Tower Taxi Technology Llp & Ors v Marsden & Anor

A just and equitable winding-up petition based on loss of substratum requires proof that, at the petition date, it was impossible in practical terms to carry on the business. On a strike-out application, the petition should be struck out only where it has no realistic prospect of success. A business purpose directed to acquiring and exploiting identified technology may remain achievable despite variations to the underlying agreement, provided the defined rights and technology can still be acquired. Confidential negotiations capable of restoring that position may make a petition premature. If later events show that negotiations and any available litigation have failed, a fresh petition may be presented.

Members of a limited liability partnership presented a winding-up petition under the Insolvency Act 1986, as applied to LLPs by regulation 5 of the Limited Liability Partnership Regulations 2001. They alleged that termination of the software purchase agreement meant that the LLP’s defined business purpose could no longer be achieved and that its substratum had disappeared.

Mr Justice Park struck out the petition on 17 May 2005, holding that it was premature because negotiations with Cabvision might restore the LLP’s ability to acquire and exploit the software. The members appealed. The central issues were the construction of the LLP agreement, whether the negotiations showed that the substratum had not gone, and whether the petition had been properly struck out.

The appeal was dismissed unanimously.

1. Loss of substratum. A petitioner relying on the disappearance of a company or LLP’s substratum must show that, at the date of the petition, it was impossible in practical terms to carry on the business. The court adopted the formulation stated by Lord Justice Baggallay in Re German Date Coffee Company (1882) 20 ChD 169 at 188.
2. Construction of the business purpose. The LLP agreement required the acquisition of the specified rights and technology defined by reference to the original software purchase agreement. It did not require every term of that agreement to remain unchanged. The business purpose could therefore still be achieved if the defined rights and technology were acquired under an agreement containing other variations.
3. Effect of negotiations. Although the negotiations with Cabvision were confidential and at an early stage, it was reasonable to infer that they might enable the LLP to acquire and exploit the identified software. Their existence was therefore inconsistent with the proposition that the substratum had already gone for good.
4. Strike out and future petition. On a striking-out application, the applicant must show that the proceedings have no realistic prospect of success. The present petition was premature. The court did not decide whether unanimous consent would be available for litigation if negotiations failed, because that was a secondary issue. A fresh petition could be presented if negotiations failed and litigation could not be pursued or was unsuccessful. Costs were summarily assessed at £8,500.

• Court of Appeal (Civil Division): The appeal was dismissed on 14 October 2005. [2005] EWCA Civ 1503
• High Court, Chancery Division: Mr Justice Park struck out the winding-up petition on 17 May 2005 as premature.