, to Mr Watson for the sum of £35,000, shortly before the presentation of the winding up petition. This sum does not appear to have been paid by Mr Watson to the Company or the provisional liquidator.

[6] In the course of pursuing the development project, the Company engaged the professional services of a number of parties to whom the Company became indebted. In particular, the Company became indebted to Montgomery Forgan Associates, Architects and Town Planning Consultants, Cupar in the sum of £18,518.99. This relates to professional services in connection with the proposed development at Newburgh. They raised an action to recover their fees. The action was initially defended but the Company's solicitors, Messrs Warners, solicitors, Edinburgh, eventually withdrew from acting; decree was granted on 21/11/01 and extracted on 6/12/01 (6/8 of process). The sum of £18,518.99 plus interest has been outstanding since at least 17/5/01 (the date from which interest runs on the decree) and remains unpaid (see also Joint Minute paragraphs 6 & 10).

[7] Messrs Warners' fees and outlays in connection with the above action have not been paid. They rendered a fee note on or about 28/8/01 in the sum of £622.75 (6/7 of process). While their account has not been taxed, it is plain that there is an outstanding amount due and resting owing by the Company to Messrs Warners. The evidence disclosed no challenge to the quality of the services provided or the amount charged therefor.

[8] The Company also engaged the profession architectural services of Gilbert Associates, Edinburgh in connection with the same project. They provided such services. That firm rendered requests for payment for their services (6/19, [£2395.24], 6/20 [£2378.73], 6/21 [£7,129.62], 6/22 [£6942.08]. These sums have not been paid in full. The sum presently outstanding appears to be either £14,000 or £15,000. The sum of £14,000 has been outstanding since about April 2001 (6/18 of process). The evidence disclosed no challenge to the quality of the services provided or the amount charged therefor. The sum of £14,000, at least, remains due and resting owing by the Company to Gilbert Associates (see also Joint Minute paragraphs 8 & 10).

[9] The Company has failed to pay rates to Fife Council in respect of land to which the development project relates. In particular, the Company has failed to pay £454.47 for the rating year 1998/99, £1240.80 for the rating year 1990/00 and £1191.17 for the rating year 2000/01. These sums have been outstanding since at least 26/6/01 (Joint Minute paragraph 9). The sum demanded by Fife Council has subsequently been reduced to £3687. That sum remains due and resting owing by the Company to Fife Council (see also Joint Minute paragraph 10).

[10] The Company engaged the professional services of Jeffrey Crawford, tax consultants, in relation to the preparation of its accounts. That firm rendered a request, on or about 28/6/01 for payment in the sum of £1175 (6/15 of process). The evidence disclosed no challenge to the quality of the services provided or the amount charged therefor. That sum remains due and resting owing by the Company to the tax consultants. Further work has been carried out for the Company by these consultant but they have not requested payment therefor.

[11] On or about 18/7/01 a statutory demand in terms of section 123(1)(a) and 222(1)(a) of the Insolvency Act 1986 was served on the Company by sheriff officer at its registered office (6/2 of process). The demand was served on behalf of the petitioner and was in respect of the loan mentioned above. The demand was in the sum of £87,993.04. A similar statutory demand was made by the petitioner in respect of a director's loan of £15,000 (also 6/2 of process). No payment has been made in response to either demand.

[12] In the foregoing circumstances, it is plain that the Company has persistently been unwilling to pay its debts as they fell due. It is therefore proper and reasonable to infer that the Company has been and is unable to pay its debts as they fall due. No bona fide basis on which to dispute these debts or any of them has been established.

[13] The Petitioner presented a petition for the winding up of the Company on 27/9/01. Following sundry procedure, Mr Hall was, on 23/11/01, appointed provisional liquidator. He took up office and made various investigations. He prepared a Report dated 1/7/02 which included an estimated statement of affairs. This showed the Company to be absolutely insolvent with a deficiency of about £57,000. In the statement of affairs Mugdrum was valued at £75,000, Robertson's Quay at £28,000 and the interest in the foreshore at nil. The statement of affairs also showed the loan by the petitioner with accrued interest at £83,817, the various debts mentioned above and directors' loans to the Company in the sum of £30,000. Mr Hall's Report also records that the dealings between the Todds and the Watsons have become increasingly acrimonious; however, it is unnecessary to consider that matter further.

[14] A subsequent estimated statement of affairs dated 8/6/04 (6/23 of process) shows the debt to the Petitioner to have increased to £110,000. The value of Mugdrum remains the same. The value of Robertson's Quay is nil because the provisional liquidator has, since the earlier statement of affairs, discovered the Disposition of those subjects in favour of Mr Watson. Likewise, the value of the interest in the foreshore is valued at nil. The liability of the Company to its various creditors remains the same except that the amount due to Fife Council has been changed to £3,687. The Company is still shown as being absolutely insolvent. According to Mr Hall it has cash in hand of about £141.

