When is presentation of a winding-up petition an abuse of process? (Coilcolor Ltd v Camtrex Ltd)

David Alexander QC and Matthew Abraham at South Square examine the court’s decision in Coilcolor Ltd v Camtrex Ltd which involved an application to restrain the presentation of a winding-up petition.

Original news

Coilcolor Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch), [2015] All ER (D) 90 (Nov)

The Companies Court allowed the applicant company’s application to restrain the presentation of a winding-up petition made against it. In the circumstances, the inquiries of fact and context required would be far better dealt with by the ordinary process. A petition for winding-up was not a suitable or even proper way to proceed.

What was the background to the case, briefly?

The applicant is a purchaser of steel coils. The applicant processes the coils supplied before on sale for use in a variety of applications. The applicant primarily sources its materials from companies based in China and Western Europe. However, due to lead times that arise in relation to orders from abroad, the applicant sometimes spot buys from stockholders in the UK, such as the respondent, to make up any supply shortfall.

The case involved the purchase of steel coils by the applicant that were invoiced over May and June 2015 by the respondent. The applicant asserted that there were defects in relation to the coils supplied and as a result did not make payments in relation to certain invoices over those months. The respondent demanded the balance due on the ground that there were no such defects.

Following the applicant’s refusal to make payment until a proper resolution of the defects, the respondent threatened to present a winding-up petition against the applicant in relation to the disputed sums. As a result of the threat to present a winding-up petition the applicant sought an injunction from the court to restrain the respondent from doing so.

What were the legal issues the court had to decide in this application?

On the application, the court had to determine whether the presentation of a winding-up petition in relation to the alleged debt would be an abuse of process/would be bound to fail.

In order to determine that issue the court had to determine:

  • whether the alleged debt was bona fide disputed on substantial grounds by the applicant, and/or
  • whether the applicant had a genuine and substantial cross-claim that exceeded the alleged debt

What were the main legal arguments put forward?

The applicant contended that it was entitled to set-off or a cross-claim in respect of goods supplied that were unfit for purpose and, as a result, the presentation of a winding-up petition would amount to an abuse of process. The applicant maintained that its set-off or cross-claims plainly had real substance, and could only fairly be adjudicated at a trial. In support of its argument the applicant relied on Mann v Goldstein [1968] 2 All ER 769, Bryanston Finance Ltd v De Vries (No 2) [1976] Ch 63, [1976] 1 All ER 25 and Re Pan Interiors [2005] EWHC 3241 (Ch).

The applicant also drew the court’s attention to Re a Company (No 0012209 of 1991) [1992] 2 All ER 797, [1992] BCLC 865 in support of the proposition that 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 bona fide dispute as to whether that money is owed. In this regard the applicant pointed to the fact that the respondent had yet to review the defects complained of by the applicant and had simply dismissed them.

The respondent maintained that the complaints raised by the company were for the most part contrived sometime after the event and with a view to avoiding or delaying payment. Further, the respondent argued that there could be no bona fide dispute as to the alleged debt or any substantial cross-claim as a result of the terms of trading between the parties. In particular, the respondent argued that, due to the incorporation of the respondent’s standard terms and conditions, any such dispute/cross claim was precluded. The respondent relied on the Court of Appeal case of Re Taylor’s Industrial Flooring Ltd [1990] BCLC 216 where it was emphasised that:

  • if a debt is due and an invoice is sent and the debt is not disputed, then the failure of the debtor company to pay the debt is itself evidence of an inability to pay
  • inference is permissible even in the case of a company which is known to be in a strong financial position lest otherwise solvent companies would be insulated from the process and encouraged to spin out the time for payment, and
  • to displace the inference, the reason for non-payment must be substantial

What did the court decide, and why?

The court decided that the determination of the issues of the defects and the applicability of the respondent’s terms and conditions were not suitable for the winding-up process. The court made it clear that none of the inquiries of fact and context, and none of the difficult questions of contractual interpretation and statutory control, would be appropriate to be undertaken by the Companies Court in the context of a winding-up petition. The court held that such issues ‘are far better dealt with by ordinary process and in the orderly way for which it provides, rather than under the threat and difficulties (including immediate freezing of bank accounts) that even the presentation of a petition poses and triggers’.

As a result the court made it clear that it came to the firm conclusion that the

claims, defences and cross-claims which I have sought to describe in the present case should be adjudicated in the context of an ordinary action. They should not be pursued in a winding-up petition. That would, in my view, be an abuse.

To what extent is the judgment helpful in clarifying the law in this area?

The judgment helpfully sets out the law in relation to applications for an injunction to restrain the presentation of a winding-up petition. It helps to reinforce the court’s attitude against parties that seek to use the winding-up process as a way of placing pressure on a company to pay a disputed debt as opposed to a class remedy.

What practical lessons can those advising take away from this case?

The case highlights the class nature of the winding-up process and makes it clear that the court will not tolerate parties that seek to use the threat of the process as a way of applying pressure to obtain payment of a disputed sum.

Interviewed by Alex Heshmaty.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

When can you wind-up a company when the debt is disputed?

Application to restrain presentation of winding-up petition

A summary checklist and timeline for the presentation, service and advertisement of a winding-up petition to the court by a creditor of a company registered in England or Wales

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First published on LexisPSL Restructuring and Insolvency

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