23 June 2017 by

When winding-up proceedings – should not be used!

A recent High Court case provides a useful reminder of the circumstances when a party should not issue winding-up proceedings.

RBK were Breyer’s sub-contractor in respect of a building project. RBK issued a winding-up petition against Breyer for non-payment of £258,729.16 in respect of goods supplied and services rendered at Breyer’s request under a written construction contract. The contract included a dispute resolution clause requiring disputes or differences to be referred to adjudication in accordance with Part 1 of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998.

Breyer had raised concerns regarding the terms on which the work was undertaken, the quality of RBK’s electrical works, the validity of certain certificates issued by RBK in respect of electrical work and the testing of apparatus. The court ruled that Breyer had a number of arguable defences, which could not be resolved by the court in insolvency proceedings.

In striking out the winding-up petition as an abuse of process, the Judge stated:

Breyer is not unable to pay its debts, on the evidence before me. There is a range of reasonable potential defences to the claim as well as significant potential counterclaims whose value remains to be quantified”. The Judge continued “I am therefore not satisfied that, at the date of this petition, RBK was a creditor of Breyer and that it had standing to present this petition. To the contrary, RBK appears to be in a position of a conventional claimant on an invoice where the liability to pay the bill is disputed and where the dispute is wholly unsuited to resolution in insolvency proceedings”.

This case acts as a useful reminder that winding-up proceedings should not be used in relation to cases where the debtor can challenge the petitioner’s standing as a creditor by advancing in good faith a substantial dispute as to the entirety of the petition amount, or at least so much as will bring the debt below £750.00 (the minimum amount a winding-up petition can be presented for).

Whilst the Court undoubtedly arrived at the correct decision in this case, the decision will disappoint parties that need to recover money from companies. Traditionally, winding-up petitions have been used to put pressure on companies to pay outstanding sums. The commercial consequences of a company having a winding-up petition presented against it include potentially damaging the reputation of the company (due to the petition being advertised) as well as making it more difficult to obtain credit. Separately, if a company disposes of property after a winding-up petition has been presented and the company is eventually wound-up, the disposition is potentially void.

The court deferred the issue of costs until a later date, however, it is likely that RBK, as the losing party, will be required to pay Breyer’s costs.

If you have any questions regarding the above article or would like to discuss any insolvency or debt recovery issue, please contact one of our solicitors in the Dispute Resolution team here.

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