PGH Investments Ltd v Ewing

A winding-up petition based on a disputed debt should be dismissed where the company has genuine and substantial grounds for disputing liability. The court may determine a contractual dispute at the petition stage where the issue is sufficiently straightforward and the necessary evidence is before it.

A guarantee of a conditional payment obligation does not ordinarily create liability where the principal debtor’s obligation never crystallised and there was therefore no default. Under Schedule 10 to the Corporate Insolvency and Governance Act 2020, a company must show a prima facie coronavirus-related financial effect. If that threshold is met, the petitioner must address the statutory counterfactual. A winding-up petition based on an undisputed debt is an abuse for collateral purpose only in exceptional circumstances.

PGH Investments Limited applied to dismiss a winding-up petition presented by Sean Ewing, or alternatively to restrain its advertisement. The petition claimed £825,000 under a share purchase and loan assignment agreement under which Andrew Neate was buyer and the company was guarantor.

The agreement made completion conditional on, among other matters, Neate having the ability to pay by a specified longstop date. It also provided for automatic termination if the conditions were not satisfied, while preserving the guarantee provisions. The issues were whether the company remained liable under the guarantee after termination, whether the coronavirus restriction in Schedule 10 to the Corporate Insolvency and Governance Act 2020 applied, and whether the petition was presented for a collateral purpose.

1. Disposition. The petition was dismissed. The company was not liable for the alleged debt.
2. Construction of the agreement. Properly construed, completion was conditional on satisfaction of the solvency condition. If that condition was not satisfied by the longstop, the agreement automatically terminated. Clauses imposing the sale and purchase obligations did not survive termination. The parties’ description of the agreement and the labels used for them could not determine its meaning. The draft variation and proposed rectification supported the company’s construction.
3. Guarantee. Clause 6 survived termination, but its provisions created different types of guarantee liability. Clause 6.1 was a “see to it” obligation, clause 6.2 a conditional payment obligation, and clause 6.3 an indemnity. Clause 6.2 applied only if the buyer defaulted in payment of the purchase price by the completion date. Once the buyer’s conditional obligation had ceased on automatic termination, there was no default and no liability under the guarantee. Clauses 6.4 and 6.5 regulated existing liabilities; they did not enlarge the liability created by clause 6.2. The contrary construction would give the petitioner the purchase price without a corresponding obligation to transfer the shares and loan.
4. Coronavirus test. The company had to establish a prima facie case that coronavirus had a financial effect on it before presentation of the petition. An indirect effect could suffice, including inability to perform the primary obligation leading to a liability which would otherwise not have arisen. The company’s unsupported evidence did not establish that the pandemic caused the inability to secure funding. The statutory restriction therefore did not apply. Alternatively, the fact that the alleged debt arose after the pandemic began did not establish that the company would have incurred and been unable to pay it absent the pandemic.
5. Collateral purpose. If the company had been liable, the petition would not have been dismissed for collateral purpose. The petitioner genuinely sought a winding-up order and was acting in the interests of the relevant creditor class.