Liberty Commodities Ltd v Citibank NA London & Ors

Under rule 7.17 of the Insolvency (England & Wales) Rules 2016, the court may substitute a supporting creditor as petitioner before finally determining a dispute about that creditor’s standing. The usual practice is therefore substitution first, standing later, where the evidence and hearing time needed to resolve standing are unavailable. The debtor should object at the substitution hearing and give cogent reasons for disputing standing, but failure to do so does not prevent a later challenge. The court must balance the need for a petitioner with standing against the statutory and procedural policy that a winding-up petition should be prosecuted. Where the necessary evidence and time are available, standing may instead be determined before substitution.

Citibank, N.A., London Branch presented petitions to wind up three companies, including Liberty Commodities Ltd. Following settlement, Citibank sought dismissal of the petition against Liberty. White Oak and NPS, who had given notice of intention to support the petition, sought substitution as petitioner. Liberty opposed immediate substitution, arguing that the court should first determine whether each creditor had standing, including whether the claimed debts were genuinely disputed.

The court considered the proper approach under rule 7.17 of the Insolvency (England & Wales) Rules 2016, and whether the established practice of substitution first, with standing determined later, should be maintained.

1. Substitution first, standing later. Rule 7.17 gives the court a discretion, on just terms, to substitute a creditor who in its opinion would have a right to present the petition and wishes to prosecute it. The court may make substitution provisionally and direct that a disputed standing issue be determined later, particularly where the parties have not filed the evidence or secured the hearing time necessary for a proper determination.
2. The practice reflects the policy that a petitioner must prosecute a winding-up petition. If the original petitioner will not prosecute and no supporting creditor is able and willing to be substituted, the petition should be dismissed because there is no basis for the class remedy. Where standing is disputed, the court must balance that policy against the requirement that the substituted creditor ultimately have standing.
3. A debtor company should object when substitution is sought and should provide cogent reasons for challenging standing. Failure to object may mean that no directions are given for resolving the dispute and may cause delay, but it does not exclude a later challenge at the winding-up hearing.
4. The court relied on Perak Pioneer Limited v Petroliam Nasional BHD and others [1986] AC 849 and the approach in Gerova Financial Group Limited [2012] SC (Bda) 18 Com. The Bermudan decision illustrated that provisional substitution is principled and pragmatic where standing cannot conveniently be decided immediately. The present case lacked the evidence and preparation available in Gerova.
5. Liberty raised a cogent dispute concerning the White Oak debt, requiring further time and evidence. It raised no cogent or prima facie dispute concerning the NPS debt. The court therefore ordered substitution in favour of NPS, with amendment, re-service and re-verification. White Oak later withdrew its substitution application for reasons connected with the relation-back provisions introduced by the 2020 legislation, not because of Liberty’s debt arguments.

First-instance decision. The judgment records an earlier preliminary judgment on 7 June 2022, [2022] EWHC 1359 (Ch), which found that winding-up orders were likely and gave directions for the petitions to be heard.