Metrocab Ltd & Ors, Re

An application to rescind a winding-up order is discretionary and exceptional. The applicant must show a material change from the circumstances existing when the order was made. Where rescission would permit the company to resume trading, the court normally requires payment or secure provision for the petition debt and liquidation costs, evidence of solvency, full and candid disclosure, fair and proper trading, and no need for further investigation.

An application for an extension of the seven-day period must be considered by reference to all the circumstances, including the CPR relief-from-sanctions factors. Substantial intentional delay without good explanation, together with uncertainty, misleading evidence or inadequate funding, will ordinarily justify refusal.

Metrocab Limited and Frazer Nash Technology Limited, together with their director and principal shareholder Kamal Siddiqi, applied to rescind winding-up orders made on petitions by HMRC. The orders were made on 17 June 2009 and 1 July 2009. Both applications were issued on 14 October 2009, outside the seven-day period in rule 7.47(4) of the Insolvency Rules 1986.

The applicants therefore sought extensions of time and argued that new OEM contracts, available funds and viable future businesses justified rescission. The applications were opposed by HMRC, the liquidators and alleged creditors. The central issues were whether time should be extended and, if so, whether the circumstances were exceptional and sufficiently demonstrated the companies’ solvency and proper commercial basis for rescission.

1. Extensions of time. The applications were nearly four months late and three and a half months late respectively. Applying Sayers v Clarke Walker [2002] 1 WLR 3095, the checklist in CPR rule 3.9 was applicable by analogy through rule 7.51 of the Insolvency Rules 1986. The delay was intentional, lacked a good explanation and created continuing uncertainty for creditors and liquidators. The extensions were refused.
2. Rescission principles. Under rule 7.47(1), rescission is discretionary and must be exercised cautiously. The applicant bears the burden of showing exceptional circumstances involving a material difference from those before the court that made the winding-up order. New evidence may be relevant, but the court must consider why it was not produced earlier.
3. Where rescission would dismiss the petition and allow the company to trade, the court should generally be satisfied that the petition debt and relevant costs are paid or secured; the application is candid and contains all material facts; the company’s affairs do not require investigation; its trading has been fair and above board; and there is no other cogent reason against rescission.
4. The new OEM contracts did not create the required exceptional change. The contracts were not produced, neither applicant was directly entitled to their proceeds, and the evidence did not establish adequate working capital, continuing liquidity or funding for the hybrid-taxi project. The court also found material omissions, inconsistent evidence and transactions requiring investigation. The genuinely disputed debts of the Triomphe Parties and SMP were not taken into account in assessing solvency, but the undisputed financial position was still inadequate.
5. The applicants had not provided sufficient security for the liquidators’ costs, and the evidence raised serious doubts about the commercial purpose of reinstating the companies. The applications were dismissed.