Swindon Town Football Co Ltd v Diamandis

A company should not be wound up on a petition founded on a debt where there is a bona fide dispute on substantial grounds as to whether the company owes it. That includes uncertainty whether liability lies with the company, a holding company, or another person. Where a debt was originally owed to another company, a petitioner relying on novation or transfer must establish that change; deficiencies in the company’s evidence do not remove a dispute fit for trial. A debtor’s appropriation of a repayment to a particular debt cannot be overridden by the creditor, and a payment made before another debt arose cannot be appropriated to that later debt.

The appellant company appealed from Peter Smith J’s decision of 19 July 2010. The judge dismissed its application to restrain a winding-up petition presented by the respondent and additionally ordered that the petition be struck out.

The petition relied on alleged unpaid management fees, trade debts originally owed to Dunwoody Marketing Communications Ltd, and personal loans. The appeal concerned whether the company had raised a bona fide dispute as to its liability for the management fees and trade debts, and whether a payment of £59,905 had been appropriated to the loan or to the trade debts.

The appeal was allowed.

1. Management fees. The evidence did not establish that the company was unquestionably liable for the claimed fees. Although the share purchase agreement provided significant evidence that the company owed money to the respondent, the respondent was not a party to it. Other documents and evidence indicated that the agreement may instead have been with the Wills family or a holding company. The sums might be owed, but it was unclear to whom. That provided a bona fide basis for disputing the company’s liability and made summary relief inappropriate.
2. Trade debts. The debts for services were originally owed to Dunwoody. The respondent therefore had to establish that their benefit had been transferred to him by novation or equivalent agreement. The evidence relied on did not establish that transfer. The claim was arguable, but the issue was fit for trial and could not properly support winding-up proceedings without an opportunity for a full trial.
3. Appropriation. The alleged appropriation of the payment to the trade debts would have occurred before those debts arose. That was fatal to the respondent’s argument. In any event, the company’s email indicated that it had appropriated the payment towards the £60,000 loan. Once the debtor had made that appropriation, the creditor could not override it.
4. The court noted the established law and the observations referred to in Parmalat Capital Finance Ltd v Food Holdings Ltd (in liquidation) [2008] BPIR 641 (PC). It also considered Datasat Communications Ltd & Ors v Swindon Town Football Club Ltd [2009] EWHC 859 Com; that decision was not conclusive but cast doubt on whether the liability lay with the company. Lord Justice Sedley and Lord Justice Toulson agreed with Lord Neuberger MR. The formal order was: appeal allowed.

• Court of Appeal (Civil Division) — [2011] EWCA Civ 84, 17 January 2011: allowed the company’s appeal.
• Chancery Division (Companies Court) — Peter Smith J, 19 July 2010: dismissed the company’s application to restrain the winding-up petition and ordered that the petition be struck out.