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In Astra Resources v Credit Veritas USA (CV), the Chancery Division had to deal with an application for an injunction to restrain the presentation of a winding-up petition, where it was alleged that the debt demanded was disputed on substantial grounds, and that the respondent was seeking a winding-up order for an improper—or collateral—purpose.
Astra Resources v Credit Veritas USA  EWHC 1830 (Ch),  All ER (D) 252 (Jun)
The applicant debtor (Astra) applied for an injunction restraining the respondent creditor (CV) from presenting a winding-up petition in circumstances where CV had served a statutory demand on Astra in the sum of $1,535,000. The grounds of the application were:
The Chancery Division (Mr Justice David Richards) dismissed the application. Although part of the debt demanded was disputed on substantial grounds, $600,000 was not. Further, the reorganisation of Astra following the making of a winding-up order could not be said to be for an improper or collateral purpose where such reorganisation would be reliant on the support of the liquidator and also of the court or Astra’s creditors.
Astra was a holding company with indirect interests in commodities and green technologies and it engaged CV as of 1 August 2013 by a consulting agreement to provide various services including the identification of potential projects, project and portfolio management, and strategic advice and marketing. It was accepted by Astra that CV had brought projects to it, although none led to a transaction.
Under the terms of the consulting agreement:
In December 2014, CV served a statutory demand on Astra in the sum of $1,535,000 comprising of the following:
Astra applied for an injunction restraining the presentation of a winding-up petition on it by CV.
Astra argued that CV should be restrained from presenting a winding-up petition on following grounds:
The first ground
There was no dispute as to the relevant law, which was set out by the Court of Appeal in Tallington Lakes v Ancasta International Boat Sales  EWCA Civ 1712,  All ER (D) 14 (Jan) at para :
'...If the company can demonstrate that the alleged debt on which the petition is founded is genuinely disputed on substantial grounds, the court will strike out the petition. There are rare exceptions to this principle...'
The judge therefore went on to consider each of the separate sums demanded and the evidence in relation to each.
Insofar as the project claim and litigation claim were concerned, the judge was satisfied on the evidence before him that there was a genuine and substantial dispute to these claims—it was not clear that the sums in relation to these claims were owed by Astra to CV. However, the claim by CV to the post-agreement fees could not be genuinely and substantially disputed—the terms of the consulting agreement relating to the pre-agreement fees stated that they would be paid upon condition of Astra raising the necessary funds, but there was no such condition in respect of payment of the post-agreement fees.
Astra argued that it was a mistake that the condition was not included in the consulting agreement in relation to payment of the post-agreement fees and that the consulting agreement would need to be rectified. The judge rejected this argument on the basis that:
Astra’s further argument that the post-agreement fees were not due without a proper itemisation of the work undertaken was also rejected. There was no suggestion that CV had not undertaken any of the services it had contracted to provide—indeed, it was accepted by Astra that CV had brought projects to it.
The second ground
The evidence in support of this ground focussed on an email sent by CV’s director to one of Astra’s directors suggesting that, once Astra was in liquidation, a change of leadership and control could be achieved through a reorganisation which would then allow Astra’s shareholders to potentially recoup all of their investment.
This, Astra argued, was evidence that CV was seeking Astra’s liquidation for an improper—or collateral—purpose and was not acting in the interests of creditors or wanted an outcome which would operate to the disadvantage of creditors. Accordingly, any winding-up petition should be struck out as an abuse of process.
The judge rejected this argument on the basis that any reorganisation—whether through a scheme of arrangement or company voluntary arrangement (CVA)—would require the support of the liquidator. Further, a scheme of arrangement would require the court’s sanction (which would only be granted if the proposal was fair to creditors) or, in the case of a CVA, the approval of Astra’s creditors, including CV. The facts in this case were a far cry from the type of collateral purpose which arose in the authorities discussed by Lord Wilson in Ebbvale v Hosking  UKPC 1,  All ER (D) 103 (Mar).
The judge therefore dismissed the application and declared that CV was entitled to present a winding-up petition against Astra in respect of the post-agreement fees.
This case was decided on its own facts, and therefore does not clarify the law to any extent. However, it does serve as a reminder that:
Stephen Leslie, solicitor in the LexisPSL Restructuring & Insolvency team
This article first appeared on LexisPSL Restructuring and Insolvency
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First published on LexisPSL Restructuring and Insolvency
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Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.
Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.
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