In re Selectmove Ltd

A creditor’s winding-up petition should be dismissed where the debt is disputed in good faith on substantial grounds.

A debtor provides no consideration by promising to discharge an existing debt by instalments or to pay future liabilities when already due. The practical-benefit doctrine applicable to promises of additional payment for contractual performance cannot be extended by the Court of Appeal to part-payment of debts governed by Foakes v Beer.

An agent who has disclosed a lack of authority cannot bind the principal through the agent’s subsequent silence. Promissory estoppel also requires an authorised promise and circumstances in which enforcement would be inequitable.

Selectmove Ltd appealed against an order of the Companies Court compulsorily winding it up on the Revenue’s creditor petition. The company owed arrears of PAYE and National Insurance contributions.

The company alleged that a tax collector had undertaken to recommend its proposal to pay current liabilities when due and discharge the arrears by monthly instalments. He would respond only if the proposal was unacceptable. The company contended that the Revenue’s silence accepted the proposal or, alternatively, that the Revenue was estopped from enforcing the debt.

The central question was whether the Revenue’s debt was disputed in good faith on substantial grounds. This depended on acceptance, the tax collector’s authority, consideration and promissory estoppel.

1. Appeal dismissed unanimously. Peter Gibson LJ delivered the leading judgment. Stuart-Smith LJ agreed with his reasons, and Balcombe LJ agreed. A creditor’s winding-up petition must be dismissed if the alleged debt is disputed in good faith on substantial grounds. The company had shown no substantial ground for disputing the Revenue’s debt.

2. The Revenue had not accepted the proposed instalment arrangement. Silence may exceptionally amount to acceptance where the offeree undertakes to respond if the offer is unacceptable. Peter Gibson LJ left that point open. The decisive objection was that the collector had disclosed that he lacked authority and needed approval from his superiors. Ostensible authority must arise from a representation by the principal, not from the agent’s assertion or conduct. Applying Armagas Ltd v Mundogas SA [1986] AC 717, there was no representation by the Revenue that the collector could accept the proposal or communicate acceptance by silence.

3. Any agreement would in any event have lacked consideration. The promises to pay the arrears by instalments and to pay future PAYE and National Insurance contributions when due were promises to perform existing obligations. Under Foakes v Beer (1884) 9 App Cas 605, a creditor’s practical advantage from accepting instalments does not constitute consideration for a promise to forbear from enforcing the whole debt.

4. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B.1 established that a practical benefit may support a promise of additional payment for the performance of an existing obligation to provide work, goods or services. The Court of Appeal could not extend that principle to an existing obligation to pay money. Such an extension would deprive Foakes v Beer of practical application and could be made only by the House of Lords or Parliament.

5. Promissory estoppel failed independently. The collector lacked actual or ostensible authority to make the alleged promise. Moreover, the company failed to make current payments and instalments when promised. It was therefore neither inequitable nor unfair for the Revenue to demand the arrears, serve a statutory demand and petition for winding up.

1. Court of Appeal: The company’s appeal was dismissed unanimously. The compulsory winding-up order was upheld. The Revenue’s costs of the appeal were ordered to be costs in the liquidation, and leave to appeal to the House of Lords was refused.

2. High Court, Companies Court: His Honour Judge Moseley QC compulsorily wound up the company on the Revenue’s creditor petition. He rejected the alleged agreement and estoppel because silence had not constituted acceptance and the arrangement lacked consideration.