Colt Technology Services v SG Global Group SRL

A winding-up petition should not be used to determine a debt which is bona fide disputed on substantial grounds. The Companies Court is not the appropriate forum where the dispute requires ordinary litigation, factual investigation or cross-examination. A contractual illegality defence may provide substantial grounds even where the alleged illegality arises under foreign law. Under the Ralli Bros principle, the court must identify precisely what acts the contract requires and where they must be performed. Contractual notice provisions cannot exclude that defence. Solvency is relevant where it forms part of the answer that the insolvency jurisdiction is being used improperly, although it is not a defence to an undisputed debt. Presenting a petition to pressure a solvent company to pay a genuinely disputed debt is an abuse of process.

Colt Technology Services sought an injunction restraining SG Global Group SRL from presenting a winding-up petition based on three unpaid invoices for voice trading services. The contractual arrangement was governed by English law and provided for exclusive jurisdiction in England and Wales.

Colt argued that payment would be unlawful under Italian law because SG Global was allegedly involved in a missing-trader VAT fraud. It relied principally on the Ralli Bros principle and alternatively on ex turpi causa. SG Global denied the allegations and contended that the debt was due. The central issues were whether Colt had a properly arguable illegality defence, whether the contract required payment in Italy, whether Colt was solvent, and whether the proposed petition would constitute an abuse of process.

1. Application granted. The presentation of a winding-up petition against Colt would be an abuse of process and SG Global was restrained from presenting one.
2. The relevant question was whether Colt had a bona fide dispute on substantial grounds and a rational prospect of success. The Companies Court is ill-equipped to resolve substantial factual or legal disputes requiring ordinary litigation and cross-examination.
3. On construction of the agreement, clause 4.6 required payment into an account notified by SG Global in accordance with clause 9.1. Pending valid notification, it was implied on grounds of business efficacy and obviousness that payment was to be made at SG Global’s registered office in Rome. The Californian bank details on the invoices did not alter that contractual obligation.
4. The Ralli Bros principle therefore applied to the question whether payment in Italy would be unlawful. Colt bore a heavy burden because it alleged serious fraud, but the evidence disclosed a rational prospect that SG Global and its supplier were buffer companies in a missing-trader VAT fraud. The court did not determine guilt.
5. Colt also had an arguable case that payment could constitute an offence under Italian law. The competing expert evidence on mens rea could not properly be resolved without cross-examination.
6. Clause 4.8 did not exclude the illegality defence. Parties cannot contract out of the effect of the Ralli Bros principle.
7. The alternative ex turpi causa argument was not finally determined. Domestic illegality and foreign illegality rest on different public policy considerations, and the possible future development of a factors-based approach was left open.
8. Colt was solvent for the purposes of the application. Although its balance sheets showed a deficit, most liabilities were intra-group debts which had accumulated over time, and the group had substantial net equity. The proposed petition was intended to pressure Colt into payment while it pursued its Italian appeal.