Restraining a winding-up petition—the threshold test for a cross-claim (Re a company (No 5245 of 2017))

Restraining a winding-up petition—the threshold test for a cross-claim (Re a company (No 5245 of 2017))

Cleon Catsambis, barrister at 39 Essex Chambers and counsel for the applicant, sets out the test used to establish a cross-claim in order to restrain a winding-up petition.

Re a company (No 5245 of 2017) [2018] EWHC 275 (Ch), [2018] All ER (D) 128 (Feb)

What are the practical implications of this case?

This case considered and applied the threshold test for having a ‘genuine and serious cross-claim’ in respect of applications for injunctions to restrain winding-up petitions. In applications of this kind, the court has to balance the competing rights and interests of an undisputed creditor with those of a debtor facing potential winding-up, but which asserts a cross-claim that exceeds the value of the debt.

It is clear that bare assertions will not suffice, and that spurious or last-minute cross-claims should not be permitted to defeat undisputed debts. However, a cross-claim need not be fully particularised or evidenced in order to satisfy the test. There is also no requirement to have issued proceedings (although any delay in doing so may be a relevant consideration).

The court in this case summarised the relevant legal principles and re-affirmed that the court would not engage in a detailed examination of the cross-claim. Provided the cross-claim was one of substance, the court would proceed cautiously and, in the absence of special circumstances, allow a debtor company the opportunity to establish its cross-claim in ordinary civil proceedings.

What was the background?

M issued a statutory demand on L in respect of a debt pursuant to a loan agreement. L did not dispute the debt, but it sought an injunction to restrain M from presenting, advertising or otherwise publicising a winding-up petition on the basis that it had a cross-claim against M

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About the author:

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.