Just Trays Limited v EMU Products Limited

The court may restrain presentation of a winding-up petition where the petition debt is disputed on substantial grounds or a genuine cross-claim may extinguish or reduce it below the statutory threshold.

The applicable threshold is analogous to summary judgment: the applicant must show a real prospect of successfully defending the alleged debt or advancing the cross-claim. A genuine triable issue must be real rather than fanciful. The court may reject evidence that is inherently implausible, contradicted or unsupported by contemporaneous documents.

The court may consider any legally and evidentially arguable basis bearing on liability or quantum. A cross-claim based on breaches of directors’ duties, secret profits, misuse of confidential information, conspiracy, intellectual property, or defective goods may justify restraint where it realistically appears capable of extinguishing the petition debt.

Just Trays Limited applied for an injunction restraining EMU Products Limited from presenting a creditor’s winding-up petition. The application arose from unpaid invoices totalling £938,086.69, following EMU’s supply of substrate powder and resin used in the manufacture of shower trays.

Just Trays disputed the existence and legal basis of the alleged contract and advanced cross-claims concerning the conduct of its managing director, Paul Haigh, who was also a director of EMU. The claims included breach of directors’ duties, secret profits, misuse of confidential information, exploitation of corporate opportunities, conspiracy, intellectual property rights and defective goods.

The central question was whether Just Trays had a real prospect of successfully defending the alleged debt or establishing cross-claims likely to extinguish it.

1. Application granted. The presentation of a winding-up petition was restrained because the alleged debt was genuinely disputed and the applicant had realistic cross-claims which might extinguish it.

2. The relevant test was essentially the summary-judgment test. The applicant had to show a real prospect of successfully defending the claim or establishing a cross-claim. The issue had to be a genuine triable issue, rather than a frivolous or fanciful case. Evidence could be rejected where it was inherently implausible, contradicted or unsupported by documents, applying Ashworth v Newnote [2007] EWCA Civ 793.

3. There was a triable issue as to whether any concluded contract existed between Just Trays and EMU. The circumstances of supply were opaque, and the evidence did not establish that EMU had no real prospect of defending the contractual challenge. Restitutionary remedies might also present difficulties if Haigh was found to have acted in breach of duty.

4. There was a real prospect of establishing that Haigh breached section 177 of the Companies Act 2006. References in accounts to a common director and related-party purchases did not necessarily declare the nature and extent of his interest, nor establish that the declaration was made before the transactions. There was also a triable issue as to whether the work undertaken through EMU should instead have been carried out for Just Trays.

5. The evidence supported arguable claims concerning secret profits, misuse of confidential information, corporate opportunities and conspiracy. There was also an arguable claim under section 14 of the Sale of Goods Act 1979 if a direct contract existed and the early lightweight powder was defective.

6. The likely damages could exceed the petition debt. Potential recovery included profits, losses caused by defective powder, misuse of confidential information and third-party sales. Any reduction in an account or repayment under the rule in Boardman v Phipps [1967] 2 AC 46 would require an account and inquiry.

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