London Capital & Finance Plc v London Capital Marketing Ltd

On a winding-up petition, the court must determine whether the alleged debt is genuinely disputed on substantial grounds. The procedure is not a substitute for a trial, but the court may test whether the asserted dispute is credible on the evidence. Where documentary evidence is unavailable, allowance depends on its relevance to the particular dispute. A director may be expected to identify relevant documents, explain their absence and provide information within his knowledge. Bare assertions, unexplained changes of case and statements that payments are only “likely” to have a particular character may fail to establish a genuine dispute, especially for substantial or unusual payments. Small accounting discrepancies and modest expense claims may, however, require detailed investigation and remain unsuitable for determination on a winding-up petition.

London Capital & Finance Plc, in administration, petitioned to wind up London Capital Marketing Limited for unpaid loans totalling approximately £918,000. LCM accepted receipt of the payments but contended that they represented repayment of a bridging loan, commission, management charges or reimbursable expenses under contractual arrangements.

The claim was reduced after LCF accepted repayment of £500,000 and accepted that some smaller payments were genuinely disputed. The central issue was whether the remaining payments were genuinely disputed on substantial grounds, so that LCF lacked standing to present the petition, or whether a winding-up order should be made.

1. Applicable test. The court applied the established genuine and substantial dispute test referred to in Re a Company (No. 0012209 of 1991) [1992] 1 WLR 351 and Angel Group v British Gas Trading Ltd [2012] EWHC 2702; [2013] B.C.C. 265. The petition procedure must not become a mini-trial.
2. LCM’s inability to access books and records was relevant only to the extent that it related to the particular dispute. It was insufficient simply to assert a need for disclosure. As sole director, Mr Thomson would ordinarily be expected to identify relevant documents or categories of documents, explain where they were kept and account for his inability to produce them. The court was more cautious about requiring evidence from employees or third parties.
3. The unpaid balance of the £500,000 payment was not genuinely disputed. LCM’s solicitors had initially advanced one explanation, while Mr Thomson later advanced a materially different explanation without accounting for the change or explaining the alleged management charge. The evidence did not satisfy even the relatively low threshold of a genuine and substantial dispute.
4. The two £25,000 payments were also not genuinely disputed. Mr Thomson provided only a bare assertion that they were likely fees under the contractual arrangement, without identifying the fee agreement or explaining why payments of that size were due. By contrast, six smaller payments said to be reimbursable expenses involved a specific contractual clause and evidence describing the relevant types of expenditure. Those matters descended into detail unsuitable for the petition hearing and were genuinely disputed.
5. The payments labelled management charges, and the £170,000 payment described as “F/FLOW LONDON CAPI MANAGEMENT CHARGE”, were not genuinely disputed. The evidence did not identify any agreement, request, invoice or other explanation supporting their alleged contractual character. The unexplained evidence was inadequate for substantial payments known to the sole director.
6. Challenges based on apparent smaller overpayments involved micro-litigation and were unsuitable for determining the existence of a disputed debt. The court concluded that LCF was a creditor for at least £386,588.82 and that LCM was unable to pay its debts as they fell due. A compulsory winding-up order was made, including dismissal of the extant validation application.