Scottish Sheriff Court Decisions

The Sheriff, having considered submissions of parties on the Petition and Answers thereto, both as adjusted, together with the documents produced, finds (1) that the amount of the share capital of the said LOCHRIDGE LIMITED does not exceed ONE HUNDRED AND TWENTY THOUSAND POUNDS (£120,000.00) STERLING and (2) that the company is unable to pay its debts as they fall due; therefore the Sheriff orders that the said Lochridge Limited having its registered office at 53 George IV Bridge, Edinburgh be wound up in pursuance of the Insolvency Act 1986; NOMINATES and APPOINTS James Robin Dickson Young, Insolvency Practitioner, 1 The Square, East Linton, to be the interim Liquidator of the said company with the usual powers all in terms of said Statute and of Law; finds the expenses of the procedure to date to be expenses in the liquidation.

Sheriff of Lothian and Borders, Edinburgh

The petitioner in this case is Werner Heyder, who seeks to have the respondent company wound up under the provisions of the Insolvency Act 1986. The petitioner avers that he is a creditor of the respondent in the sum of £145,000.00 and pleads that the company is unable to pay its debts as they fall due as the basis for the winding-up petition.

On 26 July 2004, the first deliverance was pronounced and a provisional liquidator was appointed.

The first note for recall of the appointment of the provisional liquidator was No 4 of Process. It was considered at hearings on 2 and 16 August 2004 and refused on the latter date.

On 24 August 2004, a specification of documents for the respondent was approved. One of the objects was to obtain the originals of the copy documents, 5/1 and 5/4 of process lodged by the petitioner, which bore to be letters to the respondent from directors of the respondent admitting its debt to him. The first calling of the commission, on 9 September 2004, was adjourned due to the absence of the petitioner as haver. At the continued commission, on 20 September 2004, the petitioner attended and was accompanied by his wife and a Mark Harris. Before the questioning of the petitioner could be concluded, Mr Harris intervened and removed him from the hearing.

The hearing was continued for the petitioner to attend again, an interdict having been pronounced on 22 September 2004 to prevent the attendance of Mr Harris. The petitioner attended the continued commission, on 8 October 2004. The commission was in Edinburgh and the petitioner's principal agents were in Perth. One of their Edinburgh correspondents attended the commission with the petitioner and subsequently wrote the letter of 21 October 2004, to the Sheriff Clerk, to which I later refer. For completeness, I should mention that the commission was adjourned once more in an attempt to recover documents from another haver but the originals of the productions were not retrieved.

Meanwhile, on 28 September 2004, the respondent had lodged a second Note for recall of the appointment of the provisional liquidator (No 17 of process), to which, in due course Answers were lodged (No 19 of process).

On 28 October 2004, the case called before me for a hearing on the Petition and Answers thereto and for a hearing on the second Note for the Recall of the Provisional Liquidator and Answers thereo. The petitioner was represented by Mr Imrie, Solicitor, Perth and the respondent by counsel, Mr Frain-Bell. Mr Imrie sought an adjournment, in light of the letter from his Edinburgh correspondents, which questioned the ability of the petitioner to give instructions and suggested that it might be appropriate to appoint a curator ad litem. Mr Imrie had met with his client the previous day. He described him as "elderly, and not as sharp as a younger man" and evidently had taken instructions from him. However the letter from the Edinburgh correspondents, which Mr Imrie had not seen until late on the previous day, questioned the petitioner's ability to give instructions and Mr Imrie felt that it would be professionally difficult for him to proceed without obtaining expert advice on his client's mental health.

Mr Frain-Bell opposed any adjournment. The petitioner's agent, he submitted, should have realised earlier that the petitioner was unclear in his instructions. There would be no benefit in investigating the petitioner's medical condition. It would take time to appoint a curator ad litem and the respondent company was prejudiced by any further delay.

Although it was unfortunate that the issue of the petitioner's capacity to give instructions was being raised at such a late stage in the proceedings, I was of the view that it was essential to have this matter investigated and I continued the hearings until 8 November 2004, for that purpose.

At the continued diet, the petitioner was represented by counsel, Miss Coutts, and the respondent by Mr Frain-Bell. Miss Coutts produced a letter from the petitioner's general practitioner, dated 5 November 2004, which indicated that the petitioner was of sound mind, although he had medical problems and the present proceedings were causing him stress.

Clearly there was no obstacle to the case proceeding and I indicated that I would hear counsel on the Petition and Answers, the outcome of which would render the issue of a provisional liquidator redundant.

I noted that the petition averred that the petitioner was a creditor of the respondent, by virtue of having lent the respondent the sum of £145,000.00 in July 1997. It was further averred that the respondent had been repeatedly called upon to repay the debt to the petitioner but was unable to do so. The most recent accounts of the respondents, to 31 October 2002 (No 2/5 of process) showed that sums due to creditors exceeded assets and a report from the provisional liquidator, dated July 2004 (No 6/9 of process), identified other creditors, notably the Bank of Scotland who were owed £400,000.00. The only known heritable asset of the respondent was a property in Carnoustie, subject to a Standard Security in favour of the Bank of Scotland and a motor vehicle of minimal value. It was averred that the total value of the company's debts as ascertained by the provisional liquidator, substantially exceeded the value of the company's assets.

In the Answers, it was averred that the petitioner was not a creditor of the respondent. The money which he had advanced was a loan to his son, Paul Heyder, who was a director of the respondent at the time. It was included in the Directors' Report and Financial Statements for the year ended 31 October 1997 (No 21 of process) as part of the directors loan account. Reference was made to an action currently ongoing in the Court of Session between the present director of the respondent and Paul Hedyer (the Open Record being No 22 of process), in which Paul Heyder averred that he had invested substantial sums of money in the respondent company. The respondent averred that the present petition related to the same money as that in dispute in the Court of Session action.

