Dennis Rye Ltd v Bolsover District Council

A company facing a winding-up petition will normally obtain dismissal where it establishes a genuine and serious cross-claim likely to exceed the petition debt. The court assesses that question from all relevant circumstances. Failure to assert or litigate the cross-claim before the petition is relevant, but it is neither an absolute procedural requirement nor necessarily fatal.

The Companies Court is not the appropriate forum for determining disputed debts. Where the evidence does not sufficiently establish the character or amount of a cross-claim, the court need not decide the underlying merits of that claim. This includes disputes about council tax exemptions, liability orders and restitution.

Bolsover District Council presented a petition to wind up Dennis Rye Ltd, relying on unpaid council tax liability orders. The company disputed the debt and asserted a restitutionary cross-claim based on council tax allegedly paid by mistake. It contended that certain unoccupied properties fell within Class G of the Council Tax (Exempt Dwellings) Order 1992.

HHJ Cooke found the evidence insufficient to establish a genuine and serious cross-claim, determined that £4,852.25 remained due and permitted supporting creditors to be substituted after the company paid that sum. He also ordered the company to pay 80% of the Council’s costs and refused permission to appeal.

The company applied out of time to the Court of Appeal for permission to appeal. Its purpose was to obtain dismissal of the original petition and reverse the costs consequences. The central issue was whether the judge had erred by treating the company’s failure to challenge the liability orders or pursue its alleged cross-claim as defeating that claim.

1. Permission to appeal refused. The judge correctly applied the established practice governing cross-claims in winding-up proceedings. A petition will normally be dismissed where a company establishes a genuine and serious cross-claim likely to exceed the petition debt, leaving the claim to be determined in ordinary civil proceedings. The cross-claim must be supported by evidence sufficient to establish more than an arguable case.

2. A company need not have asserted or litigated its cross-claim before relying on it in winding-up proceedings. Delay or complete failure to commence proceedings is not necessarily fatal. It is nevertheless a relevant circumstance when the court assesses whether the cross-claim is genuine and serious. The court may consider all relevant matters, including whether the company attempted to pursue the claim and any explanation for its inaction.

   Here, the company had not claimed the relevant exemption when billed, appealed to the Valuation Tribunal, contested the liability orders or initially relied on the Class G exemption. Its evidence did not adequately establish the causal connection between the Council’s compulsory-purchase activity and the non-occupation of each property, the relevant periods of non-occupation, or the amount of the alleged cross-claim. The judge was entitled to find that the cross-claim lacked the required character and certainty.

3. The Companies Court could not adjudicate the underlying council tax and restitution disputes. Having found the cross-claim insufficiently established, the judge did not need to determine whether the Class G exemption applied, when any exemption began, whether the liability orders were properly obtained, or whether payments made under legal process were recoverable. The company remained free to pursue appropriate civil proceedings.

4. The company was ordered to pay the Council’s costs of the permission application, summarily assessed at £6,000. Elias LJ agreed with Mummery LJ.

• Court of Appeal (Civil Division): The court granted the necessary extension of time but refused permission to appeal from the decision of HHJ Cooke. It ordered the company to pay the Council’s costs of the application.

• High Court, Birmingham District Registry: HHJ Cooke rejected the asserted cross-claim as insufficiently genuine and serious, found £4,852.25 due, permitted the substitution of supporting creditors after payment, directed amendment and re-advertisement of the petition, and ordered the company to pay 80% of the Council’s costs. Permission to appeal was refused.