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THE COURT'S JURISDICTION TO RESTRAIN A CREDITOR FROM PRESENTING A WINDING UP PETITION WHERE A CROSS-CLAIM EXISTS

Published online by Cambridge University Press:  11 March 2010

Suet Lin Joyce Lee
Suet Lin Joyce Lee
Affiliation:
LLB (Singapore); LLM (Virginia); Associate Professor, Nanyang Business School, Nanyang Technological University, Singapore.
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The Cambridge Law Journal , Volume 69 , Issue 1 , March 2010 , pp. 113 - 132
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Copyright © Cambridge Law Journal and Contributors 2010

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References

1 When a creditor presents a petition for a winding up order, the company may plead it has a set-off or counter-claim which equals or exceeds the amount of the petitioner's debt. Set-off operates as a complete defence to a claim and so would deprive the petitioner of his locus standi as a creditor but the debt is not extinguished until judgment is given in favour of the company: L&D Audio Acoustics Pty Ltd. v. Pioneer Electronic Australia Pty Ltd. (1982) 7 A.C.L.R. 180. A counter-claim is a distinct action on which the practice is to give judgment separately: Re Portman Provincial Cinemas Ltd. (1964) 108 S.J. 581. Cross-claim in this article will include both a set-off and a counter-claim.

2 One of the persons with locus standi to present a petition under Insolvency Act 1986, s. 124(1). The focus of this article is only on the creditor of the company.

3 Insolvency Act 1986, s. 122(1)(f).

4 The company is unable to pay its debts as they fall due: Insolvency Act 1986, s. 123(1)(e).

5 The company's assets are insufficient to meet its liabilities: Insolvency Act 1986, s. 123(2).

6 Insolvency Act 1986, s. 123(1).

7 Mann v. Goldstein [1968] 1 W.L.R. 1091, 1095.

8 Bryanston Finance Ltd. v. de Vries (No 2) [1976] Ch. 63.

9 Other instances of abuse of process include presentation of petition not bona fide for the legitimate purpose of obtaining a winding up order but for the purpose of applying pressure on the company: Re A Company [1894] 2 Ch. 349; the fact that Companies Act provides a more appropriate remedy for the petitioner's complaint: Charles Forte Investments Ltd. v. Amanda [1964] Ch. 240.

10 Insolvency Rules 1986, r.4.11.

11 Stonegate Securities Ltd. v. Gregory [1980] Ch. 576. The court will restrain advertisement where the presentation of petition is an abuse of the process of the court. Reference will subsequently be made only to injunctions to restrain presentation of petition because the same rules apply to both injunctions to restrain presentation and advertisement of petition.

12 Because the petitioner may turn out not to be a creditor when the cross-claim is settled.

13 [1968] 1 W.L.R 1091.

14 Ibid., at pp. 1093–1094, 1098-1099.

15 See, for instance, L & D Audio Acoustics Pty Ltd. v. Pioneer Electronic Australia Pty Ltd. (1982) 7 A.C.L.R. 180; Fortuna Holdings Pty Ltd. v. The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] 2 A.C.L.R. 349.

16 [1978] 2 A.C.L.R. 349.

17 Ibid., at p. 354.

18 [1968] 1 W.L.R 1091.

19 [1999] 1 W.L.R. 147.

20 (1881) 18 Ch. D. 557.

21 [1964] Ch. 240.

22 Not everyone is agreed that the creditor in a cross-claim case has locus standi to petition. It will be argued later that the creditor in a cross-claim case does have locus standi.

23 This point will be elaborated on in the next section.

24 Exhaustive with reference to the Insolvency Act 1986. There may be other statutory bases of standing, eg the Financial Services Authority can petition to wind up financial services companies under the Financial Services and Markets Act 2000.

25 In re H.L. Bolton Engineering Co. Ltd. [1956] Ch. 577, 583. This view has been criticized. See, for instance, A Keay, “Insolvent Companies which are able to Dispute Debts Owed to Petitioning Creditors: Should they be Wound Up?” (1998) 19 Company Lawyer 230.

