In the matter of Swindon Town Football Company Limited: AC Sports Wiltshire LLC v Swindon Town Football Company Limited

A winding-up petition should be dismissed where the petition debt is disputed on grounds having a real prospect of success. The test is the same as for summary judgment: the prospect must be realistic, carry some degree of conviction and be more than fanciful or merely arguable. Bare assertions and fishing expeditions are insufficient, but the court may examine evidence in detail where necessary. A petition based on an undisputed debt may constitute an abuse only where it is used to secure collateral pressure, or where the petitioner is not acting in the interests of the general body of creditors. A written loan is not a sham merely because the funds were used in breach of a covenant or later became subject to an oral arrangement affecting repayment.

AC Sports Wiltshire LLC petitioned to wind up Swindon Town Football Company Limited for non-payment of a £100,000 loan, contractual interest and a later costs debt. The Company disputed the debt, alleging that the loan agreement was a sham or had been varied so that the payment was a non-refundable deposit, and contended that the petition was an abuse of process because it pursued an improper acquisition-related motive.

The court considered whether the alleged disputes had a real prospect of success and whether the petitioner had established an improper purpose warranting dismissal of the petition.

1. Improper motive. A petition founded on an undisputed debt is abusive only where the petitioner does not genuinely seek liquidation but uses the proceedings to exert collateral pressure, or where it is not acting in the interests of the general body of creditors. Neither limb was established. The evidence relied on was contextual, thin and speculative.
2. Sham. Applying the approach in Snook v London and West Riding Investments Ltd and Hitch v Stone, a sham required a common intention to create the appearance of legal rights and obligations different from those truly intended. The evidence did not establish that intention. Execution in counterparts, the short delay before payment, payment through an alleged agent and delayed demand did not materially undermine the loan.
3. The payment to a creditor in breach of the loan’s use restrictions was a covenant breach, but did not alter the fundamental nature of the transaction. The lender had not relied on the breach, and the evidence concerning the circular funding arrangement was accepted.
4. The Company nevertheless had a substantial dispute about whether the treatment of the £100,000 changed after February 2020. The oral agreement, references to a deposit, inconsistencies in the petitioner’s evidence, incomplete petition particulars and uncertainty about interest created a realistic prospect that further evidence could show that the repayment obligation had been altered or suspended.
5. The winding-up jurisdiction was summary. The court could not grant conditional leave to defend as on a summary judgment application. By a narrow margin, the debt was capable of being disputed on grounds that were not fanciful but sufficiently substantial. The petition was dismissed.