Scottish Sheriff Court Decisions

L99/09 SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

Act : Scott , Campbell Smith

Alt: Urquhart, bto

23^rd June 2009

[1] PEC Barr (Holdings) Limited ("the petitioners") lodged a petition seeking a winding up order against Munro Holdings UK Limited ("the respondent"). A caveat had been lodged on behalf of the respondents. A hearing on the caveat was assigned.

[2] The issue before me was whether I ought to make an order for first deliverance on the petition. Given the nature of the hearing before me I do not propose to set out in this note a detailed rehearsal of the matters put before me as to the underlying merits of the dispute. It is sufficient to say that the petitioners seek an order on the grounds that the respondents are allegedly unable to pay their debts as and when they fall due pursuant to sections 122(f) and 123 of the Insolvency Act 1986. The petitioners aver that the alleged inability to pay debts arose following the service of the statutory demand upon the respondents. The petitioners go on to aver certain other debts allegedly due by the respondents to other creditors.

[3] The respondents say that the debt allegedly due to the petitioners has been satisfied in part and that the balance is in dispute. They also dispute liability to other creditors.

[4] For the petitioners, Mr Scott submitted that, at the stage of the presentation of the petition, the petitioners need only show a prima facie case in order to be entitled to an order for a first deliverance. As the petition had done so there should be a first deliverance.

[5] For the respondents Miss Urquhart submitted that the test as to whether an order for a first deliverance should be made is whether the petitioners would be entitled to an order at all. Given that there was a dispute about the debt, the petition would fall to be dismissed and therefore an order for first deliverance should not be granted. Miss Urquhart referred to Purewal Enterprises Ltd 4 September 2008 (unreported). That decision was authority for the proposition that where there is a bona fide dispute about the existence of the debt a winding up petition should be dismissed. Winding up procedure was not the appropriate forum within which to resolve such disputes. Miss Urquhart also challenged the adequacy of the disclosure made by the petitioners in presenting the petition.

[6] There is a sharp difference between the parties as to the correct approach which the court should adopt when considering whether to order a first deliverance. I may say that this is but one of several petitions in which the issue has arisen in insolvency proceedings before me as to the correct approach following a hearing assigned in the light of the lodging of a caveat and indeed it is for that reason that I said I would issue a Note as to my reasons for making the order which I did. The rules relating to caveats in the sheriff court are now set out in the Act of Sederunt (Sheriff Court Caveat Rules) 2006. These rules provide that caveats may be lodged against the making of a variety of orders. In my opinion the lodging of a caveat is a procedural step which does not, in itself, determine the court's approach to the particular issue raised before it. Once the caveat has been honoured, and the caveator notified of the hearing, it falls out of account insofar as consideration as to the correct approach to the interim orders is concerned. For example, different considerations will apply in the granting of an interim interdict to those involved in first deliverances in liquidation proceedings. It is the underlying nature of the particular proceedings which will dictate the court's approach.

[7] In deciding whether to grant a first deliverance much depends upon the particular circumstances of the case. There may be circumstances in which there is a clear defect in the petition itself, in which case the court will be justified in refusing a first deliverance. Or, equally, it may be clear that there could be no basis upon which a winding up order could be resisted, in which case an order should be made. More difficult questions arise in circumstances such as the present. In this case it appears to me that the issue is, or will be, whether the respondents are indeed unable to pay their debts as they fall due and, in particular, whether there is a bona fide dispute as to the debt said to be due to the petitioners. There is also the question as to whether, and to what extent, I can have regard to other surrounding circumstances as to the alleged financial position of the respondents. If I were to refuse a first deliverance then it seems to me that I would, in effect, be prejudging the issue. I do not consider there is sufficient material before me to enable me to do so with any degree of confidence. I would have to be satisfied at this stage that the respondents would be bound to succeed in their opposition to the petition and that I do not think I can do at this stage of proceedings. In my opinion, the petitioners are entitled to a first deliverance. There will be an order for answers. There will after that stage be an opportunity for the court to consider whether the case for a winding up order has been made. In reaching this conclusion I find some support from the opinion of the Lord Ordinary in the case of Foxhall & Gyle (Nurseries) Limited Petitioners 1978 SLT (Notes) 29.

[8] A further procedural issue arose in the course of the hearing. It was drawn to my attention that another petition had been lodged seeking the winding up of the respondents by another party. I was told that a first deliverance had been granted but that no further procedure had yet taken place. Rule 21 of the Act of Sederunt (Sheriff Court Company Insolvency Rules) 1986 provides that in such circumstances the court may sist as petitioner, in lieu of the original petitioner, any creditor who, in the opinion of the court, is entitled to present a petition. From a practical point of view I can see that it would be undesirable for there to be a number of petitions in existence as to the one company at any given time but I think that Mr Scott is correct in his submission that Rule 21 is purely permissive in its terms. It permits, but does not compel, another creditor to apply to be sisted in lieu of the existing creditor where the terms of the Rule are otherwise satisfied. If permitted, there may be certain advantages to that creditor as to the date upon which an order for winding up takes effect. However, as I have said, I do not think that the existence of the other petition is necessarily a bar to the current petition proceedings. I have accordingly made an order for first deliverance.