Chetan Khera v Palladian Capital Limited & Anor

A winding-up petition should not be used to determine a substantial bona fide dispute. However, the companies court may critically assess whether an asserted cross-claim is genuine and serious, including by examining contemporaneous documents, the parties’ conduct and unexplained delay.

Bare assertions do not satisfy the minimum evidential threshold. A proposed claim based on a director’s alleged breach requires evidence of breach and loss; it is insufficient that another commercial course might have produced a better result with hindsight. Where the company is insolvent, deadlocked and no longer trading, liquidation may be an appropriate outcome, particularly where an independent liquidator can investigate matters affecting creditors.

The petitioner presented creditor’s winding-up petitions against two companies in respect of director’s loan accounts. One company disputed the debt on the basis of an alleged oral assignment and an asserted overall accounting between the parties. The other relied on a proposed derivative claim alleging that the petitioner had caused two properties to be sold at an undervalue.

The companies were insolvent, one was deadlocked, and the proposed claim had been raised in detail only after the petition was presented. The central questions were whether the alleged assignment or cross-claim created a genuine and substantial dispute exceeding the petition debts, and whether the court should make winding-up orders.

1. Capital. The alleged oral assignment of the petitioner’s director’s loan account did not create a genuine and substantial dispute. The parties had been engaged in a prolonged negotiation intended to resolve all their financial affairs. The documents showed that any willingness to assign the loan was conditional upon resolution of the wider bargain and execution of a written agreement. The evidence of the alleged assignment was vague, unsupported and contradicted by the contemporaneous correspondence. A winding-up order was therefore made against Capital.

2. Applicable principles. A company may ordinarily be allowed to establish a genuine and serious cross-claim exceeding the petition debt in ordinary civil proceedings. The companies court should not conduct a detailed trial of claim and counterclaim. Nevertheless, it may examine the evidence critically, reject inherently implausible or undocumented assertions, and take delay into account when assessing whether the cross-claim is genuine and serious. A winding-up order is a draconian remedy, requiring caution where the dispute remains genuinely uncertain.

3. Penfold. The proposed derivative claim did not meet the threshold. It was raised only belatedly, was inconsistent with the parties’ contemporaneous communications, and lacked expert or other substantial evidence supporting the alleged undervalue. Dara had agreed to the sales in principle and had not taken timely steps to prevent them. The allegation that the petitioner should have delayed the sales required proof of breach and loss; it was insufficient that a different course might have been commercially preferable with hindsight.

4. The court also considered the proposed derivative claim in light of the matters relevant to permission under sections 260–264, and particularly section 263, of the Companies Act 2006. Those matters extend beyond the merits and include the applicant’s good faith and the importance a director acting under section 172 would attach to continuing the claim. There would have been significant obstacles to permission.

5. The alternative argument based on an overall account between the parties was unsupported by evidence and did not displace the immediate debts. Given Penfold’s insolvency, deadlock, lack of trading activity, and the need for independent investigation of transactions affecting creditors, compulsory liquidation was appropriate. Both companies were ordered to be wound up compulsorily.

First-instance decision. No appellate history is stated in the judgment.