Stonegate Securities Ltd v Gregory

JurisdictionEngland & Wales
JudgeLORD JUSTICE BUCKLEY,LORD JUSTICE GOFF,SIR DAVID CAIRNS
Judgment Date05 October 1979
Judgment citation (vLex)[1979] EWCA Civ J1005-4
Docket Number1979 S No. 053
CourtCourt of Appeal (Civil Division)
Date05 October 1979
Between:
Stonegate Securities Limited
Plaintiffs
(Appellants)
and
Philip Howard Gregory
Defendant
(Respondent)
Before:

Lord Justice Buckley

Lord Justice Goff and

Sir David Cairns

1979 S No. 053

In The Supreme Court of Judicature

Court of Appeal (Civil Division)

On Appeal from The High Court of Justice

Chancery Division

Group B

Manchester District Registry

(His Honour Vice-Chancellor Blackett-Ord)

MR. W. F. STUBBS Q. C. and MR. LEONARD PORTER (instructed by Messrs. Halliwell Landau & Co., Solicitors, Manchester M2 2AN) appeared on behalf of the Plaintiffs (Appellants).

MR. J. F. PARKER Q. C. and MR. J. H. ALLEN (instructed by Messrs. Willey Hargrave & Co., Solicitors, Leeds LSI 2RD) appeared on behalf of the Defendant (Respondent).

LORD JUSTICE BUCKLEY
1

This is an appeal from an order of Vice-Chancellor Blackett-Ord, sitting as an additional judge of the Chancery Division in Leeds on 20th March 1979 whereby he granted an injunction in terms which I shall have to explain later, restraining the defendant from presenting a petition for the winding-up of the plaintiff company; he made his injunction subject to a condition which also I shall have to explain in due course.

2

The relevant statutory provisions are contained in sections 222, 223 and 224 of the Companies Act 1948. Section 222, as is very familiar, provides that a company may be wound up by the court if…s "(e) the company is unable to pay its debts". Section 223 provides that a company shall be deemed to be unable to pay its debts if, among other things, a creditor to whom the company is indebted in a sum exceeding £50 then due - and I emphasise those last two words - has served a statutory demand upon the company and the company has failed for three weeks to comply with it. That provision has no application to a case in which the creditor is a creditor in respect of a sum which is not presently due. Section 224 indicates who may present a winding-up petition, and it provides that an application for the winding up of a company shall be by petition presented either by the company or by any creditor or contributory of the company. Then there are provisos, and proviso (c) is in the following terms: "The court shall not give a hearing to a winding up petition presented by a contingent or prospective creditor until such security for costs has been given as the court thinks reasonable and until a prima facie case for winding up has been established to the satisfaction of the court". In that context, in my opinion theexpression "contingent creditor" means a creditor in respect of a debt which will only become due in an event which may or may not occur; and a prospective creditor is a creditor in respect of a debt which will certainly become due in the future, either on some date which has been already determined or on some date determinable by reference to future events.

3

Where a creditor petitions for the winding up of a company, the proceedings will take one of two courses, depending upon whether the petitioner is a creditor whose debt is presently due, or one whose debt is contingent or prospective by reason of the proviso in paragraph (c) of section 224 (1). If the creditor petitions in respect of a debt which he claims to be presently due, and that claim is undisputed, the petition proceeds to hearing and adjudication in the normal way; but if the company in good faith and on substantial grounds disputes any liability in respect of the alleged debt the petition will be dismissed or, if the matter is brought before a court before the petition is issued, its presentation will in normal circumstances be restrained that is because a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed

4

Mr. Justice Ungoed-Thomas put the matter thus in the case of Mann v. Goldstein in (1968) 1 Weekly Law Reports, 1091 at page 1098 below H: "For my part, I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since until a creditor is established as a creditor he is not entitled to present the petition and has nolocus standi in the Companies Court; and that, therefore, to invoke the winding up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court". I gratefully adopt the whole of that statement, although I think it could equally well have ended at the reference to want of locus stand. In my opinion a petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224 (1) at all, and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings.

5

The circumstances may, however, be such that the company adopts an intermediate position, denying that the debt is presently due but not denying that it will or may become due in the future - in other words, accepting it as a contingent or prospective debt. The present case is of the last-mentioned kind and the present appeal involves consideration of what is proper in such a case.

6

On 25th January 1979 the defendant served upon the company a notice in the following terms: "Take notice that you are required to pay Philip Howard Gregory" - and an address is given - "within 21 days from the date of this notice the sum of £33,000 which sum is due and owing by you to Philip Howard Gregory. Take notice that this notice is served in accordance with the provisions of section 223 (A) of the Companies Act 1948". That is clearly a notice which affirms that the whole of the sum of £33,000 was presently due and owing from the company to the defendant; indeed, it was only upon that basis that such astatutory demand could have been served.

7

The debt of £33,000 relied upon is said to have arisen out of a transaction relating to certain shares in a company called Trinette Ltd, which-were sold by the defendant to the company. In February of 1972 it appears that the defendant was the holder of 24 shares out of the total issued share capital of 100 shares of Trinette Ltd, and he agreed to sell those 24 shares to the company for £80,000. That agreement was later modified by mutual agreement between the parties so that the sale was restricted to 14 only of the shares and the purchase price was reduced from £80,000 to £67,000. Trinette Ltd. was a company engaged in a speculative development of certain land and had the benefit of a contract connected with that project, but no planning permission had at that time been obtained. By the agreement that was entered into in July 1972 modifying the original sale agreement, it was provided that completion of the transfer of the 14 shares which were then to be sold should take place following the grant of outline planning permission in respect of the development; and it was further provided that £35,000, part of the £67,000 purchase price, would be payable on completion and that the balance of the consideration, £32,000, would become payable upon the acquisition by Trinette Ltd. of the whole of the proposed site or such part of it as would enable Trinette Ltd. to proceed with, and complete, the re-development in accordance with the outline planning consent.

8

In 1973 the company paid the defendant £17,500, part of the purchase price payable under the agreement - that is to say, half of the £35,000 - and in Hay of that year the 14 shares were transferred to the plaintiff company. It was then agreed that the balance of £17,500, the other half of the £35,000, should be paidonly on obtaining detailed planning consent for the development, so that was a further modification of the sale agreement and, as the learned judge pointed out in his judgment, nobody could forsee whether the £17,500 which was to be paid on detailed planning permission being obtained would become payable before the £32,000, or whether the £32,000 would become payable before the £17,500. There were various payments made to the defendant on account during 1974 and 1975, and in 1976 there was a further agreement between the parties that the purchase price should be reduced by the sum of £5,500. Allowing for that, the learned judge said that there was left outstanding under the sale agreement a sum of £33,000, of which it was suggested that at least £1,000 must be payable forthwith. The company now admits that the defendant is a contingent creditor at any rate in a sum of £33,000, but not that any part of that sum is immediately due. The defendant alleges that at least some part of the £33,000 is immediately due, but the Vice-Chancellor held that this was not established on the evidence, and the defendant now accepts that there is a bona fide dispute as to whether any part of the £33,000 is now due, and he further admits that in so far as the debt is contingent, the relevant contingency may never happen. So the situation is such that the defendant cannot petition to wind the company up on the basis that he is a debtor for a sum which is presently due, because that position is disputed in good faith and on substantial grounds; but he is competent to petition as a contingent creditor. As a petitioner in that capacity, however, he would have to comply with the requirements of proviso (c) of section 224 (1), under which the burden rests upon him of establishing a prima facie case for winding up the company.

9

Consequent upon the service of the statutory demand, the company issued its writ in the section in which the present appeal arises, on 5th February...

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