BST Properties Limited v Reorg-Apport Penzugyi RT

A company resisting a winding-up petition must show that the petition debt is bona fide disputed on substantial grounds. The Companies Court may assess the credibility and coherence of the evidence relied upon to establish the alleged dispute. It need not suspend common sense or leave an unsupported challenge to the debt for determination in foreign proceedings.

An exclusive-jurisdiction clause in the agreement said to create the debt does not itself make the debt substantially disputed. Even if the clause might support a stay of proceedings concerning the agreement, it does not alter the question whether the petitioner had standing to present the winding-up petition.

RAP presented a winding-up petition against BST as assignee of an alleged US$5 million loan made by Postabank. BST applied to restrain and strike out the petition. It contended that the payment was not a loan but part of an agency arrangement to acquire Spanish property for Postabank, or alternatively that the loan had been satisfied by later transactions.

Laddie J dismissed the application. BST appealed after a compulsory winding-up order had been made. The Court of Appeal permitted BST’s director to pursue the appeal as an interested party, on the footing that success would result in the winding-up order being set aside. The central issue was whether the alleged debt was bona fide disputed on substantial grounds, and whether an exclusive Hungarian jurisdiction clause affected that question.

1. Appeal dismissed unanimously. Lord Justice Jonathan Parker, with whom Lord Justice Dyson agreed, held that Laddie J was entitled to find that the alleged petition debt was not bona fide disputed on substantial grounds.
2. The applicable inquiry was whether the debt was bona fide disputed on substantial grounds. The court accepted that a weak but genuine dispute may be sufficient, but held that the Companies Court may examine the evidence realistically and need not accept an inherently incredible account.
3. The documents pointed unequivocally to a US$5 million loan. BST’s director had signed the relevant documentation, while his evidence first denied any loan and later asserted that a loan had been repaid or satisfied. The Completion Agreement was inconsistent with the initial agency account and did not undermine the loan agreement. The absence of contemporaneous documents supporting an agency arrangement further entitled the judge to reject BST’s case as lacking credibility.
4. Clause 18, which stipulated the exclusive competence of the Hungarian Metropolitan Court after unsuccessful amicable settlement attempts, did not affect the Companies Court’s inquiry. Whether it could support a stay of proceedings concerning the loan agreement, it did not establish a substantial dispute about the petition debt.
5. Since the appeal failed, no question arose of setting aside or rescinding the winding-up order. The appeal was dismissed with costs assessed at £5,000 inclusive of VAT and disbursements.

• Court of Appeal (Civil Division): Appeal dismissed: [2001] EWCA Civ 1997.
• Chancery Division: Laddie J dismissed BST’s application on 15 February 2001 to restrain the winding-up petition and strike it out.