Integral Law Ltd v Jason

An injunction restraining presentation of a winding-up petition may be granted where the company disputes the petition debt in good faith and on substantial grounds. The threshold is not particularly high, but the court must scrutinise the evidence and assess its credibility. A dispute that has no rational prospect of success, or is supported only by incredible evidence, is insufficient. The Companies Court must avoid allowing insolvency proceedings to become a means of pressuring payment of a genuinely disputed debt. On appeal from an evaluative factual decision, the appellate court must identify a flaw such as a gap in logic, inconsistency or failure to consider a material factor before interfering.

Integral Law Ltd appealed against an order of Deputy ICC Judge Barnett dated 17 January 2020, which dismissed its application to restrain Mr David Israel Jason from presenting a winding-up petition.

The proposed petition concerned alleged arrears of salary. The Company contended that payments made to Mr Jason were a loan, giving rise to a set-off or counter-debt. Mr Jason contended that the payments represented salary arrears, including liabilities transferred from his former employer, ABJ Solicitors, under the Transfer of Undertakings, Protection of Employment Regulations 2006.

The appeal challenged the findings that there had been a relevant business transfer and that the loan account was manifestly incredible.

1. Outcome. The appeal was dismissed. Mr Jason was entitled to serve the statutory demand and to present a winding-up petition based on the debt stated in it.
2. The court will restrain presentation of a winding-up petition where the company disputes the petition debt in good faith and on substantial grounds. The threshold is not particularly high. The court must nevertheless examine the evidence critically, including whether the asserted dispute has a rational prospect of success and whether the evidence supporting it is credible.
3. The Companies Court must not permit a winding-up petition to be used to determine a substantial bona fide dispute, because presentation and advertisement exert pressure materially different from ordinary litigation. That practice must not itself cause injustice, and the court must be alert to attempts to manufacture a dispute by affidavit evidence.
4. The Company’s evidence did not establish an identifiable flaw in the Deputy ICC Judge’s evaluative reasoning. The finding that ABJ’s business had transferred to the Company was open to him on the evidence. Under regulations 3 and 4 of the Transfer of Undertakings, Protection of Employment Regulations 2006, the transfer carried the relevant employment liabilities.
5. The Judge was entitled to find the loan case manifestly incredible. He could rely on the absence of contemporaneous documentary evidence, the accounting treatment of the payments, the payslips, and the fact that the payments corresponded precisely with salary arrears. The Company’s late and unsupported case did not amount to a bona fide dispute on substantial grounds.
6. The appeal court’s task was not to re-evaluate the evidence afresh. It had to determine whether the first-instance evaluative decision was wrong because of an identifiable flaw undermining the cogency of the conclusion. No such flaw was shown.

• High Court (Chancery Division). Deputy ICC Judge Barnett dismissed the Company’s application on 17 January 2020.
• High Court (Chancery Division). Mr Justice Trower dismissed the appeal and confirmed that Mr Jason could present a winding-up petition.