Effect Of A Disputed Debt On A Winding Up Petition

What Is The Effect Of A Disputed Debt On A Winding Up Petition Overview

The effect of a disputed debt on a Winding Up Petition is that it can be restrained as an abuse of process, on the basis that there is a dispute in good faith and on substantial grounds.

How To Prevent Presentation of A Winding Up Petition: When The Court Will Restrain It

How to stop a winding up petition when it gets to Court will require an application for an injunction on the grounds that the winding up petition is an abuse of process or bound to fail.

The Court will usually not grant a Winding Up Petition and take steps to restrain and prevent it in the following instances:

• If the company disputes, on substantial grounds, the existence of the debt on which the petition is based.
• Where there is a genuine and substantial cross-claim such that the petition is bound to fail and is an abuse of process.
• It is an abuse of process to present a winding-up petition against a company as a means of putting pressure on it to pay a debt where there is a genuine dispute as to whether that money is owed.

When Will The Court Restrain A Winding Up Petition?

The Court will usually not necessarily stop a Winding Up Petition or take steps to restrain and prevent it in the following instances:

•  Mere assertion in good faith of a dispute or cross-claim in excess of any undisputed amount will not necessarily suffice to warrant the matter proceeding by way of ordinary litigation. The Court must be persuaded that there is substance in the dispute and in the refusal to pay.
• The court is not necessarily bound to hold that there is a need for a trial in circumstances in which, on a full understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible and therefore will guard against potential injustice.

Craymanor Ltd v LS Power And Data Ltd

In the case of Craymanor Ltd v LS Power And Data Ltd [2021] EWHC 192 (Ch) a Winding Up Petition was restrained.

The Applicant says that it paid the undisputed amount. A dispute appears to have sprouted over the payment of the undisputed amount. The Applicant said it had been paid and the Respondent argued otherwise.

The Winding Up Petition Dispute

The key facts were summaried by Insolvency and Companies Court Judge Burton as follows:

The Applicant’s case is that it paid the Debt to an account, details of which it received in an email from the Respondent and that having done so, it is not obliged to pay the same amount again. The Respondent claims that the email did not come from its office and that the payment must have been diverted as part of what has become known as a “push payment fraud”. It claims that two members of the Respondent’s staff informed a member of the Applicant’s staff, before the payment was made, that they knew nothing about the email and that the Applicant should direct its payment to the account to which all other payments were usually made, details of which were set out on its invoices.

The Decision of Insolvency and Companies Court Judge Burton

There is, in my judgment, a substantial dispute between the parties concerning the nature of the Applicant’s obligation to pay the Debt and whether it has been breached. The dispute is substantial because it goes to the heart of whether the Respondent is a creditor, and as such, entitled to present a winding-up petition against the Applicant. The court will need to determine whether, as contended for by the Applicant, the agreement reached between the parties during the telephone calls on 19 and 20 April 2020, gave rise to an obligation on the Applicant to pay the Debt only on confirmation that the sum was agreed and whether, construed objectively, the Applicant was entitled to treat the 15.24 email as such confirmation with details of the account to which the payment should be made (the “Email Bank Account”).

In my judgment the Applicant’s argument is advanced in good faith. On its face, the 15.24 email appeared to have been sent by the Respondent, with instructions, with which the Applicant complied, to pay the Debt to the Email Bank Account.

The Respondent’s director states not only that he did not send the email but also that he informed the Applicant’s employee not to send the money to the Email Bank Account. There is, consequently, a substantial dispute of fact whether the Applicant paid the Debt pursuant to or in breach of the Respondent’s directions.

The Applicant’s case has a real prospect of success and, in my judgment, is raised on bona fide grounds.

The issues in dispute can only properly be determined by Part 7 proceedings where the judge will have the benefit of examining documents disclosed by each party (possibly including data from the Respondent’s email provider and any data attached to the 15.24 email) and hearing cross-examination of the makers of witness statements.

Having determined the application for the reasons set out in paragraphs 8 to 12, it is not necessary for me to consider:

i) the Applicant’s alternative argument that the Respondent is in breach of an implied contractual term by failing to provide a secure means of digital communication;

ii) the Applicant’s cross claim pursuant to section 13 of the Data Protection Act; or

iii) its proposed defence, relying on the doctrine of apparent authority and/or estoppel (that the Respondent’s negligence caused it to represent that the party sending the 15.24 email was the Respondent’s director, Mr Lawrence and it would be inequitable to allow the Respondent to take advantage of the representation, by requiring the Applicant to make the payment again).

If the Respondent intends further to pursue its claim, the proceedings should be commenced in the county court.

It is an abuse of the process of the court to present a winding-up petition based on a claim which is disputed in good faith and on substantial grounds. Having found that the Respondent’s claim is subject to such a dispute, it shall be restrained from presenting a winding-up petition against the Applicant in respect of the Debt.

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Disclaimer: Effect Of A Disputed Debt On A Winding Up Petition

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