A winding up petition is a very serious thing. Faced with a petition issued by a subcontractor, a contractor claimed that it had arguable defences and substantial cross-claims. But was that enough to stop the petition?
The case law says that a petitioner’s standing as a creditor in the Companies Court, entitled to present a petition, may be challenged by advancing, in good faith, a ‘substantial’ dispute (i.e. one with a rational prospect of success) about all the petition debt (other than an amount below £750). A dispute will not, however, be put forward in good faith if the company is trying to obtain credit not allowed under the contract. A petition will not be struck out just because the company alleges that the debt is disputed but the Companies Court will not allow a winding up petition to be used to decide a substantial dispute raised on bona fide grounds. This is because presenting and advertising a petition puts pressure on a company to pay (rather than litigate) which is quite different from the effect of an ordinary action. Such proceedings are not the place for resolving genuinely disputed debt claims which the court cannot properly determine, either as to merits or as to quantum, at this stage. These petitions can also create injustice because a company may feel pressurised into paying simply to avoid the petition being advertised and the potential serious commercial consequences.
The court will, however, be alert to the risk that an unwilling debtor is raising objections in order to claim that a dispute exists which cannot be determined without cross-examination. It will therefore be prepared to consider the evidence in detail, even if this involves it in much the same exercise as presented by a summary judgment application.
The court found that there were genuine disputes, was not satisfied that the subcontractor was a creditor with standing to present the petition and struck out the petition.