LSI 2013 Ltd v The Solar Panel Company (UK) Ltd

On a winding-up petition, a company’s insolvency does not establish the petitioner’s standing where the petition debt is genuinely disputed on substantial grounds. The court must address the evidence bearing on the alleged debt and any cross-claim. A reference to the petitioner as a contingent creditor in a draft company voluntary arrangement does not, without more, amount to an admission of that status or of the debt. The appeal court may set aside a winding-up order and remit the petition for determination after further evidence.

LSI 2013 Ltd appealed against a winding-up order made by Deputy District Judge Batstone on a petition by The Solar Panel Company (UK) Ltd. The petition claimed an account balance of approximately £266,554. LSI accepted that it was insolvent on a cash-flow basis but disputed liability, the invoiced amounts, payments credited and the petitioner’s standing. It also asserted a substantial cross-claim.

The Deputy District Judge treated the petitioner as a contingent creditor, relying in part on its description in a draft company voluntary arrangement, and made the winding-up order. The central issue was whether that approach avoided the need to determine whether the petition debt was genuinely disputed on substantial grounds.

1. Appeal allowed. The winding-up order was set aside and the petition was remitted to the Bristol District Registry for further evidence and a hearing before a District Judge exercising insolvency jurisdiction.
2. The applicable principle, consistent with Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2012] EWCA Civ 1712, is that where a petition is founded on a debt genuinely disputed on substantial grounds, the petitioner is not a creditor entitled to present and pursue the petition. The court ordinarily determines only whether such a dispute exists, not the underlying dispute itself. The debtor bears the burden of showing a genuine dispute on substantial grounds; a bare allegation is insufficient.
3. The Deputy District Judge erred in treating the petitioning and supporting creditors as contingent creditors. The petition itself was founded on an asserted present debt, not on the contingent claim identified in evidence. The draft CVA did not establish creditor status: it was unsigned, and its terms stated that inclusion in the creditors’ list did not constitute agreement that the stated amount was due.
4. The lower court also failed to consider the detailed evidence challenging the invoices and payments, and the asserted cross-claim. The admission of insolvency therefore did not cure the failure to determine whether the petitioner had standing.
5. Remission was appropriate. The company was restored to the position for which its counsel had argued below, namely an adjournment for further evidence and a hearing on whether the petition debt was genuinely disputed on substantial grounds.

• High Court (Chancery Division): Appeal from the winding-up order allowed. The order was set aside and the petition remitted for further evidence and determination.
• Companies Court, Bristol District Registry: Deputy District Judge Batstone made the winding-up order on 18 July 2013.