Abbey Court Limited v Sarah Johns

On an application concerning restraint of a winding-up petition, the court determines whether the underlying debt is disputed in good faith and on substantial grounds. It does not finally determine the debt dispute or hear live evidence. A debt supported by invoices for reports allegedly produced under a pseudonym may raise substantial issues of fraudulent misrepresentation or total failure of consideration. Those issues belong to ordinary civil proceedings, not the insolvency jurisdiction. A stale statutory demand may also be unsuitable evidence of insolvency, although that issue need not be decided where the debt is plainly disputed. An order may be varied under Civil Procedure Rules 1998 rule 3.1(7) to reflect a material change of circumstances.

Abbey Court Ltd applied to restrain Sarah Johns from presenting a winding-up petition based on a statutory demand for £9,320 in respect of vehicle inspection reports. HHJ Pearce made the restraining order on 13 January 2023, later sealed on 11 May 2023, in Miss Johns’s absence.

Miss Johns subsequently applied to set that order aside, asserting lack of notice and disputing the debt. Evidence indicated that the reports were produced by another person under the name of Steven Marshall because reports in that person’s true name would not have been accepted by insurers. The central issues were whether the debt was disputed in good faith and on substantial grounds, whether the earlier order should be set aside, and whether the order should be varied following a change in the business’s ownership.

1. The application to set aside HHJ Pearce’s order was dismissed. The order was to remain in force, subject to a limited variation.

2. On an application to restrain presentation of a winding-up petition, and on an application to set aside such an order, the court determines whether the asserted debt is disputed in good faith and on substantial grounds. The issue is not the final determination of the debt. The court proceeds on the papers and does not hear live witness evidence: Tallington Lakes Ltd v South Kesteven District Council [2012] EWCA Civ 443.

3. The evidence established a genuine and substantial dispute. The reports purported to be prepared by Steven Marshall but were admitted to have been prepared by another person using that name because insurers would not accept reports in the true author’s name. That raised potential defences of fraudulent misrepresentation and total failure of consideration.

4. Those issues required determination in ordinary civil litigation rather than in the insolvency court. The court therefore concluded that no winding-up petition founded on the statutory demand should be presented. It did not need to decide whether the statutory demand, being more than two years old, could independently evidence insolvency.

5. The order was varied under Civil Procedure Rules 1998 rule 3.1(7) because Miss Johns appeared to have transferred the business to her brother. The restraint was clarified to extend to presentation of a petition by Miss Johns, her servants or agents, corporate entities or assigns, including any successor to the business. The application was described as totally without merit.

The judgment describes the prior procedural steps but no appeal:

• High Court (Chancery Division): HHJ Pearce made the restraining order on 13 January 2023, sealed on 11 May 2023.
• High Court (Chancery Division): the application to set aside that order was dismissed, and the order was varied.