26 Cornhill Insurance plc v. Improvement Services Ltd. (1986) 2 B.C.C. 98,942.

27 See Mann v. Goldstein [1968] 1 W.L.R at p.1095.

28 [1968] 1 W.L.R 1091.

29 [1980–1981] S.L.R. 8.

30 Ibid., at p.12.

31 [2002] 1 B.C.L.C. 210.

32 Ibid., at p.221.

33 [2003] 1 B.C.L.C. 330.

34 Ibid., at p.335.

35 [1980–1981] S.L.R. 8.

36 [2002] 1 B.C.L.C. 210

37 [2003] 1 B.C.L.C. 330

38 See, for instance, Anglian Sales Ltd. v. South Pacific Manufacturing Co. Ltd. [1984] 2 N.Z.L.R. 249.

39 See, for instance, Taxi Trucks Ltd. v. Nicholson [1989] 2 N.Z.L.R. 297.

40 [1970] Ch. 27.

41 Ibid., at p.42.

42 Ibid., at p.36.

43 [1999] 1 W.L.R. 147.

44 (1964) 108 S.J. 581.

45 [1970] Ch. 27.

46 It is not entirely clear what are the special circumstances which would lead a Companies Court to refuse to dismiss a petition. Re Richbell Information Service Inc [2000] B.C.C. 111 is an example of when special circumstances exist. In that case, a US company owed US$48m to the petitioning creditor. The company brought its cross-claim in the US. Although the judge was satisfied the cross-claim was genuine and serious, his Lordship was of the view that the appointment of a liquidator would safeguard the interests of the petitioner in relation to the US action.

47 Bayoil [1999] 1 W.L.R. at p. 151.

48 Re Julius Harper Ltd., ex parte Winkler & Co. (Hong Kong) Ltd. [1983] N.Z.L.R. 215; Anglian Sales Ltd. v. South Pacific Manufacturing Co. Ltd. [1984] 2 N.Z.L.R. 249.

49 Re Ringinfo Ltd. [2002] 1 B.C.L.C. 210.; Montgomery v. Wanda Modes Ltd. [2002] 2 B.C.L.C.289; Bayoil [1999] 1 W.L.R. 147; Re L.H.F. Wools Ltd. [1970] Ch. 27.

50 Re Glenbawn Park Pty Ltd. (1977) 2 A.C.L.R. 288.

51 Stooke v. Taylor (1880) 5 Q.B.D. 569.

52 Namely, Malayan Plant case [1980–1981] S.L.R. 8; Re Ringinfo Ltd. [2002] 1 B.C.L.C. 210; and Re MCI Worldcom [2003] 1 B.C.L.C. 330.

53 It will be contended in the next section that the court may restrain presentation of the petition only if the company can show that such a petition is bound to fail.

54 See [1999] 1 W.L.R. 147.

55 [1983] N.Z.L.R. 215.

56 Ibid., at p.220.

57 As early as 1865, Lord Cranworth in Bowes v. Hope Life Insurance Company, 11 H.L.C. 389 crafted the dictum that a creditor whose debt is presently due, and who cannot get payment of it, is ex debito justitiae entitled to a winding up by the Companies Court, and that, ordinarily speaking, it is the duty of the court to make the order.

58 [1983] N.Z.L.R. 215.

59 Ibid., at p.223.

60 [1984] 2 N.Z.L.R. 249.

61 [1983] N.Z.L.R. 215.

62 [1984] 2 N.Z.L.R. at p.252.

63 [1992] B.C.C. 794.

64 [1968] 1 W.L.R 1091.

65 Ibid., at p.1095.

66 [1976] Ch. 63.

