The High Court confirmed that it is generally not appropriate to present a winding up petition to recover sums due under a construction contract, particularly where those sums are disputed or there is a legitimate cross claim.
Breyer is a construction company which sub-contracted works to RBK. It raised various concerns about RBK’s work. Breyer refused to pay a number of valuations and issued a Pay Less Notice under their payment scheme. Three weeks later RBK issued a winding up petition, claiming that Breyer was indebted to it in the sum of £228,729.16. It claimed that Breyer had admitted it was unable to pay its debts as they fell due, specifically a number of instalments due under a valuation. Breyer contended that it had the means to pay but had chosen not to, as it had a range of reasonable defences to the claim as well as a potential substantial counterclaim. Breyer applied to restrain RBK from proceeding further with the petition and to strike it out.
The judge had no hesitation in striking out the petition. He applied established principles for considering an application to strike out summarised by Norris J at para 22 in Angel Group v British Gas  EWHC 2702. He concluded that:
- Breyer was not insolvent; it was ‘not a case of can’t pay, but won’t pay’.
- He was not satisfied that at the date of the petition, RBK was a creditor of Breyer. Rather, RBK appeared to be in the position of a conventional claimant on an invoice where liability was disputed. Breyer’s defences and cross claims were fairly arguable and the dispute was wholly unsuited to resolution in insolvency proceedings.
- The proper place for the dispute was either adjudication under the scheme established under the Scheme for Construction Contracts or ordinary proceedings.
- For RBK to continue these insolvency proceedings would be oppressive and would constitute an abuse of process. Such petitions could create injustice, pressuring a company to pay in order to avoid the petition being advertised.