Morrison Water Services Limited v William David Browning

A winding-up petition should not be used to determine a genuinely disputed debt. The company need only show a dispute raised in good faith and on substantial grounds. The threshold is low and may be met even where a defence might appear shadowy on a summary judgment application.

The Companies Court may examine the evidence in detail, but must avoid allowing insolvency proceedings to impose improper pressure to pay. A settlement agreement may provide substantial grounds for disputing employment-related claims which it waives or settles. Tax claims directed to alleged payroll errors may be matters between the claimant and HMRC rather than suitable insolvency claims.

Morrison Water Services Limited applied under rule 7.24 of the Insolvency (England and Wales) Rules 2016 to restrain William David Browning from presenting a winding-up petition.

Mr Browning relied on a statutory demand claiming bonus, expenses, mileage and tax-related sums. Morrison disputed the debt, relying principally on a settlement agreement containing full and final settlement and waiver provisions. Mr Browning accepted that he was bound by the agreement, but contended that the claims remained payable.

The central issue was whether the petition debt was disputed on bona fide and substantial grounds and was therefore unsuitable for determination through winding-up proceedings.

1. Application granted. Mr Browning was restrained indefinitely from applying to wind up Morrison Water Services Limited. He was ordered to pay costs of £2,550 within 28 days.
2. The court applied the principles summarised in Angel Group v British Gas [2012] EWHC 2702 (Ch). A winding-up petition may be challenged where the company raises in good faith a substantial dispute as to the petition debt. The dispute need not be likely to succeed. The threshold is low, as confirmed in Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA Civ 443.
3. The court could not resolve on the limited evidence whether the originally discretionary bonus scheme had become contractual through custom and practice. That issue did not need to be determined. The settlement agreement governed the parties’ position and clause 7.6 waived any further claim to bonus or other employment-related payment. At minimum, the bonus claim was disputed on substantial grounds.
4. The same conclusion applied to expenses and mileage. Clause 7.1 provided full and final settlement of claims arising from employment or its termination, while clause 2.5 addressed the car allowance. The tax claims were also substantially disputed and were not proper matters for the winding-up jurisdiction, since they were matters between Mr Browning and HMRC.
5. The court was satisfied that Morrison was not shown to be unable to pay its debts and that the totality of the petition debt was disputed on bona fide and substantial grounds. As explained in Breyer Group Ltd v RBK Engineering Ltd [2017] EWHC 1206 (Ch), winding-up proceedings are unsuitable for resolving genuinely disputed debt claims and may cause commercial oppression through the pressure of advertising a petition.
6. Without-prejudice correspondence was inadmissible. The rule protects genuine settlement negotiations and applies whether or not the correspondence is marked “without prejudice”, as explained in Rush & Tompkins Ltd v GLC [1989] AC 1280.
7. Under CPR Part 44 and rule 44.2, the general rule was that the unsuccessful party should pay the successful party’s costs. The contractual indemnity in clause 8.2 did not prevent a costs order in circumstances involving abuse of the court’s process, consistent with Mann v Goldstein [1968] 1 WLR 1091.