London Borough of Camden & Preston City Council v Saint Benedict’s Land Trust Limited

Payment of a company’s petition debt by a third party can discharge the debt where the payment is authorised by the company and made on its behalf. The payment need not be funded from the company’s own assets.

A payment is not necessarily a disposition of company property under Insolvency Act 1986, section 127, where the funds are provided by a third party and are never at the company’s free disposal. In the absence of supporting creditors, full discharge of the petition debt will ordinarily justify dismissal of the winding-up petition. Suspicion concerning the source of funds, without further enquiry or evidence of illegality, does not by itself justify repayment.

The petitioners presented a winding-up petition concerning the company’s alleged liability for costs and national non-domestic rates. At an earlier hearing, the court found a debt of £46,976.46 and indicated that it was minded to make a winding-up order.

A third party transferred £47,000 through the company’s agent to the petitioners’ solicitors. The petitioners initially received the funds but later returned them after money-laundering concerns arose. They argued that the payment was void under section 127 of the Insolvency Act 1986, or that they were not obliged to accept a third-party payment. The central issues were whether the payment discharged the petition debt and whether the petition should be dismissed.

1. The winding-up petition was dismissed. The £47,000 payment discharged the petition debt, and no supporting creditors were present.
2. Section 127 of the Insolvency Act 1986 requires caution where a company pays a creditor after presentation of a winding-up petition. However, where the petition is heard without supporting creditors and the debt has been fully discharged, dismissal ends the prospect of winding up the company on that petition. The Insolvency Rules 1986 provided no contrary rule.
3. The payment was not a disposition of the company’s property. Although dispositions can include payments, the property must be vested in, or otherwise available to, the company for payment of its general indebtedness. The funds were provided by Norseman, transferred through Harrison Carter, and restricted to payment of the petition debt. They were never at the company’s free disposal.
4. The principle in Smith (a bankrupt) v Ian Simpson & Company (A Firm) [2001] Ch 239 was not applicable in the proposed corporate winding-up context. Its reasoning depended materially on the bankruptcy rules, which differed from the statutory regime for company winding up.
5. Payment by a third party generally discharges a debt where it is made as agent for, and on account of, the debtor with prior authority or subsequent ratification. Harrison Carter’s authorised payment therefore operated as payment by the company.
6. The petitioners had no convincing basis for returning the money. Third-party funding, overseas registration and a small rounding-up payment did not, without further enquiry or evidence of criminal activity, justify rejection of the payment.

The judgment was a first-instance decision on an adjourned winding-up petition. The court had previously given judgment at [2020] EWHC 3738 (Ch), finding the petition debt and indicating that a winding-up order was contemplated.