Shakespeare Putsman Llp v Meredith

A winding-up petition must serve a legitimate insolvency or winding-up purpose. A former member who will cease to be a member before the petition can be heard has no interest in distributions made in that capacity. Presenting a petition to pursue contractual expectations or a contingent damages claim is an abuse of process, particularly where the alleged debtor is solvent and the claim can be pursued in ordinary proceedings. The established practice is that a winding-up petition should ordinarily be based on an undisputed debt and failure to pay. Departure requires exceptional circumstances.

The claimant LLP sought interim and final relief restraining Paul Kelvin Meredith from presenting a winding-up petition. Mr Meredith had become a member under an LLP agreement, but notice had been given terminating his membership before any petition could be heard. He relied on alleged assurances concerning his security of tenure and argued that he could petition as a member or as a contingent or prospective creditor. The central issues were whether he would retain an interest in a winding-up, whether the LLP agreement entitled him to share in any surplus, and whether a petition could properly be used to pursue possible damages or collateral warranty claims.

1. The application was determined on points of principle rather than the balance of convenience. The court assumed in Mr Meredith’s favour that the alleged assurances had been given and might, after trial, support equitable considerations of the kind recognised in Ebrahimi v Westbourne Galleries [1973] A.C. 360.
2. That assumption did not assist him. Any petition would be heard after his membership had ceased. Clause 52 of the LLP agreement dealt with surplus assets remaining at the conclusion of the winding-up and applied distributions to members. Since Mr Meredith would no longer be a member when distribution occurred, he would not share in the surplus. Section 129(2) of the Insolvency Act 1986, treating presentation of the petition as the commencement of winding-up in the relevant circumstances, did not alter that contractual consequence.
3. Mr Meredith’s accrued entitlement was limited to sums arising under the LLP agreement, including undrawn profits once the accounts were approved and payment from his capital account within the contractual period. As a member he therefore had no conceivable interest in a winding-up, and a member’s petition would be an abuse of process.
4. Although he might possibly have claims for damages, collateral warranty or breach of obligations of good faith, those claims were uncertain and could be pursued in ordinary proceedings. A winding-up petition should ordinarily be used where there is undisputed indebtedness and failure to pay. That practice, although a rule of practice rather than law, is sufficiently established that exceptional circumstances are required for departure. No such circumstances existed, especially since Mr Meredith accepted that the LLP was solvent.
5. A creditor’s petition and a member’s petition would therefore each be an abuse of process. The court restrained presentation of any petition and indicated that final relief would be granted, with the directions hearing vacated.