Just Trays Limited v EMU Products Limited

The court considered an application for an injunction to restrain presentation of a creditor's winding up petition under the court's inherent jurisdiction and rule 7.24 of the Insolvency (England and Wales) Rules 2016. The central legal principle applied was that a petition will be restrained where the petition debt is disputed on substantial grounds or where a genuine cross-claim would extinguish or reduce the debt below the statutory threshold; the test is whether there is a real prospect of success on the defence or cross-claim (analogous to the summary judgment test).

The judge found multiple genuine triable issues: whether a contract between the parties was properly established; whether the Applicant owned intellectual property in a lightweight substrate powder and whether the Respondent sold that powder to third parties; whether the managing director of the Applicant, Mr Haigh, had failed to declare his interest under section 177 of the Companies Act 2006 and had made secret profits; and whether cross-claims (including for secret profits, misuse of confidential information, conspiracy and claims under section 14 of the Sale of Goods Act 1979 in respect of defective powder) would extinguish the debt. The judge concluded there was a real prospect that damages or an account would exceed the petition debt and therefore granted the injunction restraining presentation of the winding up petition.

This first instance application concerned an injunction sought by Just Trays Limited (the Applicant) to restrain EMU Products Limited (the Respondent) from presenting a creditor's winding up petition. The Respondent had served a statutory demand claiming unpaid invoices totalling £938,086.69 for materials (substrate powder and resin) supplied to the Applicant. The Applicant disputed liability and alleged that the Respondent had been inserted into the Applicant's supply chain by the Applicant's managing director, Mr Paul Haigh, to generate secret profits and to exploit the Applicant's confidential information and corporate opportunities.

Procedural posture and relief sought: The Applicant applied for injunctive relief under the court's inherent jurisdiction and rule 7.24 of the Insolvency Rules to restrain presentation of the petition, asserting that there were substantial grounds to dispute the debt and that cross-claims would extinguish it.

Issues framed:

• Whether the statutory demand was based on a legal debt supported by an enforceable contract between Applicant and Respondent.
• Whether the Applicant had a realistic claim in relation to intellectual property and sales of a new lightweight substrate powder by the Respondent to third parties.
• Whether Mr Haigh breached fiduciary duties (in particular section 177 of the Companies Act 2006) by failing to declare his interest and whether he made secret profits which could be recovered.
• Whether genuine cross-claims existed (secret profits, misuse of confidential information, corporate opportunities, conspiracy) and whether damages or an account would extinguish the statutory demand debt.
• Whether, if a contract existed, there were arguable Sale of Goods Act 1979 section 14 claims for defective early supplies.

Court's reasoning: The judge applied the familiar test for restraining petitions: there must be a real, triable issue. The evidence disclosed significant factual disputes, including a direct conflict of evidence about whether Mr Haigh had informed the Applicant's director, Mr Norford, of his involvement with the Respondent and of any agreement to use the Respondent as a supplier. Documentary evidence in the bundle did not resolve those disputes and in several respects supported the Applicant's case that Mr Haigh may have earned secret profits and that the Respondent may have marketed the lightweight powder to third parties. The judge found a real prospect that Mr Haigh had not declared the nature and extent of his interest as required by section 177 and that cross-claims and claims for restitution, conspiracy and under the Sale of Goods Act could, following disclosure and trial, extinguish or exceed the debt claimed in the statutory demand. Given those triable issues, an injunction restraining presentation of the petition was granted.

The judgment records that further factual and documentary investigation (including disclosure) and oral evidence would be required to resolve credibility and quantum issues.

The application for an injunction restraining presentation of the winding up petition is granted. The court held that the statutory demand was disputed on substantial grounds and that there were genuine triable cross-claims (including claims in respect of undisclosed director interests under section 177, secret profits, misuse of confidential information, conspiracy, restitution and possible claims under section 14 of the Sale of Goods Act 1979) which could extinguish the debt. These matters raised real prospects of success and therefore justified restraining the petition.