Submissions
[15] Mr Jones produced a helpful and concise written submission to which he spoke. In summary, he submitted under reference to the following texts and authorities that (1) a company's inability to pay its debts as they fall due is not solely referable to the petitioning creditor's debt, sections 122(1)(f) and 123(1)(e) of the 1986 Act being in general terms (Palmer's Company Law Vol 3 para 15.210); (2) a creditor has a prima facie right to a winding up order unless the debt is less than £750, the debt is bona fide disputed, the company has paid or tendered payment of the debt, the winding up is opposed by other creditors, or the company is in the process of being would up voluntarily (Palmer vol 3 para 15.212); (3) where creditors offer opposition, the court will normally give effect to the views of the majority; but will appraise the motives of the main participants in the opposing factions (Palmer 15.217, 15.218.1; (4) the fact that the petitioner holds a security does not render a petition under section 123(1)(e) of the Insolvency Act 1986 inappropriate (Palmer's Company Law in Scotland para 423, Insolvency Act 1986 section 125(1)); (5) absolute insolvency need not be established (St Clair & Drummond Young, The Law of Corporate Insolvency in Scotland pages 81-84, Palmer's Company Insolvency in Scotland page 131, In re Globe New Patent Iron & Steel Company 1875 LR 20 Eq 337 338; Cornhill Insurance plc v Improvement Services Ltd & ors 1986 1 WLR 114 at 117F-118E; (6) Disputing the debt for a thoroughly bad reason will not prevent an order being granted (Re Taylor's Industrial Flooring Ltd 1990 BCC 44 at 50B-51A), nor will disputing part of the debt (Blue Star Security Services (Scotland) Ltd 1992 SLT (Sh Ct) 80, Clowes Developments (Scotland) Ltd v Whannel 2002 SLT (Sh. Ct.) 6 at 9-10).

[16] He submitted that the evidence demonstrated that the Company had failed to pay its debts as they fell due and the statutory test was met. The defence was irrelevant; there was no cross-examination on the indebtedness. Mr Watson's complaints about the valuation of the land could only affect the question whether the Company was or was not absolutely insolvent and not whether it was practically insolvent. The so-called agreement founded upon by Mr Watson had not been established even if it were competent to raise the point at this stage.

[17] In his closing address, Mr Watson expressly accepted that the debts referred to in evidence were unpaid. He asked me to give careful consideration to the documents and hold that the agreement mentioned in his pleadings and in cross-examination has been established. He submitted that Mr Hall should not be regarded as reliable and he should not be appointed liquidator.

Discussion
[18] My findings in fact are based upon the evidence of Mr Hall, the documents to which he spoke, the agreed documents specified in and the other terms of the Joint Minute. I found Mr Hall to be credible and reliable. In the event, there was no real dispute that the Company was indebted to the Petitioner, Montgomery Forgan Associates, Warners, Fife Council, Gilbert Associates and Jeffrey Crawford. The evidence disclosed nothing improper in the Petitioner's motive in having the Company wound up. Mr Watson's main complaint was that the land at Mugdrum was undervalued and that an agreement had been reached whereby he would buy out the Todds. These were the themes of his arguments. Mr Hall explained in evidence his role as provisional liquidator, and that he had not incurred the expense of formal valuations of the various components at Mugdrum. He had consulted Messrs Pagans, solicitors, Cupar who gave him "ball park" figures which were sufficient for his purposes meantime.

[19] Mr Watson also challenged Mr Hall on various parts of his evidence relating to the licence granted or apparently granted by the Crown Estates and the nature and scope of the planning permission at Mugdrum. No planning documents were produced and I am unable to conclude on the evidence before me that anything beyond outline planning permission exists for the proposed development at Mugdrum Whether it does or does not is of no moment for present purposes. For the purposes of this petition, it does not matter what is the valuation of the Company's interests at Newburgh. Nor does the precise nature of the interest granted by the Crown Estate Commissioners matter for present purposes.

[20] I therefore reject, as a ground for refusing the petition, Mr Watson's complaints about the values of the land at Newburgh as recorded in Mr Hall's estimated Statements of Affairs. His assertions that the value was substantially greater than the estimate set forth in Mr Hall's statement of affairs were not established by any evidence and in my view are irrelevant to the issues in this petition. Whether Mr Watson's views on the value of the land at Newburgh are well founded remains to be seen.

[21] As for Mr Watson's argument about an agreement, it seems from the correspondence produced that at some stage in 2002, the petitioner and her husband entered into negotiations with the respondent and his wife with a view to resolving matters. They may have entered into some form of agreement whereby, on certain terms and conditions, they agreed to sell their shares to the Watsons or Mr Watson. The evidence on this topic was somewhat vague and I am unable to make any more positive finding. Any such agreement has not been implemented. It has not been established that its terms have precluded or barred the petitioner, as a matter of law, from proceeding with this petition. These negotiations may, however explain the long period between the presentation of the petition in 2001 and the proof in June 2004. A further explanation for the delay may be that in January 2003 a proof diet had to be discharged because it had not been properly intimated to both parties.

[22] I accept, generally, the six propositions in law advanced by Mr Jones. The Petitioner was and is a creditor of the Company. She has title to bring this petition. The Company has numerous debts which it has refused or delayed to pay for no good reason. I conclude that it is unable to pay its debts as they fall due within the meaning of section 122(1)(f) & 123(1)(e) of the Insolvency Act 1986. The petitioner is therefore entitled to have the Company wound up. There is no basis upon which I could exercise my discretion and refuse to order that the Company be wound up. There was nothing in the evidence making it inappropriate to appoint Mr Hall as interim liquidator. He was originally appointed provisional liquidator by the court and was not the nominee of the petitioner.

Disposal
[23] I shall pronounce an interlocutor repelling Mr Watson's plea-in-law, granting the prayer of the petition and appointing Mr Hall to be interim liquidator of the Company in accordance with the usual procedure. Mr Jones asked me to deal with the question of expenses and moved for them if his submissions were to be accepted. Mr Watson asked me to reserve the question of expenses. There may be an issue in relation inter alia to the expenses occasioned by a Note presented by the petitioner at an earlier stage in the proceedings. I have therefore decided to reserve, meantime the question of expenses.