The Accessory People Ltd. v Rouass

In a winding-up petition based on an admitted debt, a genuine and serious cross-claim which is likely to exceed the petition debt will normally justify staying or dismissing the petition. The cross-claim need not already have been litigated. Failure to commence proceedings is a relevant circumstance when assessing whether the claim is genuine and serious, but it is not determinative.

The court must assess the cross-claim on the evidence available at the hearing. Unparticularised oral agreements, unsupported invoices and evidence that does not connect the claimant to the alleged liability may fail that threshold. A claim for the value of goods must also be supported by a realistic valuation exceeding the petition debt.

The respondent presented a winding-up petition against the appellant company for a debt of at least £145,000 arising under a loan agreement. The High Court judge discharged an earlier injunction preventing advertisement of the petition, holding that the company had not established a relevant cross-claim.

The company appealed. It relied on alleged liability for furniture supplied to premises occupied by the respondent and on an alleged oral agreement requiring the respondent to indemnify rental payments. The central issues were whether the failure to litigate the claims prevented them from being considered, and whether either claim was genuine, serious and capable of exceeding the petition debt.

1. Appeal dismissed. The court refused to stay or dismiss the winding-up petition.
2. The judge below had treated the absence of proceedings as showing that there could be no genuine and serious cross-claim. That was an irrelevant approach. Under the established Companies Court practice, a company may rely on a cross-claim which it could have litigated earlier or has delayed in bringing. The failure to litigate is relevant to genuineness and seriousness, but is not necessarily fatal: Re Bayoil SA [1999] 1 WLR 147 and Bolsover District Council v Dennis Rye Limited [2009] 4 All ER 1140.
3. The Court of Appeal therefore exercised the discretion afresh as at the date of the appeal. The alleged rental indemnity was unsupported by sufficient particulars. The alleged contracting officer was unidentified, the place and circumstances of the oral agreement were unknown, documentary evidence of payment was absent, and there was no adequate demand. The invoices did not connect the respondent with the rental agreement made between the appellant and Lakhani. The claim was not a genuine and serious cross-claim.
4. The furniture claim also failed. Although there was evidence that the respondent removed some furniture, the evidence did not identify any particular item or connect the removed furniture with the goods supplied by Lakhani. The only demand was made after the winding-up proceedings began and appeared prepared for use in those proceedings.
5. In any event, the appellant had not produced a sensible valuation showing that the furniture was worth more than the petition debt. The 2007 supply value could not simply be assumed to remain the value two years later, particularly as the list included consumable items.
6. The court did not need to decide the submission based on section 8 of the Torts (Interference with Goods) Act 1977, or the submission based on the appellant’s financial position. Those matters could not assist the appellant.

• Court of Appeal (Civil Division) — [2010] EWCA Civ 302: appeal from the order of HHJ Brown QC dated 11 September 2009 dismissed.
• High Court, Birmingham District Registry — HHJ Brown QC discharged an earlier injunction preventing advertisement of the winding-up petition.