Developstate Limited v Alexander Luxury (Yorkshire) Limited

An application to restrain advertisement of a winding-up petition requires a genuine and substantial dispute or a genuine and serious cross-claim exceeding the petition debt. The threshold is low, but the assertion must be sustainable. The court may reject a case that is inherently implausible, contradicted or unsupported by contemporaneous documents. Where the Construction Act applies, a payer wishing to dispute a notified sum must serve a Pay Less notice. Without one, the invoice debt cannot be disputed on substantial grounds, although a genuine cross-claim may still be considered separately. A consent order recording a dispute is only a factor unless it clearly compromises the proceedings.

The debtor company applied under rule 7.24 of the Insolvency (England and Wales) Rules 2016 to restrain advertisement of a winding-up petition and to strike it out. The petitioning creditor claimed unpaid invoices arising from construction and development works. The company relied on disputed invoices, alleged unauthorised or incomplete works, defective works and set-off. Advertisement was initially restrained, and the parties later agreed a stay recording that there was a genuine dispute. The company’s late reports were excluded. The central issue was whether the company had shown a genuine substantial dispute or a qualifying cross-claim sufficient to prevent advertisement of the petition.

The application was dismissed.

1. Advertisement and consent order. The court’s approach to restraining advertisement involved balancing the public interest in bringing the petition to interested creditors against the reputational and financial consequences for the company. The company bore the onus of showing sufficient reason to depart from the normal practice: Re A Company [1995] 1 WLR 953. The consent order recording that there was a genuine dispute was a factor, but it was not a binding compromise. Its weight was limited because the wider agreement between the parties was unclear.
2. Invoices and Pay Less notice. The Construction Act applied. A payer wishing to dispute the amount due under an invoice had to serve a Pay Less notice. In its absence, the company could not dispute the invoices on substantial grounds. The court therefore did not need to determine the individual invoice complaints. This did not prevent consideration of a genuine cross-claim outside the payment-notice regime, consistently with R&S Fire & Security Service Ltd v Fire Defence [2013] EWHC 4222 (Ch).
3. Cross-claim and evidential threshold. A cross-claim had to be genuine and serious or substantial, and exceed the petition debt. Failure to litigate it previously was not an absolute bar, but could be considered when assessing genuineness. Although the threshold for disputing a petition debt was low, the assertion had to be sustainable rather than merely arguable. The court could reject an inherently implausible case or one contradicted or unsupported by contemporaneous documents. Applying those principles, the court relied on the absence of timely complaints, the inclusion of works outside the contract, the late and non-compliant reports, inconsistencies with inspection records and the failure to challenge the invoice tracker. The alleged defective works and cross-claim were rejected.
4. The petitioning creditor’s ability to meet a possible damages award, including its alleged status as a special purpose vehicle, was irrelevant to the application. The parties were invited to agree the consequential order; any disputed costs issue could be dealt with by written submissions or a further hearing.