Scottish Sheriff Court Decisions

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Cite as: [2007] ScotSC 22

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SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

L49/06

JUDGEMENT

SHERIFF PRINCIPAL SIR STEPHEN S T YOUNG Bt QC

in the cause

MACPLANT SERVICES LIMITED

Pursuers and Appellants

against

CONTRACT LIFTING SERVICES (SCOTLAND) LIMITED

Defenders and Respondents

Act: Mr D P Sellar QC instructed by Archibald Campbell & Harley WS, Edinburgh

Alt: Mr A F Stewart, advocate, instructed by Peterkins, Aberdeen

Aberdeen: 6^th June 2007

The sheriff principal, having resumed consideration of the cause, allows the appeal and recalls the interlocutor of the sheriff dated 8 February 2007; orders that the defenders and respondents, namely Contract Lifting Services (Scotland) Limited having their registered office at 100 Union Street, Aberdeen AB10 1QR, should be wound up by the court under the provisions of the Insolvency Act 1986 and appoints Blair Carnegie Nimmo, Chartered Accountant and Qualified Insolvency Practitioner, KPMG LLP, 37 Albyn Place, Aberdeen AB10 1JB to be interim liquidator of the defenders and respondents; finds the pursuers and appellants entitled to the whole expenses of the cause, including the appeal, and directs the same to be expenses in the liquidation; allows an account of these expenses to be given in and remits the same when lodged to the auditor of court to tax and to report; certifies the appeal as suitable for the employment by the pursuers and appellants of senior counsel; quoad ultra remits the cause to the sheriff to proceed as accords.

Note

[1] In this case the pursuers and appellants crave the court to order that the defenders and respondents should be wound up by the court under the provisions of the Insolvency Act 1986. The initial writ was lodged on 17 November 2006, and on that same day the sheriff made the usual order for intimation and service and in the meantime appointed a chartered accountant to be provisional liquidator of the defenders. Answers were lodged on their behalf and two procedural hearings followed. Finally, on 8 February 2007, having heard parties' procurators on the pursuers' motion to appoint an interim liquidator and the defenders' motion to recall the appointment of the provisional liquidator, the sheriff in short recalled the provisional liquidator's appointment and allowed parties a proof of their respective averments. It is this interlocutor which is the subject of the present appeal, and on behalf of the pursuers it was submitted that the sheriff ought to have granted the winding-up order and appointed an interim liquidator of the defenders.

[2 ] Section 122(1)(f) of the Act provides that a company may be wound up by the court if the company is unable to pay its debts. Section 123(1)(e) provides that a company is deemed unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due. Section 123(2) provides that a company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities. Section 124(1) provides, inter alia, that an application to the court for the winding-up of a company shall be by petition presented either by the company, or the directors, or by any creditor or creditors, contributory or contributories, or by all or any of those parties, together or separately. Section 125(1) provides, inter alia, that on hearing a winding-up petition the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make an interim order, or any other order that it thinks fit.

[3 ] In the sheriff court the procedure in a petition to wind up a company is governed by the Sheriff Court Company Insolvency Rules 1986. For present purposes it is necessary to notice only two of these rules. Rule 18(2) provides that there shall be lodged with the petition any document (a) instructing the title of the petitioner; and (b) instructing the facts relied on, or otherwise founded on, by the petitioner. Rule 33 provides that the court may accept as evidence an affidavit lodged in support of a petition or note.

[4 ] In this case the petition is founded on sections 122(1)(f) and 123(1)(e) of the Act. In article 4 of the condescendence the pursuers aver that as at 14 November 2006 the defenders were indebted to them in the sum of £336,799.42 conform to a statement of account of the same date and the invoices referred to therein. It is said that the defenders had failed to pay these invoices, that they had not disputed or queried any of them and that one of their directors, a Mr John Paul, had advised the pursuers' directors that the defenders were unable to pay the sum said to be due by them. Reference is made to a letter to the pursuers dated 14 November 2006 and it is averred that this letter proposed a repayment schedule which was unacceptable to the pursuers and had been rejected by them, and that accordingly the defenders were unable to pay their debts as they fell due.