67 There has been a line of authorities dealing with the distinction between ‘motive’ and ‘object’, for instance, see Re A Company [1983] B.C.L.C. 492; Re Bellador Silk Ltd. [1965] 1 All E.R. 667; Re A Company [1894] 2 Ch. 349; Niger Merchants Co. v. Capper (1881) 18 Ch. D. 557; Cadiz Waterworks Co. v. Barnett (1874) L.R. 19 Eq. 182; Ward v. Corlon [1986] P.C.C. 57; Fortuna Holdings Pty v. Deputy Commissioner of Taxation (1976) 2 A.C.L.R. 349; Mincom Pty Ltd. v. Murphy [1983] A.C.L.C. 749; [1983] 1 Qd. R. 297; QIW Retailer Ltd. v. Felview PtyLtd. (1989) 7 A.C.L.C. 510. ‘Motive’ would ordinarily mean the cause or reason for any action whereas ‘object’ is the goal or end of any action.

68 [1978] 2 A.C.L.R. 349.

69 Ibid., at p.396.

70 Ibid., at p.398.

71 Ibid., at pp. 403–404.

72 [2003] All E.R. (D) 338.

73 Ibid., at p.338.

74 Per Harman LJ in Re L.H.F. Wools Ltd. [1970] Ch. at p.37.

75 [1992] B.C.C. 794.

76 [1991] B.C.C. 29.

77 See, for instance, Julius Harper case [1983] N.Z.L.R. 215.; Anglian Sales case [1984] 2 N.Z.L.R. 249.

78 [1984] 2 N.Z.L.R. 249.

79 See [1984] 2 N.Z.L.R. at p. 254.

80 [1992] B.C.C. 794.

81 Julius Harper case [1983] N.Z.L.R. 215.; Anglian Sales case [1984] 2 N.Z.L.R. 249.

82 [2003] All E.R. (D) at p. 338.

83 [1978] 2 A.C.L.R. 349.

84 [1964] Ch. 240.

85 Ibid.

86 Not everyone is agreed that a member's right to present a winding-up petition against his company should be restrained if his complaint is sufficient to found another action for which another remedy is available. There are those who hold the view that so long as the complaint, if substantiated, is also a sufficient ground to wind up a company, the petition should proceed. Australian cases, for example, Fortuna Holdings Pty Ltd. v. The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] 2 A.C.L.R. 349 and Mincom Pty Ltd. v. Murphy [1983] A.C.L.C. 749 support the view that the company should be restrained if an alternative remedy exists. On the other hand, New Zealand cases, for example, Tench v. Tench Bros Ltd. [1936] N.Z.L.R. 403 stated it was not at all clear that because the petitioner had an alternative remedy, i.e. an action to quash the alteration of the articles to remove him as a director, he could not proceed on the ‘just and equitable’ ground to wind up the private company.

87 Section 225(3) of the Companies Act 1961 of Victoria. In England, where “just and equitable” petitions are concerned, s. 125(2) of the Insolvency Act 1986 applies.

88 Julius Harper [1983] N.Z.L.R. 215.

89 Anglian Sales [1984] 2 N.Z.L.R. 249.; Re a Company (No 006273 of 1992) [1992] B.C.C. 794; Re Leasing and Finance Services Ltd. [1992] B.C.C. 794.

90 Bryanston [1976] Ch. at pp. 66-67.

91 Ibid.

92 Re A Company (No. 006685 of 1996) [1997] B.C.C. 830.

93 Re Richbell Strategic Holdings Ltd. [1997] 2 B.C.L.C. 429, 434.

94 See, for instance, comments made in Cadiz Waterworks Co. v. Barnett (1874) L.R. 19 Eq. 182; Re Golden Breed Pty Ltd. (1979) 22 S.A.S.R. 392.

95 Re A Company (No. 009080 of 1992) [1993] B.C.L.C. 269.

96 Which dates from the time of presentation of petition.

97 Unsecured creditors are the ones most likely to petition to wind up a company because they do not have the option of appointing a receiver to realize charged assets.

98 See for instance, RM Goode, “Is the law too favourable to secured creditors ?” (1983–1984) 8 Can. Bus. L.J. 53; V Finch, “Security, Insolvency and Risk: Who Pays the Price?” (1999) 62 M..L..R. 633.

99 [1976] Ch. at 66.

100 Ibid. at p.78.