MACPLANT SERVICES Ltd Petitioner to wind up CONTRACT LIFTING SERVICES (SCOTLAND) Ltd Respondent
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2008] CSOH 158 |
| Published date | 12 November 2008 |
| Date | 12 November 2008 |
| Docket Number | P802/08 |
| Court | Court of Session (Outer House) |
| OUTER HOUSE, COURT OF SESSION [2008] CSOH 158 | |
| P802/08 | OPINION OF LORD HODGE in the petition of MACPLANT SERVICES LIMITED Petitioner; To wind up CONTRACT LIFTING SERVICES (SCOTLAND) LIMITED Respondent: ________________ |
Petitioner: Mr D. Sellar QC; Archibald Campbell & Harley WS
Respondent: Mr D Johnston QC; Balfour & Manson LLP
12 November 2008
[1] This is an application by Macplant Services Limited ("Macplant") for an order to wind up Contract Lifting Services (Scotland) Limited ("CLS"). CLS was a bulk lifting contractor. Macplant's principal business is the maintenance of plant and equipment and, for a considerable time before the presentation of the petition for the winding up of CLS, it had provided such services to CLS in relation to plant which CLS leased to other parties. CLS was Macplant's largest customer by turnover.
[2] The proceedings in this petition have a prolonged and tortuous history in the courts since a provisional liquidator was appointed to CLS on 17 November 2006. I set out that history in paragraphs 3 to 5 below. Hindsight suggests that it might have been unwise of Macplant to proceed in the manner it did as it has given rise to prolonged litigation. Be that as it may, the issues which remain to be determined are (1) whether Macplant was and is a creditor of CLS (in particular whether the debts were disputed or in any event Macplant had agreed not to enforce those debts) and (2) whether CLS was at the date of the presentation of the winding up petition and is unable to pay its debts.
The history of the winding up application
[3] Macplant presented an initial writ in Aberdeen Sheriff Court on 17 November 2006 seeking to wind up CLS on the basis that it was unable to pay its debts. Macplant claimed that CLS owed it £336,799.42 and vouched its claim by a statement of account dated 14 November 2006. Macplant applied for the appointment of a provisional liquidator and on 17 November 2006 the sheriff appointed Mr Blair Nimmo CA to perform that role. CLS lodged answers to the application on 8 December 2006 and moved for the recall of the appointment of the provisional liquidator. The sheriff heard that motion on 22 January and 8 February 2007 and on the latter date recalled the appointment, allowed parties further time to adjust their pleadings and allowed a proof in May 2007. Macplant appealed that decision to the sheriff principal who on 6 June 2007 issued a judgment allowing the appeal and appointing Mr Nimmo interim liquidator of CLS.
[4] CLS then appealed the sheriff principal's judgment to the Inner House of the Court of Session and a summar roll hearing was fixed for 25 and 26 October 2007. But on 19 October 2007 CLS enrolled a motion to allow a detailed Minute of Amendment to be received and so caused the discharge of the hearing in the Inner House. After Macplant had answered the Minute of Amendment the Inner House on a consented motion on 4 December 2007 allowed the appeal, recalled the interlocutors on 8 February 2007 and 6 June 2007 (thereby leaving the provisional liquidator in office), and remitted the cause to the sheriff. On 8 February 2008, Lord Glennie remitted the case to the Court of Session under section 120(3)(a)(ii) of the Insolvency Act 1986 ("the 1986 Act"). Thereafter on 17 April 2008 Lord Menzies fixed this hearing.
[5] As a result of these protracted proceedings almost two years have passed since the initial appointment of the provisional liquidator. That is of some significance as both parties produced materials bearing on the merits of the application either shortly before or during the hearing of the application and I had to continue the application, which I had heard on two days in August 2008, to a third day on 10 September 2008, to allow CLS to complete its submissions and to give parties time to produce further material which was relevant to their assertions.
The law which is relevant to this winding up application
[6] The relevant statutory provisions in the 1986 Act are, first, section 124(1) which provides: "...an application to the court for the winding up of a company shall be by petition presented ...by any creditor ..". Macplant asserts that it is a creditor of CLS. Secondly, in section 122(1) it is provided that "a company may be wound up by the court if - ... (f) the company is unable to pay its debts." In this application Macplant asserts that CLS is unable to pay its debts. In order to establish that inability Macplant relies on section 123(1) which provides that "a company is deemed unable to pay its debts - (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due". This is cash flow insolvency. Macplant also relies on balance sheet insolvency; section 123(2) provides:
"A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities".