[5 ] A copy of the letter dated 14 November 2006 has been lodged in the process. It is not in dispute that this letter was sent by the defenders to the pursuers. It is headed: "MacPlant Account Settlement Proposal". The account balance is stated to be £350,000, and there follows a table which indicates that twenty payments, each of £17,500, were to be made starting in November 2006 and ending in June 2008. Underneath are the words:

The above repayment schedule (£17.5K) will be met from normal traiding (sic) contracts.

Any additional cash flow from new contracts will be added to allow faster repayment as and when available.

We currently have two large legal disputes which if settled in our favour would again facilitate faster repayment.

[6 ] A copy of the statement of account dated 14 November 2006 has also been produced. It consists of eleven sheets on which, by my reckoning, two hundred and forty one invoices and one credit note (copies of which have also been produced) are itemised. These are dated between 16 May and 10 November 2006. The total said to be due is £336,799.42, of which £847.49 is said to be current and £9448.66, £21,511.08 and £304,992.19 are indicated to have been outstanding for one, two and three months respectively.

[7 ] The justification for the appointment of a provisional liquidator is averred in article 5 of the condescendence. In short, it is said that Mr Paul had advised the pursuers' directors that he had incorporated another company, Contracting Lifting (Scotland) Limited, and that he intended to transfer the assets of the defenders to this new company. It is averred that there was accordingly a demonstrable risk of dissipation of assets and of prejudice to creditors.

[8 ] In their answer 4 as adjusted the defenders deny that they are unable to pay their debts. They explain that they enjoyed the benefit of a contract with the owners of Leith docks for the unloading and transportation of coal from ships which called at that port and that the contract in question required the use of substantial heavy plant and equipment which required extensive maintenance and servicing on a regular basis. It is said that this maintenance and servicing work was carried out by the pursuers and that in the year up to the presentation of the petition the defenders had paid the pursuers sums totalling in the region of £450,000 for these services. Reference is then made to negotiations between the defenders and the owners of Leith docks for the renewal of the contract between them and difficulties which the defenders had incurred in these negotiations. The defenders aver that the pursuers had been kept informed of the progress of these negotiations and that one of the pursuers' directors, a Mr McLean, had assisted the defenders in connection with these negotiations and had dealt directly with the owners of the docks on behalf of the defenders.

[9 ] Answer 4 continues:

In order to protect their respective positions and in order to ensure that their business relationship continued the Pursuers and Defenders entered into an arrangement. This agreement was entered into in or around August 2006 by the Pursuers Managing Director Mr Stewart McLean and the Defenders Financial Director Mr John Paul on behalf of and as authorised by their respective companies. They agreed that separate companies would be incorporated with a view to one of these new companies obtaining the benefit of the fresh contract to be agreed in connection with the unloading of the coal boats at Leith docks. These companies were duly set up with the incorporation by the pursuers of a company known as Macplant Bulk Services Ltd and by the Defenders by a company known as Contract Lifting (Scotland) Ltd. The Pursuers and Defenders agreed further that the existing debts due by the Defenders to the Pursuers would be maintained at their present levels but that the debt would not require to repaid in full. They further agreed that in the event that the Defenders obtained the benefit of the new contract then the contract would be assigned to the said Contract Lifting (Scotland) Ltd with the Pursuers continuing to provide the maintenance and servicing work as before. They also agreed that if the said Macplant Bulk Services Ltd obtained the contract then the contract would be assigned to Contract Lifting (Scotland) Ltd with the Pursuers again continuing to provide the service and maintenance work as before. It was further agreed that if a new contract was awarded to one or other of the said companies that the Defenders would be placed in liquidation with the debts due to the Pursuers and all other creditors being paid from the assets of the Defenders which were sufficient in value to cover all sums due to the creditors including the Pursuers. At no time have the Pursuers called upon the Defenders to pay the sum which they claim is due. In any event the sum claimed as being due is excessive. The Pursuers are presently holding plant and equipment belonging to the Defenders to the value of at least £80,000 which they agreed to sell and set off against the Defenders account. In addition to this at least £50,000 of the sum claimed as being due is not in fact due and has been overcharged. Further a sum of £9448.66 was paid to the Pursuers on or around 14th November 2006 which the Pursuers have not taken into account. The sums claimed as being due by the Pursuers are therefore not debts falling due in terms of the Insolvency Act 1986. The Pursuers are personally barred from insisting upon these proceedings by virtue of their actings as hereinbefore outlined. As at the date of the presentation of this petition the Defenders were solvent. Their assets exceeded their liabilities and they were not unable to pay their debts. Explained that the Defenders are a wholly owned subsidiary of Business Investment Group Ltd (their parent company). The Defenders had a facility provided to them by their parent company whereby funds would be made available to cover debts such as the debt claimed by the Pursuers. The said parent company had ample funds at their disposal for this purpose. In particular the parent company had a credit balance totalling £468,254.52 in their bank accounts as at 17th November 2006 which was the date of the First Deliverance in this action. Reference is made to the letter dated 12th January 2007 from the Royal Bank of Scotland to John Paul which is lodged in process and whose terms are held to be adopted herein brevitatis causa. Explained further that the document dated 14th November 2006 referred to by the Pursuers as a letter, was given to the Pursuers Director Mr Mark Cooper by the Defenders Financial Director Mr John Paul. The said Mark Cooper had requested this document as he wished to give it to the Pursuers bankers. It was given for that reason only and was not an admission that the sums claimed as being due were actually due and payable. The document purported to cover a period after which the Defenders would have been in liquidation (as outlined above) and after which any sums which were due to be paid to the Pursuers would have been paid off following upon the liquidation of the Defenders and the disposal of their assets. It was given on the basis that it was beneficial to the Pursuers in view of the good trading relationship which they had enjoyed with the Defenders up to that time. In all the circumstances the Pursuers are not entitled to the order craved and the Petition should be dismissed.

