First order in petition to wind up company refused
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On 8 August a Court of Session commercial judge refused to make a first order in a petition to wind up a company, declining to authorise its intimation and service. Instead the judge granted the respondents’ motion to dismiss the petition.
The company had lodged a caveat and appeared by counsel, as did two of its directors, who had not lodged caveats. The company had been placed into voluntary liquidation. The petitioner objected that only the liquidator could appear for the company. Lord Lake held that the validity of the voluntary liquidation was contested, and said that “I therefore consider that counsel was validly instructed on behalf of the company … So far as the [directors] were concerned, I heard counsel on their behalf also. The caveat entitled the [company] to be heard and this made it necessary to hold a hearing. The [directors] were aware of that hearing and instructed counsel to attend. Both the petition procedure and the hearing are public. That being the position, any person in attendance or represented at the hearing who has an interest has a right to be heard.”
On the substance of the matter the petitioner founded on Rule of Court 14.5(1), which provides that “on a petition being lodged, the court shall, without a motion being enrolled for that purpose, pronounce an interlocutor for such intimation, service and advertisement as may be necessary.” However, the judge observed that Rule of Court 5.1(d) provided that a caveat may be lodged against first orders in a winding-up petition, which gave rise to an inevitable inference that where a caveat had been lodged, and the caveator appeared to oppose the granting of a first order, the court having heard parties might decide not to grant it.
In Foxhall & Gyle Nurseries Ltd., Petitioners 1978 SLT (Notes) 29, it had been said that a first order could be refused where there were compelling reasons. PEC Barr (Holdings) Ltd v Munro Holdings UK Ltd, unreported, Edinburgh Sheriff Court, 23rd June 2009, had held the question to depend on the circumstances.
In MacPlant Services Ltd v Contract Lifting Services (Scotland) Ltd 2009 S.C. 125, Lord Hodge had said that “A winding up petition is not the process in which to establish the respondent company’s liability to pay a disputed debt. … The court will normally dismiss the petition if it is clear that there is such a dispute.” In IPS Law LLP v Safe Harbour Equity Distressed Debt Fund 3 LP [2024] EWHC 2663 it had been noted that a dispute in relation to a debt will not be ‘substantial’ if it has no real prospect of success. Lord Lake said:
“A petition will not be struck out just because the company alleges the debt is disputed but the court will not allow a winding up petition to be used for the purpose of deciding a substantial dispute raised on bona fide grounds.”
“Here, the dispute as to whether or not the debt is outstanding appears to have been ongoing for some time. There have been various court proceedings in relation to it. Claims have been made … for differing sums. … This situation seems to me a paradigm of where there is a substantial dispute and the matter ought not to be resolved in a petition for winding up. That being so, the petition cannot succeed because the existence of the debt is a critical element for it. That would not be the position had the petitioner sought to wind up the company on the basis that it was just and equitable to do so. In the circumstances, it is inevitable that the respondents will succeed in their opposition and it is therefore not appropriate to grant first orders.”
Neale Tosh, advocate, was instructed by Dentons UK and Middle East LLP for the petitioner; Michael Upton, advocate, was instructed by DHM Law for the respondents.
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