Vanessa Tanfield & Anor v Meadowbrook Montessori Ltd

The court granted relief from sanctions under CPR 3.9 and the Denton framework and dismissed a winding up petition presented by the petitioners. The judge held that the bulk of the petition debt (approximately £134,257.75) was genuinely disputed on substantial grounds: the company advanced a strongly arguable case that that sum represented the purchase price for the shares disguised as "rent arrears" rather than genuine rent. The court also found a strongly arguable cross-claim for unlawful forfeiture by physical re-entry on 21 April 2023 because, on the lease construction and the common-law rules, no proper formal demand had been made and any right to forfeit may have been waived by presentation and service of the petition. The company demonstrated a realistically arguable claim to damages (general and potentially exemplary) comfortably exceeding the petition debt, such that a winding up order would be inappropriate.

Background and nature of the application.

The petitioners (landlords) presented a winding up petition against the respondent company on 20 February 2023 in respect of alleged rent arrears under a lease. The company (a private school operator) disputed most of the claimed arrears and applied for relief from sanctions to rely on late evidence. The company also relied on a cross-claim that the petitioners unlawfully forfeited the lease by peaceable re-entry on 21 April 2023, causing the company to cease trading and suffer loss.

Issues before the court.

• whether to grant relief from sanctions under CPR 3.9 applying the Denton three-stage test;
• whether the petition debt was the subject of a bona fide dispute on substantial grounds;
• whether the company had a strongly arguable cross-claim for unlawful forfeiture and associated damages (including exemplary damages); and
• whether, in the exercise of the court's discretion, a winding up order should be made.

Procedural posture. This was a first instance hearing in the Insolvency and Companies List. The petition had been adjourned several times; there were contested factual and legal issues, and the company sought permission to rely on late evidence.

Reasoning and outcome. The court applied the Denton test. Although the company's failure to comply with an earlier order was serious, the judge accepted the company's explanation that, following the petition and an alleged unlawful re-entry, the company had difficulty accessing funds and the director had to raise money privately to instruct solicitors; in all the circumstances relief from sanctions was granted. On the merits, the court found that (i) the company admitted only c.£41,000 of the petition debt and had bona fide substantial grounds to dispute the remainder; (ii) there was a strongly arguable cross-claim that the re-entry was unlawful because the lease did not clearly dispense with the common-law requirement of a formal demand and any right to forfeit may have been waived by presentation of the petition; and (iii) the cross-claim for general damages (loss of term fees, future term fees, rental value and loss/theft of contents) amounted to a realistically arguable claim of at least £546,000, with a possible claim for exemplary damages. Given these factors, the court dismissed the winding up petition, exercising its discretion against making a winding up order.

This first instance court granted relief from sanctions and dismissed the winding up petition. The court concluded that the bulk of the petition debt was bona fide disputed on substantial grounds (including that it may have been a disguised share purchase price) and that the company had a strongly arguable cross-claim for unlawful forfeiture and substantial damages exceeding the petition debt; accordingly the court exercised its discretion to dismiss the petition.