[10 ] In their answer 5 the defenders deny the pursuers' averments in article 5 in regard to Mr Paul's alleged intention to transfer the defenders' assets to the new company which he had incorporated.

[11 ] In response to the defenders' answers the pursuers adjusted article 4 of the condescendence by adding at the end the following averments:

With reference to the averments in Answer, it is believed to be true that the defender had a contract with the owners of Leith docks, for the unloading and transportation of coal from ships which called at Leith, under explanation that the precise nature and extent of any dealings between the defender anent that contract and any proposed extension of it are not known and not admitted. Admitted that in the period up to the presentation of this Petition, the defender had paid the pursuer approximately £450,000 for maintenance and servicing work carried out by the pursuer, under explanation that the precise sum so paid was £444,142.96. Not known and not admitted that the defender is a wholly owned subsidiary of

Business Investment Group Ltd. Quoad ultra the averments in answer are denied. Explained and averred that at no stage did the pursuer's Mr Stewart McLean (or any other representative of the pursuer) agree that existing debts due by the defender to the pursuer would be maintained at existing levels and would not require to be repaid in full. The pursuer has repeatedly called upon the defender to pay the sums owed by it. Between May and November 2006, the pursuer continued to invoice the defender for sums owed by it. Fortnightly statements of account were sent by the pursuer to the defender. At no time did the defender challenge or dispute the sums claimed. On the contrary, by the said letter dated 14 November 2006, the defender's Mr Paul acknowledged the extent of the defenders indebtedness to the pursuer and proposed a re-payment schedule at the rate of £17,500 per month. In or about the beginning of August 2006 the defender's Mr Paul asked the said Mr McLean to sell certain Volvo articulated dump trucks held by the pursuer and to apply the proceeds of such sale against the defender's outstanding indebtedness to the pursuer. The estimated value of the trucks was approximately £80,000. On investigation, the pursuer established that the said trucks were all subject to hire purchase agreements on which approximately £108,000 remained outstanding. On 17 November 2006, Blair Carnegie Nimmo of KPMG was appointed as provisional liquidator of the defender. On 22 November 2006, a representative of Mr Nimmo, Mr James Stephen Watson Thornton of KPMG met the defender's Mr Paul at KPMG's offices at 191 West George Street, Glasgow. At that meeting Mr Paul confirmed to Mr Thornton that the defender did not dispute its indebtedness to the pursuer in the sum of £336,799.42. Mr Paul also confirmed to the said Mr Thornton that there was no prospect of the defender being able to pay the said sum and that as the defender had no funds to settle the debt, there was no alternative to liquidation of the defender. Subsequently, in a telephone conversation on 11 December 2006, Mr Paul again confirmed to Mr Thornton that the debt was not disputed and again confirmed that liquidation was the only option. At no point did Mr Paul suggest to Mr Thornton that the debt was disputed by the defender. An Estimated Statement of Affairs of the Defender prepared on behalf of the provisional liquidator as at 17 November 2006 showed aggregate unsecured creditors of £628,158 and a total deficiency as regards creditors of £523,180. On 21 November 2006 the Pursuer received a payment towards the defender's indebtedness of

