Totally Without Merit
‘Totally Without Merit’ is a post about attempts to restrain the presentation of winding-up petitions that appear to have been unsuccessful.
Dismissed in reasonably strident terms as an abuse of process, declared totally without merit, and to almost finish off the matter resulted in awards for indemnity costs.
But there was more; more than just abuse of process, more than a declaration of total lack of merit and more than indemnity costs. Mr Justice Snowden let the following be known in a postscript which had this to say:
None of the material sent has any merit whatever. It does not cause me to change my mind in the slightest and I refuse to grant a stay of my order. I also strongly deprecate the conduct of Harrison Carter in sending these materials. Regrettably, this conduct is of a piece with its general modus operandi of bombarding the court with argumentative correspondence purporting to make applications without any legal or procedural merit.
The judgment in Shorts Gardens LLB v London Borough of Camden Council  EWHC 1001 (Ch) was replete with explanations as to the threadbare nature of the applications.
There were suggestions that of the two petitions at large here, that in one of them, the applicant, Ms Harper, had no standing. He also had this to say about Ms Harper seemingly jumping the gun as if the Liquidation had already kicked off:
In addition, among a plethora of other meritless points, Ms. Harper’s statement in support of the application sought to place reliance on section 168(5) of the Insolvency Act 1986. Section 168(1) provides that section 168 only applies to a company which is being wound up, and section 168(5) enables “any person aggrieved by an act or decision of the liquidator” to apply to the court. Whether or not Ms. Harper thinks she is aggrieved, the section plainly has no application in the current situation where SBLT is not being wound up and there is no liquidator who has taken any decision. Nor can it possibly apply by some sort of analogy.
Where a debt is genuinely disputed on substantial grounds you might expect to be able to seek reliance upon an injunction to restrain presentation of a winding up petition:
…under the Insolvency Act 1986, a creditor’s winding up petition can only be presented by a creditor; that until a person has established that they are a creditor they are not entitled to invoke the statutory process; and the winding up procedure is not for the purpose of deciding a disputed debt: see Stonegate Securities v Gregory  Ch 576 at pages 579-580 referring to Mann v Goldstein  1 WLR 1091 at pages 1098-1099. The legal right being invaded in such a case is the right of a company not to be subjected to the statutory winding up process other than at the instigation of an undisputed creditor.
In one of the two cases, the applicant suggested that there was a cross-claim. The Court appears to have found that proposition “difficult to see”.
It was said that bare assertion of a cross-claim does not necessarily cause the petition to grind to a halt:
In Re Bayoil  1 WLR 147, the Court of Appeal emphasised that in order to justify a stay or dismissal of the petition in such a case, the cross-claim must be genuine and one of substance; that it must be one which the company has been unable to litigate; and that it must be in an amount exceeding the amount of the petitioner’s debt: see per Nourse LJ at page 155F.
In the case of both petitions reliance upon the effects of Covid-19 sprouted as a further basis for the applications at handing down of judgment stage, supported by new statements.
There was no prior indication from the applicants of the companies being in financial difficulty. In fact, it seems the reverse was the case in that the debts were disputed and arguably remarkable is the following:
Indeed, in each of his skeleton arguments on their behalves, Mr. Clark expressly stated,
“For the avoidance of doubt, the applicant does not contend that it faces liquidity or operational challenges as a result of circumstances related to COVID-19.”
It therefore came as something of a surprise that in Ms. Harper’s new statement she asserted, in relation to SBLT,
“The charity [sic] is in financial difficulties because the funding it had hoped to receive under the small business grants of £10,000 has not yet materialised and all of the charity income from personal property storage has stopped because its clients who are mainly on low income cannot afford to pay as the majority have either been furloughed or have lost their jobs completely.
It is a fact that does not have to be proved, judicial notice, that almost all companies, but for some specialist companies, as in pharmaceuticals, specialist clothing, personal protection equipment or delivery companies, are affected by COVID-19 and we like all companies in the United Kingdom and the World are going to suffer from cash flow restrictions caused by the effect of the coronavirus.”
Likewise, in relation to Shorts Gardens, Mr. Van Huyssteen stated,
“…Shorts Gardens LLP is a property company that receives its income from rents since its tenants cannot pay as they have no income because of the effects of the COVID-19 pandemic.
It is a fact that does not have to be proved judicial notice that almost all companies, but for some specialist companies as in pharmaceuticals, specialist clothing, personal protection equipment or delivery companies, are impacted by COVID-19 and we, like all companies in the United Kingdom and the World are going to suffer from cash flow restrictions caused by the effect of the coronavirus.”
There was, however, no further detail given, and no financial information of any sort provided, as to the position of either SBLT or Shorts Gardens. Still less was there any explanation of the complete volte face that both applicants had performed in comparison to the way in which their argument had been put at the first hearing.
In these circumstances, I do not accept Mr. Clark’s submissions. In my judgment the volte face of Ms. Harper and Mr. Van Huyssteen as to the financial difficulties of SBLT and Shorts Gardens is entirely opportunistic and not credible. The reason that SBLT and Shorts Gardens have not paid the debts that they owe has nothing to do with the coronavirus, and they are not the sorts of entity owing the type of liabilities which the proposed legislation seems to be intended to protect. I therefore see no reason to exercise any discretion in favour of the applicants based upon the prospect that legislative measures are to be introduced to assist more deserving companies experiencing genuine financial hardship caused by the effects of the COVID-19 pandemic.
Disclaimer: This post ‘Totally Without Merit’ is not legal advice and is not to be relied upon as such. No liability is accepted by the author or Oliver Elliot Limited for any reliance upon the same. You should seek independent professional advice on the facts of your case.