Diamond Hangar Ltd & Anor v Abacus Lighting Ltd & Anor

The power to rescind a winding-up order is discretionary and should be exercised cautiously only in exceptional circumstances involving a material change from those before the original court. The court must be satisfied that the company can pay its debts as they fall due, that the application is not misleading, that all material facts are disclosed, and that its trading operations do not require investigation. Continued financial support from a third party may establish commercial solvency where the support is sufficiently reliable. The views of creditors are relevant, particularly where most creditors support rescission and an opposing creditor has a distinct commercial interest. Rescission may be made conditional on safeguards addressing future management and funding.

Abacus Lighting Ltd presented a winding-up petition against Diamond Hangar Ltd based on an unpaid invoice. The petition was heard on 4 December 2018, when a winding-up order was made. Diamond and Michael Patrick Foley, a creditor, applied under rule 12.59 of the Insolvency (England and Wales) Rules 2016 for rescission of that order and dismissal of the petition.

The application was opposed by Stansted Airport Ltd and Manchester Airport Group plc, principally because of doubts concerning Diamond’s financial records, management, lease breaches and future solvency. The central issues were whether there had been a material change in circumstances, whether the case was exceptional, whether Diamond could pay its debts as they fell due, and whether its affairs required investigation.

1. Rescission principles. The court adopted the principles summarised in Credit Lucky Ltd v National Crime Agency [2014] EWHC 83 (Ch), drawn from Re Metrocab Ltd [2010] B.P.I.R. 1368. Rescission is discretionary and cautious. The applicant bears the burden of showing exceptional circumstances and a material difference from the circumstances before the original court. Relevant considerations include payment of creditors and liquidator’s costs, commercial solvency, full and accurate disclosure, and whether the company’s affairs require investigation.
2. Solvency. The relevant question was whether Diamond could pay its debts as they fell due, rather than whether it was balance-sheet solvent. Following Re a Company (No. 006794 of 1983) [1986] BCLC 261, the court held that a company may be commercially solvent even where it can pay its debts only with the assistance of loans from others. Mr Eze’s substantial financial support, the funds held by solicitors and his undertaking not to seek repayment ahead of unsecured creditors established sufficient continuing support.
3. Creditors and management. The views of creditors were material. Most creditors supported or did not oppose rescission, while the MAG companies had a separate landlord’s interest in recovering the hangar. That distinction justified giving greater weight to the views of the general body of creditors. Diamond’s management failures and inaccurate evidence were serious, but the court was ultimately satisfied that the position had been clarified and that no liquidator’s investigation was required. The breach of Mr Villis’s disqualification order was a matter for the relevant authorities.
4. Outcome and safeguards. The new evidence concerning Diamond’s finances and management constituted a material change and made this an exceptional case. The winding-up order of 4 December 2018 was rescinded and the petition dismissed. Rescission was conditional on payment of liabilities, restrictions on repayment of Mr Eze’s loans, and appointment within three months of at least one additional UK-resident director independent of the shareholders and suitably qualified to exercise responsibility for management.