Hex Technologies Limited & Ors v DCBX Limited

A winding-up petition may be pursued where the petition debt is not bona fide disputed on substantial grounds. The Companies Court may examine the evidence in detail and need not dismiss the petition merely because the company asserts solvency or identifies contractual disputes. An exclusive jurisdiction clause does not, by itself, prevent the Companies Court from deciding whether the debt is genuinely and substantially disputed. A first-instance judge was bound by BST Properties, notwithstanding the later reasoning in Salford Estates and a contrary first-instance decision. Contractual payment obligations are not frustrated merely because a third party has failed to pay, where the contract makes the company’s obligation unconditional.

Three companies presented a winding-up petition against DCBX Limited under section 122(1)(f) of the Insolvency Act 1986 for unpaid fees arising under software, custody and related service agreements. The company opposed the petition on grounds including the temporary coronavirus restrictions, asserted solvency, forum, bona fide dispute, frustration, termination, abuse of process and improper motive.

The agreements contained different governing-law and jurisdiction provisions, including an exclusive Singapore jurisdiction clause in the Software License Agreement and provisions referring to Hong Kong jurisdiction in the custody agreements. The central issues were whether the debts were genuinely disputed on substantial grounds, whether the jurisdiction clauses prevented the Companies Court from determining that question, and whether the company’s contractual obligations had been frustrated or terminated.

1. Winding-up order. The petition was well founded. At least USD 101,447.36, and in any event more than the applicable £10,000 threshold, was indisputably due under the Software License Agreement, Company Custodian Agreement and Client Custodian Agreements.
2. Statutory restrictions. The current version of Schedule 10 to the Corporate Insolvency and Governance Act 2020 did not preserve the earlier coronavirus restrictions for historic debts. Parliament had made only the specified provision for excluded rent debts. The petition therefore was not barred merely because some debts arose during the earlier restriction period.
3. Solvency and disputed debt. Winding-up proceedings are a class remedy, not a debt-enforcement mechanism. However, failure to pay a debt above the statutory threshold which is not disputed in good faith and on substantial grounds is evidence of inability to pay debts. The company’s bare assertions, support letters and incomplete financial material did not establish solvency. A dispute must have a rational prospect of success; a mere cloud of objections is insufficient.
4. Jurisdiction clauses. The separate agreements were standalone contracts, not one overarching agreement. Each had its own entire-agreement and jurisdiction provisions. The word “exclusive” in clause 25 of the Client Custodian Agreements was an obvious drafting error because the clause also preserved proceedings before another competent court. It therefore provided for non-exclusive Hong Kong jurisdiction.
5. Exclusive jurisdiction and insolvency proceedings. Following BST Properties, the court was bound to determine whether the petition debts were bona fide disputed on substantial grounds despite the exclusive Singapore jurisdiction clause. Salford Estates was distinguishable because it rested on the legislative policy of the Arbitration Act 1996, for which there was no equivalent policy concerning exclusive jurisdiction clauses. Al Saad, being a first-instance decision, was not binding.
6. Frustration and termination. The failure of SGH or other clients to pay did not frustrate the agreements. The Client Custodian Agreements made the company unconditionally liable to pay the fees on behalf of the clients. The company had not validly terminated the agreements, and there was no basis for implying a right to give verbal notice. The petitioners were entitled to elect to continue the contracts after the company’s repudiatory breach.
7. The petition was neither an abuse of process nor improper because of the alleged motive of the petitioners. The petitioners’ costs were left for argument at hand-down.