£9,448.66 from a company called Propshaft Services Limited. At no time has Business Investment Group Ltd or any other person offered to discharge the defender's indebtedness to the pursuer. The defender is called upon to specify precisely which of the pursuer's invoices contain the alleged overcharge of £50,000. It is called upon to specify any other invoices disputed by it and any basis for such dispute. Its failure (to) answer these calls will be founded upon.

[12 ] At the hearing on 8 February 2007 the sheriff had before him four affidavits. The first of these was from a Mr James Thornton who is a manager in the employment of the provisional liquidator's firm (KPMG LLP). In paragraph 2 of this affidavit Mr Thornton described how he and a colleague, Mr Craig Allison, met the defenders' Mr John Paul on 22 November 2006. Mr Thornton advised Mr Paul that the winding-up petition stated that the defenders were indebted to the pursuers in the sum of £336,799.42. Mr Thornton then stated that he asked Mr Paul three specific questions, namely:

(1) Did the Company in any way dispute the debt claimed by Macplant Services Limited. Mr Paul replied that the debt was not disputed by the Company and that the sum claimed was due to Macplant Services Limited.

(2) Was the Company in a position to pay the debt due to Macplant Services Limited? Mr Paul replied that there was no prospect of the Company being able to pay the sum due to Macplant Services Limited.

(3) Was there any alternative to the liquidation of the Company? Mr Paul replied that the Company did not have funds to settle the debt and that there was no alternative to the liquidation of the Company. He confirmed that he would co-operate fully with KPMG and would assist in any way possible to ensure that the liquidation proceeded as smoothly as possible.

[13 ] In paragraph 3 of his affidavit Mr Thornton described how he had spoken to Mr Paul on a number of occasions since their meeting on 22 November 2006. He said that Mr Paul had provided him with information which he had previously requested and had been co-operative and helpful throughout and that during a telephone conversation on 11 December 2006, after answers had been lodged on behalf of the defenders, Mr Paul had not disputed the pursuers' claim and had admitted that liquidation of the defenders was the only route forward for them.

[14 ] Finally in paragraph 4 of his affidavit Mr Thornton stated:

At no point throughout any of my discussions with Mr Paul has he indicated that the debt due to Macplant Services Limited was in any way disputed by the Company. He has accepted that the debt is due to Macplant Services Limited, that the Company is unable to pay its debts as they fall due and that it is in the best interests of its creditors that the Company be wound up.

[15 ] The second affidavit was from Mr Allison and, in short, corroborated Mr Thornton's account of the meeting with Mr Paul on 22 November 2006.

[16 ] The third and fourth affidavits were from two of the pursuers' directors, Mr Stewart McLean and Mr Mark Cooper. In short, they described how they had made repeated demands of the defenders to reduce their indebtedness to the pursuers, and both denied that an arrangement had been made between the pursuers and the defenders as averred by the latter in their answer 4. Both made comments to the effect that this alleged scheme made no commercial sense whatsoever.

[17 ] The sheriff also had before him two statements of affairs of the defenders as at 17 November 2006. The first of these had been prepared on behalf of the provisional liquidator. This showed that the defenders had assets with a book value of £357,336 which were estimated to realise £129,978. The defenders' liabilities were stated as £628,158 so that the deficiency as regards creditors was £523,180. The liabilities were stated to include the sum of £381,625 due to trade creditors. Appended to the statement was a separate schedule which gave details of these trade creditors. The pursuers were by far the largest of these, being owed a total sum of £352,978. Importantly, of this sum only £2,101 was stated to be current. £6,333 was stated to be thirty days overdue, £13,382 sixty days overdue, £101,369 ninety days overdue and the balance of £229,794 overdue for even longer than these periods.