Winding up petition struck out as an abuse of process where the court was not satisfied that the petitioner was a creditor.

In Breyer Group Plc v RBK Engineering Ltd [2017] EWHC 1206 (Ch) ( judgment available here), Breyer Group Plc (the Applicant) was a construction company. In May 2015, it entered into a contract with RBK Engineering Ltd (the Respondent) under which the Respondent would carry out the refurbishment of kitchens and bathrooms on a construction project. Under the contract’s payment structure, the Respondent would submit an application for payment, after which the Applicant would submit a payment notice or pay less notice. An appendix provided timings for the applications and notices.

In early 2016, the Applicant wanted the Respondent to complete further work. The parties never agreed terms for a new agreement but continued working into the 2016/17 period on the same terms as the original agreement, at least insofar as payments were concerned. By the end of 2016, both parties recognised that they should bring their relationship to an end and entered into a settlement agreement dated 14 December 2016.

On 22 March 2017, the Respondent presented a winding up petition against the Applicant, claiming it:

• had submitted late payment notices and made late payments • was indebted to the Respondent in the sum of £258,729.16, and

• had admitted that it was insolvent.

The Applicant applied to the court to strike out the winding up petition on the grounds that it was not insolvent and it disputed the debt in question.

Decision

The judge granted the application to strike out the winding up petition for the following reasons:

• the Applicant was not unable to pay its debts. To the contrary, the Applicant was solvent with cash in hand and an unused £4m credit facility. In short, the judge said, this “was not a case of can’t pay, but won’t pay”

• there was a genuine dispute as to the terms of work and what timing regime had been agreed in respect of payment, the quality of the work undertaken by the Respondent, and the validity of certain electrical and testing certificates issued by the Respondent. The court found that these claims – some of which operated as defences and others as counterclaims – were fairly arguable and it would be inappropriate to resolve them in insolvency proceedings

• the proper place for the dispute between the parties was either adjudication under the scheme established under the Scheme for Construction Contracts or ordinary proceedings

• for the Respondent to continue the insolvency proceedings would be oppressive and would constitute an abuse of process.

Key points for practitioners

This case is a reminder of the courts’ reluctance to allow winding up petitions to be brought where there is a bona fide dispute over the debt claimed. Such petitions could create an injustice by pressuring a company to pay in order to avoid the petition being advertised.