Rhinegold Publishing Ltd v Apex Business Development Ltd

Where a settlement agreement requires related companies to make specified payments in return for a creditor refraining from insolvency and recovery proceedings, the payment obligations may be construed as joint and several if that is the natural reading of the words and gives the agreement a coherent commercial operation.

Each company may therefore remain liable for the agreed instalments even after its own original debt has been discharged. That does not necessarily accelerate the whole underlying debt. A creditor seeking a winding-up petition must allow payment of outstanding instalments where the debtor has previously raised a bona fide dispute about its liability.

Rhinegold Publishing Ltd applied to restrain Apex Business Development Ltd from presenting a winding-up petition. Apex relied on a settlement agreement concerning separate debts owed by Rhinegold and its related company, Tannhauser Ltd.

The agreement acknowledged the debts, required specified payments, and restrained Apex from presenting petitions or bringing recovery proceedings while payments were made. Rhinegold argued that it was liable only for its own debt, which had been discharged by appropriation of earlier payments. Apex argued that the agreement created a joint and several obligation, or alternatively that each company had assumed responsibility for the other's debt. The central issue was the true construction of the settlement agreement.

1. Construction of the settlement agreement. The agreement recognised the continuing existence of separate debts. Clauses 2, 6 and 8 contemplated petitions or recovery proceedings against the relevant company in respect of its own debt.
2. The payment obligations in clauses 3 and 4 were nevertheless joint and several. That was the more natural reading of the words used and produced a sensible and coherent agreement. If the obligations were not joint and several, the clauses would impose an unstated and commercially artificial limitation under which each company would pay only while its own debt remained outstanding.
3. Rhinegold was accordingly obliged to meet all instalments required by clause 4, despite the discharge of the debt referred to in the statutory demand served on it. The agreement did not create an immediate obligation to pay the whole of Tannhauser's debt. Rhinegold was liable only for outstanding instalments as they fell due.
4. Apex was not permitted immediately to present a petition based on Tannhauser's debt without giving Rhinegold an opportunity to pay. Until the judgment, there had been a bona fide dispute about Rhinegold's obligations. The failure to pay the instalments could not therefore, hitherto, support an inference of insolvency in the manner considered in Cornhill Insurance plc v Improvement Services Ltd [1990] BCC 44.
5. The court made a declaration that Rhinegold was liable for the instalments and ordered Rhinegold to pay Apex's costs. The judge indicated that, if necessary, he would grant a short injunction to allow Rhinegold an opportunity to pay.