Go Capital Lted v Phull

On a bankruptcy petition, the court must be satisfied that the petition debt is due. A genuinely disputed debt or genuine triable issue prevents a bankruptcy order. A petition hearing is unsuitable for resolving issues requiring cross-examination or expert evidence. A transaction is not a sham merely because it is artificial or commercially unattractive; evidence must support a common intention to create an apparent but different legal relationship. An individual deed must satisfy the execution and delivery requirements in section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. If those requirements are unmet, and no consideration supports the document as a contract, it does not bind the alleged guarantor.

Go Capital Limited presented a petition seeking the bankruptcy of Jagdeep Singh Phull. The petition debt arose from a document described as a personal guarantee and indemnity deed, under which the respondent was said to be liable for US$75,000 following default in an underlying transaction.

The respondent disputed liability, alleging that the transaction was a sham, that his signature was forged, and that the document was neither a valid deed nor a contract supported by consideration. The central issue was whether the petition debt was sufficiently established for a bankruptcy order.

1. The petition was dismissed. Under section 271(4) of the Insolvency Act 1986, the court had to be satisfied that the petition statements were true and that the debt was payable and unpaid. The applicable test was whether there was a genuine dispute, the same test applying at the statutory-demand, petition and annulment stages, as explained in Guinan III v Caldwell Associates [2004] BPIR 531.
2. The court was not required finally to determine whether the transaction was a sham. A bankruptcy petition hearing is unsuitable for detailed investigation, cross-examination or expert evidence. Artificiality or lack of commercial sense alone was insufficient. The principles in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 and Hitch v Stone (Inspector of Taxes) [2001] EWCA Civ 63 were applied.
3. The respondent’s sworn denial of signing the Guarantee, supported by other evidence and the document’s irregularities, raised a substantial dispute. Expert handwriting evidence would be suitable in a Part 7 claim, with Part 35 of the Civil Procedure Rules 1998 available.
4. The Guarantee was not a deed. It was not witnessed, did not make clear on its face that it was intended to be a deed, and was not delivered as a deed. The requirements of section 1(2) and (3) of the Law of Property (Miscellaneous Provisions) Act 1989 were unmet. The document also failed to bind the respondent as a contract because no consideration was shown.
5. Independently, the evidence did not establish that the underlying payment obligation had been triggered. Insolvency proceedings are collective proceedings for pari passu distribution, not a debt-collection mechanism. Using a bankruptcy petition merely as an enforcement method may expose the petitioner to an adverse indemnity costs order.

First-instance decision. No prior appellate decision is stated in the judgment.