Funky Brownz 2 Ltd v Vithlani

On an application to restrain presentation of a winding-up petition, the applicant company bears the burden of raising a valid defence to the alleged debt. The threshold is low because the Companies Court should not determine a genuinely substantial dispute as a debt-collecting tribunal. However, the threshold remains a real one. Unsupported assertions, inconsistent evidence and the absence of relevant accounting or management records may be insufficient to justify an injunction. The court may also consider the adequacy of evidence supporting any cross-undertaking in damages and the wider protective function of the winding-up process.

Funky Brownz 2 Ltd applied to restrain Jitesh Vithlani from presenting a winding-up petition based on debts said to arise from payments made to or for the company. The application followed an earlier hearing before Birss J, when directions were given for further evidence. The alleged debts included a £25,000 payment into the company’s bank account and a payment of £12,455.70 to Computer Modules. The central issue was whether the company had produced sufficient evidence to establish a valid defence warranting interlocutory intervention.

1. Application dismissed. The company had not met the threshold for an injunction restraining presentation of the winding-up petition.
2. The applicant bears the burden of raising the wind for a valid defence. Although the threshold for defeating a petition is relatively low, the Companies Court is not a debt-collecting agency and should not adjudicate a genuinely substantive dispute in petition proceedings.
3. The evidence concerning the alleged debts was imprecise and thin. There was documentary evidence that £25,000 had been transferred from the respondent’s account to the company. The company provided no evidence showing what happened to the money. The unsupported assertion that it was transferred onwards through the company was weakened by the evidence that the supposed recipient companies had never traded.
4. The respondent’s payment of £12,455.70 to Computer Modules was established, but the company had not produced adequate evidence demonstrating that the payment was unauthorised or did not give rise to an obligation owed to the respondent. Relevant accounting records could reasonably have been obtained.
5. The deficiencies in the company’s evidence, including inconsistencies in its director’s witness statement and the absence of accounting, management or other financial records showing the company’s trading position, meant that the threshold had not been met. The evidence supporting the cross-undertaking in damages was also unsatisfactory.
6. The court noted that presentation of a winding-up petition is a class remedy which may protect creditors because, if a winding-up order is made, dispositions of company property after presentation may be void unless validated. The judge nevertheless left open the possibility of a short period for the parties to review the accounts and seek an accommodation.

The application had previously been before Birss J on 17 October 2017. The matter was adjourned for exchange of evidence and then determined at first instance by Hildyard J.