Lacontha Foundation v GBI Investments Ltd

There is no absolute jurisdictional bar to a winding-up petition based on a debt that is bona fide disputed on substantial grounds. The ordinary practice is to dismiss or strike out the petition, but the court retains jurisdiction to determine the dispute or make a winding-up order in exceptional circumstances. Relevant considerations include alternative insolvency, other debts owed to the petitioner, prejudice, adequacy of alternative remedies and the practical benefits of liquidation. An exercised contractual option to transfer identified assets may create a new cause of action despite limitation of the underlying debt. A contractual cap subordinating recovery to ordinary creditors does not prevent insolvency being established.

Lacontha Foundation presented a petition to wind up GBI Investments Ltd under the Insolvency Act 1986. It relied principally on damages for failure to transfer bearer shares under a contractual payment mechanism, and alternatively on an acknowledged debt. The company disputed liability, relying on limitation, invalidity, sham, illegality, lack of authority, abuse of process and arbitration clauses.

The central questions were whether Lacontha was a creditor, whether the company was unable to pay its debts, and whether a winding-up order could properly be made despite any bona fide dispute on substantial grounds.

1. Disputed debt. The ordinary practice is not to use insolvency proceedings as debt-collection machinery where the petition debt is bona fide disputed on substantial grounds. That practice is procedural rather than jurisdictional. The court retains power to determine the dispute and, in exceptional circumstances, to make a winding-up order while leaving issues between the petitioner and the liquidator. The guidance in Re Claybridge Shipping Co SA, [1997] 1 BCLC 572, and Alipour v Ary, [1997] 1 WLR 534, was applicable.
2. Clause 3 of the PPA. The underlying claim was potentially subject to limitation. However, clause 3 gave Lacontha an option to require transfer of identified bearer shares in satisfaction of the payable. Exercising that option created a new right and cause of action. The limitation defence to the damages claim therefore failed.
3. Other defences. The Purchase Agreement transferred Alincon’s claim to Lacontha. The proceedings were authorised. The petition was not an abuse merely because enforcement might also benefit Mr Beran. The Second Alincon Agreement was not a sham because the parties intended the legal relations which it appeared to create. No established issue of illegality arose.
4. Solvency. The company was insolvent under section 123(2) of the Insolvency Act 1986. The contractual cap subordinated Lacontha’s recovery to ordinary creditors but did not alter the insolvency analysis. The company was also unable to pay its debts for the purposes of section 122(1)(f).
5. Disposition. Lacontha was a creditor in respect of the damages claim under clause 3 and the company was insolvent. A winding-up order was made. The same order would have been justified even if the damages debt had been bona fide disputed on substantial grounds, because exceptional circumstances existed, including alternative insolvency, an additional costs claim, absence of adequate prejudice, lack of an adequate remedy and the investigative advantages of liquidation.