[7] There are two cumulative requirements which Macplant must meet if it is to succeed in its application to wind up CLS. First, it must establish that it is a creditor of the company in order to have title and interest to pursue the application. Secondly, it must show to the satisfaction of the court that the company is unable to pay its debts in order to obtain the winding up order. See Mann v Goldstein [1968] 1 WLR 1091, Ungoed-Thomas J at p. 1095D-F. Thus if the petitioning creditor cannot establish its status as a creditor of the respondent company but the latter company is insolvent, the court cannot make a winding up order. Equally a creditor cannot obtain the order without establishing the insolvency of the respondent company.
[8] A winding up petition is not the process in which to establish the respondent company's liability to pay a disputed debt. The petitioner will not be creditor for the purposes of section 124, and thus will not have title and interest to seek the winding up, if the respondent company shows that the debt is disputed in good faith and on substantial grounds: Mann v Goldstein, Ungoed-Thomas J at pp. 1098-1099; Re a Company No 006685 of 1996 [1997] BCC 830, Chadwick J at p. 832 F-H and Baker Hughes Limited v CCG Contracting International Limited 2005 SC 65, Lady Smith at paragraph 10. The Court will normally dismiss the petition if it is clear that there is such a dispute. But honest belief on the part of the respondent company is not enough to undermine the petitioner's title. The respondent company must also show that there are substantial grounds for disputing the debt. See Professor Roy Goode, "Principles of Corporate Insolvency Law" (3rd ed.) para 4-23. The reasons which the courts have given for taking this approach include the disruption and potential damage which the presentation and advertisement of a winding up petition may cause to the business of a respondent company. But for this rule, this potential to damage would enable a petitioner to apply commercial pressure to obtain payment of a disputed debt. At the same time, the court has to be astute to prevent a respondent company from seeking to avoid or at least postpone the winding up by advancing what Oliver LJ has described as "a cloud of objections on affidavits" so as to force the petitioning creditor to establish his claim in other proceedings when there is in fact no bona fide and substantial dispute as to the debt. See Re Claybridge Shipping Company SA [1981] Com LR 107, Oliver LJ at p. 109.
[9] Where, as here, each side produces many affidavits and voluminous documentary evidence, it appears to me that the court must look at the materials which the parties place before it to see if it can form a view on whether there is a bona fide dispute about the petitioner's claimed debt which is based on substantial grounds. Where the court is persuaded that there is such a dispute, the proper course is to dismiss the winding up petition as the petitioner will not have established its title as creditor. If there is doubt whether there is a bona fide dispute on substantial grounds the court may sist the winding up proceedings to allow the parties to resolve that question in other proceedings: Landauer & Company v W.H. Alexander & Company Limited 1919 SC 492. Where there is affidavit evidence on both sides which prima facie is credible the court may not be able to resolve the factual disputes and may, very exceptionally, have to hear oral evidence in the winding up application. Re a Company No 006685 of 1996 (above) at pp.837F-838B gives some support for this view. Such a course of action might be appropriate if the matters remaining in dispute are limited, most matters having been resolved in the hearing, and it would be wasteful for parties to commence separate proceedings. But before dismissing or sisting the application or allowing oral evidence in what is meant to be a summary procedure, I think that the court should assess the conflicting evidence in the context of its consideration of all of the evidence which is placed before it to see if it is credible and may be relied on to demonstrate the existence of a dispute. The Companies Court in England takes a similar approach, asking whether there is a fair or reasonable probability of the defendant having a defence: Re a Company No 006685 of 1996 (above) at p.838C-F.
[10] It is well established that if a creditor of an undisputed debt seeks a winding up order, he has in a question with the respondent company a right ex debito justiciae to the order: In re Southard & Co [1979] 1 WLR 1198 CA, p. 1202E-G. As occurred in that case, the court may exercise its discretion to refuse to make such an order when other creditors of the company oppose the remedy of winding up on grounds which persuade the court that it is inappropriate. But, absent such issues between creditors, the court will exercise its discretion to...
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