Electrosteel Castings (UK) Ltd v Metalpol Ltd

A winding-up petition should be restrained where the company has a genuine and serious cross-claim which exceeds the petitioning creditor’s debt. The court does not ordinarily assess the ultimate prospects of success, but the claim must be realistic rather than speculative. A contingent liability may be included where it represents a genuine cross-claim. Claims against a dishonest assistant must relate to loss suffered by the claimant or profit made by the assistant; a profit made by the fiduciary is insufficient. Claims for management time require sufficiently certain proof of diverted staff time and significant business disruption.

Electrosteel applied to restrain Metalpol from presenting a winding-up petition for an admitted debt of approximately £241,088. Electrosteel relied on alleged cross-claims arising from breaches of fiduciary duty, dishonest assistance, conspiracy, breach of contract, overcharging, defective goods, a guarantee, salary and travel expenses, and management time.

The court considered whether the alleged claims were genuine and serious, whether they had realistic prospects of success, and whether their aggregate value exceeded Metalpol’s debt. An interim injunction had previously been granted by Judge Raeside QC.

1. Applicable approach. The court’s discretion to restrain presentation of a winding-up petition may be exercised where the cross-claim is genuine and serious, the company has been unable to litigate it, and the cross-claim exceeds the petitioner’s debt. A bona fide dispute on substantial grounds is, for practical purposes, synonymous with a real rather than frivolous dispute. Once substantial grounds advanced honestly are shown, the court should not investigate the parties’ ultimate prospects of success.
2. Claims against Metalpol. There were realistic claims based on dishonest assistance and conspiracy. The documents provided a sufficient basis for arguing that Mr Radford had concealed his interest in Metalpol and that Metalpol had assisted breaches of fiduciary duty. The extent of Mr Radford’s control and Mr Thornton’s knowledge required trial. The claim for defective flanges, the claim for secret commissions, and the claim concerning the guarantee were genuine cross-claims. The contingent guarantee liability could be taken into account.
3. Claims not realistically established. The claim for Mr Radford’s salary and expenses could not be maintained against Metalpol on the basis that it was not a profit made by Metalpol or a loss suffered by Electrosteel. The trading claims were speculative because there was insufficient direct evidence of influence, inadequate price comparisons, and unsatisfactory evidence concerning bespoke items and margins. The management-time claim lacked sufficient detail and did not establish the diversion of staff time or significant disruption to the business.
4. Remedies and outcome. Equitable remedies for breach of fiduciary duty may be alternative rather than cumulative, requiring election when judgment is given. The application to continue the injunction was refused because the genuine cross-claims did not approach Metalpol’s debt. The interim injunction was therefore not continued.

The proceedings were commenced on 19 March 2014. Judge Raeside QC granted an interim injunction on 21 March 2014. The High Court (Chancery Division) subsequently refused the application to continue the injunction.