It can often be the case that he who shouts loudest gets dealt with first. However, shouting loudly by issuing a winding-up petition where a debt is genuinely disputed can be an abuse of process and can lead to a costs order against the petitioning creditor possibly on an indemnity basis. Finance companies need to bear this in mind when considering whether to go down the insolvency route in relation to debtors.
The High Court has recently restated this position in Coilcolor Ltd v Camtrex Ltd, holding that it was an abuse of process to issue a winding-up petition to put pressure on a debtor to pay where solvency was not in real doubt and where there was a bona fide dispute as to the indebtedness.
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The facts
The parties had traded intermittently for a number of years. The debt related to unpaid sums for allegedly unfit products for which there was also a cross-claim. Coilcolor sought to restrain the presentation of a winding-up petition following service of a statutory demand by Camtrex. The issue before the court was whether Camtrex’s terms and conditions were incorporated into the contracts between the parties, their meaning and effect. The terms and conditions sought to exclude all liability for any defects unless notification was made within seven days and to preclude set-off. Camtrex alleged the complaints about the product were contrived in order to avoid or delay payment.
The High Court held that the court will restrain the presentation of a winding-up petition where it is an abuse of process, or where the debt is disputed on substantial grounds, or where there is a genuine and substantial cross-claim that exceeds the amount of the debt. Proof of solvency is also relevant and debtors cannot use solvency as a defence to a petition based on an undisputed debt. Winding-up is a discretionary remedy and where it appears it is being used as a threat or to exert inappropriate pressure, the court is more likely to give the debtor the benefit of any reasonable doubt as to whether there is a genuine dispute or cross-claim.
The court considered that Camtrex was using the petition to leverage payment now and argue later which it sought to justify on the basis of its terms and conditions. Although there was a strong argument that the terms and conditions had been incorporated, difficult questions of contractual interpretation of those terms and conditions still had to be considered which was not appropriate for determination through the winding-up process but rather by ordinary court action.
Comment
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By GlobalDataThe threat of winding-up should not be used to pressurise into submission debtors with genuine disputes, but there must be substance to the dispute and the debtor’s refusal to pay. A mere assertion of a dispute is not enough but often the difficulty is in persuading the court to see through what can be a cloud of objections intended to obfuscate.
Greg Standing is a partner in Wragge Lawrence Graham & Co’s motor finance team
