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Disputing A Creditor's Petition

In the recent case of Re A Company [2016] EWHC 1046 (Ch), [2016] All ER (D) 103 The Companies Court dismissed the petitioners’ petition for the winding-up of a company where the company had produced evidence that raised a bona fide dispute as to the receipt of payments.

Brief Summary

The petitioner presented a winding-up petition, stating that the company was indebted to it in the sum of £270,000 in relation to various agreements. In correspondence, prior to presentation of the petition, the company had sought clarity as to the various bases for the sum claimed, but to little avail.

At a hearing the petitioner accepted that there was a bona fide and substantial dispute in respect of 22 of the agreements, but sought to argue that the petition should proceed on the basis of £100,000 odd outstanding in respect of three of the agreements. The company claimed it had never been paid by the petitioner in relation to those three agreements, and therefore the petitioner could not seek repayment of those monies from it.

During the course of the hearing, the company and the petitioner produced differing bank statements and evidence and the court determined that the petition ought to be struck out or dismissed. Although the onus was on the company to show a bona fide dispute, the company had produced evidence which, on its face, was sufficient to raise such a dispute. Without conclusive evidence from the petitioner’s bank and despite the fact that there was circumstantial evidence which raised questions about the credibility of the company's evidence, this was not sufficient to allow the petition to remain on foot nor to grant an adjournment.

The Effect of the Judgment

While the court will not accept a spurious defence, once there is a serious clash of evidence then it is inevitable that the petition will be struck out. A challenge to the credibility of a company’s evidence will invariably be insufficient where it is not possible to resolve the conflict on the papers and in a very short period of time.

If an alleged creditor wishes to proceed by petition, the petition should only be presented where the debt is clearly established. To be sure a debt is clearly established, it is advisable first to test the strength of the case in correspondence. Where there is any doubt, whether to present a petition will depend on the risk aversity and financial strength of the alleged creditor. 

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