SKS Justa & Co Ltd & Anor v Justa Limited

The court considered an application to restrain presentation of a winding up petition where the petitioner relied on statutory demands arising from an Asset Purchase Agreement (the APA). The familiar principle applied was that a winding up petition will be restrained where the debt is bona fide disputed on substantial grounds. The judge found that the APA and its Schedule 5 provided a clear contractual mechanism for preparation, delivery and agreement (or deemed agreement) of a Turnover Statement that determined the deferred consideration (Year 1 Consideration). The document produced and exchanged in May 2024 constituted the Turnover Statement and, by operation of the contractual timetable, was either agreed by the seller or deemed agreed on expiry of the review period. The applicant companies’ arguments that board approval, internal authorisations, or subsequent concerns about headcount, receivables and client churn prevented the Turnover Statement becoming binding were rejected as inconsistent with the APA and inherently implausible. The alleged cross-claim did not reduce the undisputed part of the debt below the relevant insolvency threshold. The application to restrain presentation of the petition was dismissed.

Background and parties:

• The applicants were SKS Justa & Co Ltd (First Applicant) and SKS Business Services Ltd (Second Applicant); the respondent was Justa Limited. The dispute arose from an Asset Purchase Agreement dated 31 March 2023 under which the First Applicant bought Justa's business and certain deferred consideration (Year 1 and Year 2) was payable subject to adjustment by reference to a Turnover Statement (Schedule 5).

Nature of the application:

• The applicants sought an order restraining presentation of a winding up petition based on statutory demands served by the respondent for £393,202.71, asserting that the debt was bona fide disputed on substantial grounds.

Issues for decision:

1. Whether the parties had agreed the Turnover Statement (or whether it was deemed agreed) such that the Year 1 Consideration was payable;
2. Whether the applicants had a genuine and substantial defence based on lack of board approval, internal authorisations or later concerns about turnover recognition, debtors and client churn; and
3. Whether any cross-claim offset reduced the undisputed debt below the threshold to justify restraining presentation of a petition.

Reasoning and conclusions:

• The court analysed the APA, in particular clause 3.1 (purchase price provisions) and Schedule 5 paragraph 4 (procurement, delivery and review timetable for the Turnover Statement). The contract provided for the Buyer and Buyer Guarantor to procure and deliver a Turnover Statement within 20 business days of the turnover period end and allowed the Seller Representative a further 20 business days to object, after which the Turnover Statement is contractually deemed agreed if no objection is notified.
• The document prepared by the applicants and exchanged with the respondent in May 2024 was held to be a Turnover Statement within the meaning of Schedule 5. The judge rejected the submission that it was merely a draft, concluding that the contractual timetable and the parties' exchanges showed it was intended to operate as the Turnover Statement and was treated as such by the parties.
• Arguments that internal board approvals or the Articles of Association prevented binding agreement were rejected because the APA did not require board resolutions and the contractual mechanism operated independently of such internal formalities. Communications in July 2024 from the applicants indicating payment would be made reinforced that the Turnover Statement had been accepted.
• Substantive concerns about headcount, debtor collection and client churn were not shown to provide a contractual basis to reopen the Turnover Statement and were held not to found a bona fide substantial dispute.
• The asserted cross-claim for approximately £200,000 did not reduce the undisputed part of the debt below the relevant insolvency threshold and therefore did not justify restraint.

Outcome: The application to restrain presentation of a winding up petition was dismissed for lack of an arguable defence and absence of a bona fide substantial dispute.

This was a first instance application to restrain presentation of a winding up petition. The court dismissed the application. The judge held that the document prepared and exchanged in May 2024 constituted the Turnover Statement under Schedule 5 of the APA, that it was either agreed or deemed agreed in accordance with the contractual timetable, and that the applicants’ contentions (lack of board approval, internal authorisation requirements, and later concerns about headcount, debtors and client churn) were inconsistent with the APA and had no real prospect of success. The alleged cross-claim did not reduce the undisputed debt below the insolvency threshold.