The Answers went on to aver that the copy letters 5/1 and 5/4 of process were not genuine, according to a forensic report No 11 of process. It was further averred that the creditors of the respondent were not pressing for payment.

A matter not referred to in the pleadings, but mentioned in submissions, was the undisputed fact that the company disponed heritable property in Arbroath for no consideration to their solicitor on 1 July 2004 and that the Disposition was recorded in the General Register of Sasines for Angus on 7 July 2004 (copy Disposition No 6/1 of process). The solicitor had subsequently indicated that the property was to be acquired by a company incorporated in the British Virgin Islands (No 6/25 of process). The date of the presentation of the present petition was 12 July 2004, which would be the date of the commencement of the winding-up if the order were pronounced (Insolvency Act 1986, section 129(2). The gratuitous alienation would then become reducible.

Miss Coutts began by addressing the question as to whether the petitioner was a creditor of the respondent and referred to various productions contained in the petitioner's fourth inventory, No 7 of process. These included a mandate by the petitioner and his wife, dated 15 July 1997, instructing their solicitors to pay the free proceeds of sale of a heritable property, restricted to the sum of £145,000.00 to the Royal Bank in consideration of the bank having given facilities to the respondent. The correspondence produced referred to the payment as a loan. A letter dated 26 July 2000 from the petitioner's son as director of the respondent acknowledged the debt (No 5/3 of process) and there was an affidavit from him confirming that. The item No 5/5 of process was a signed statement by the petitioner that the debt remained outstanding as at 17 July 2004 and No 6/16 of process was a copy fax from the respondent's accountants that there was a balance due by it at present to the "Heyder family" of over £200,000.00. The assertion in the Answers that the payment by the petitioner in 1997 was really a loan to his son was not based on evidence. The dispute in the Court of Session between the petitioner's son and the present director, was about money owed by the director and not about money owed by the respondent. The petitioner did not rely on the acknowledgements of the debt contained in the copy documents No 5/1 and 5/4 of process.

As to the solvency of the respondent, Miss Coutts referred to the reports of the provisional liquidator (No 6/9 and 6/10 of process) which showed that the respondent had debts of over £400,000.00, apart from that claimed by the petitioner. The present director had taken some time to respond to the request of the provisional liquidator for a statement of assets and liabilities. The statement now lodged (24 of Process) exaggerated the value of the company's assets. In order to produce a credit balance, it relied on a speculative claim for £1m against Angus Council, which had not even been intimated to the Council.

Miss Coutts submitted that there was no evidence that the petitioner had acted in bad faith. The forensic report reached no conclusion as to whether the documents were genuine or not.

In reply, Mr Frain-Bell submitted that the petitioner had no locus to bring the petition. He knew little about the case, was being manipulated by others and the petition was presented in bad faith. On the last point, he referred to the failure of the petitioner to produce the originals of Nos 5/1 and 5/4 of process and to the forensic report. He submitted that the petitioner's son admitted by inference in the Court of Session action that the dispute was about the same money. The report of the directors of the respondent for the year ending 31 October 1997 showed the directors' loan account as standing at £155,000.00. This, he maintained, represented £145,000.00 lent to the company by the petitioner's son and £10,000.00 lent by the other director.

With regard to the general solvency of the company, Mr Frain-Bell explained that the transfer of heritable property in July was done to protect that property in a dispute with a business rival, who was trying to develop the site, and the mortgage over the property had been discharged on transfer. He accepted that the claim against Angus Council had not been intimated and explained that this was because of difficulties associated with the present proceedings. None of the respondent's creditors were pressing for payment.

Mr Frain-Bell submitted that there was a substantial dispute between the parties and that the petitioner should constitute the debt in another forum. Meanwhile the petition should be dismissed.

Each counsel referred to a number of cases, all of which are listed below. From these it is clear that a substantial dispute as to the existence of a debt is not generally habile to be determined in a winding-up petition. However, the dispute has to be genuine and a respondent cannot have a winding-up petition dismissed simply by raising unfounded objections. A petition presented in bad faith, of course, falls to be dismissed and the process must not be used to pressurise a respondent into settling a doubtful claim.

I continued the case to 12 November and took time to consider my decision. I had no difficulty in accepting the report of the provisional liquidator that the respondent company had liabilities which exceeded its assets. As to the locus of the petitioner, I thought it significant that the respondent did not deny that it had been paid the sum of £145,000.00. Its position was that it was a loan from the petitioner's son, rather than the petitioner. The respondent did not claim that this money had been repaid, which means either the petitioner or his son would be a qualified creditor. Leaving aside affidavits from the petitioner's son, the contemporary documents and correspondence referred to a loan by the petitioner. The only contrary indication was in the accounts of the respondents for 1997, over which the petitioner had no control.

As to the good faith or bad faith of the petitioner I noted his failure to produce the originals of two documents and the contents of the forensic report. The failure to produce the documents yielded no sinister inference in itself and, as Miss Coutts pointed out, the forensic report was inconclusive. I took the view that these circumstances fell short of establishing bad faith on the part of the petitioner.

On the whole matter, I was satisfied that the respondent had raised a dispute without substance, that the petitioner was a qualified creditor and that the respondent was unable to pay its debts as they fell due. Accordingly, I granted the winding-up order.

Re Claybridge Shipping Co SA, [1997] 1 BCLC 572