Liberty Commodities Ltd v Citibank NA London & Ors

The court considered whether, when an original petitioner seeks to withdraw or dismiss a winding-up petition, a supporting creditor should be substituted immediately as petitioner (the "Substitution First, Standing Later" practice) or whether the court must first determine whether the substituting creditor has standing to present the petition (the "Standing First, Substitution Later" approach). The judgment analyses Rule 7.17 of the Insolvency (England & Wales) Rules 2016 and relevant provisions of the Insolvency Act 1986 (notably sections 122 and 123) and reviews authority and practice from England, Bermuda and Australia.

The court held that the established and pragmatic practice in England and Wales is generally to permit substitution first and determine disputes about standing at the adjourned substantive hearing, but that a debtor company should promptly and cogently protest at the time of the substitution application if it contends the substituting creditor lacks standing. Applying those principles, the court ordered substitution in favour of NPS (NPS (40GP) Limited) and directed consequential orders for amendment, re-service and re-verification; it found that Liberty Commodities Ltd had not raised a cogent dispute as to NPS's claim. It also found that there was a potentially genuine and substantial dispute in relation to White Oak's claim which required time and evidence to resolve; White Oak subsequently withdrew its application for substitution.

Background and parties: Citibank, as petitioner (in its capacity as Note Trustee), presented winding-up petitions in March 2021 against three related companies including Liberty Commodities Ltd (LCL). Statutory restrictions imposed by the Corporate Governance and Insolvency Act 2020 (Schedule 10) affected petition advertising and the relation-back date for winding-up orders. Two creditors, White Oak and NPS, lodged notices of intention to support the petition against LCL.

Nature of the application: The Petitioner sought dismissal of the petition against LCL following a confidential settlement with certain parties. White Oak and NPS applied to be substituted as petitioners. LCL opposed substitution and contended that both substitute applicants lacked standing or that there were genuine and substantial disputes about the debts claimed.

Issues framed:

• Whether, under Rule 7.17 of the Insolvency Rules and established practice, the court should order substitution before resolving disputes about a substituting creditor's standing (the Substitution First, Standing Later practice) or should first determine standing;
• Whether LCL had raised genuine and substantial disputes as to the debts claimed by White Oak and NPS;
• The appropriate procedural directions if substitution were permitted.

Court's reasoning: The court reviewed Rule 7.17 and authorities from England, Bermuda and Australia. It identified a clear policy that petitions should be prosecuted and noted long-standing English practice of ordering substitution and then giving directions for evidence to resolve standing disputes at the adjourned hearing. The judgment recognised that in some jurisdictions and cases (notably certain Australian authorities) a court will not substitute where a creditor's debt is disputed on substantial grounds, but the English practice is pragmatic because substitution applications are often made orally and without evidence at busy courts. The court emphasised that a debtor company must object at the time of substitution and give cogent reasons for disputing standing to ensure that appropriate directions are given.

Decision: On the facts, the court found that LCL had established a potentially genuine dispute as to White Oak's claimed receivables which required further evidence and time to determine; by contrast, LCL had not raised a cogent dispute as to NPS's claim under the lease. Exercising its discretion, the court ordered substitution in favour of NPS and consequential orders for amendment, re-service and re-verification. The judgment records that White Oak later withdrew its substitution application.

Wider comment: The court affirmed the pragmatic English procedural approach of Substitution First, Standing Later while acknowledging situations in which standing should be tested earlier; it stressed the need for timely objections and cogent grounds where standing is disputed.

This was a first-instance disposal. The court ordered substitution in favour of NPS (NPS (40GP) Limited), with consequential orders for amendment, re-service and re-verification, because Liberty Commodities Ltd had not raised a cogent dispute about the NPS claim. The court found that Liberty had raised a potentially genuine and substantial dispute as to White Oak's claim that required evidence and time to resolve; White Oak subsequently withdrew its substitution application. The judgment endorses the usual English practice of permitting substitution first and determining standing at the adjourned hearing, while recognising circumstances in which standing may need earlier determination.