Sandelson v Mulville (Rev 3)

A bankruptcy petition may be presented only in respect of a petitioning debt which is a liquidated sum. Contractual obligations to pay and to transfer assets are not automatically dependent. Their relationship is a question of construction, determined from the agreement as a whole, its language, structure, commercial context and purpose. A settlement payment may therefore be an unconditional liquidated debt even where the settlement also requires a later transfer of shares. The court must identify whether the transfer forms the whole or a substantial part of the consideration, and whether the agreement contemplates simultaneous performance. Clear provisions making time essential, requiring payment without set-off, and providing interest or acceleration may support independence. Each agreement must nevertheless be construed on its own terms.

Karen Mulville presented a bankruptcy petition against Jonathan Sandelson for non-payment of £1.25 million due under a settlement deed. A statutory demand had been served and was not set aside. Sandelson applied to strike out the petition, contending that the payment obligation was dependent on Mulville’s later transfer of shares and therefore did not constitute a liquidated petitioning debt.

The central issue was whether the settlement deed required payment and share transfer to occur as dependent obligations, or whether the payment was an unconditional debt capable of supporting the petition under the Insolvency Act 1986.

1. Application dismissed. The debt stated in the petition was a liquidated sum satisfying section 267(2)(b) of the Insolvency Act 1986. The petition was not struck out.
2. The court applied the contractual construction principles stated in Al Sanea v Saad Investments Co Ltd [2012] EWCA Civ 313, with the approach reflected in Arnold v Britton [2015] AC 1619. The parties’ intention was to be determined by asking what a reasonable person, equipped with the relevant background knowledge, would understand the contractual language to mean. The agreement had to be read as a whole, including its natural and ordinary language, related provisions, purpose, known circumstances and commercial common sense.
3. The distinction between dependent and independent promises was relevant but not determinative. Doherty v Fannigan Holdings Ltd [2018] BPIR 1266; [2018] 2 BCLC 623 concerned a share transfer agreement whose structure and commercial context indicated an intended simultaneous exchange. The present settlement deed had a different purpose, context and operative structure, and could not be treated as analogous.
4. The Settlement Sum was payable by a fixed date, time was of the essence, payment was required in full without set-off, and the agreement provided for interest and accelerated payment in specified circumstances. The share transfer followed further conditions and notifications and was not required to occur immediately. Mulville’s resignation, releases and assignment of loan rights were also triggered by payment rather than by share transfer.
5. Construed iteratively against the whole agreement, the payment obligation was unconditional and independent. The transfer of shares was a later tidying-up exercise and did not constitute the whole or a substantial part of the consideration for the settlement.

Order accordingly.