The court heard a contributors’ petition. The directors were in deadlock with equal shareholdings. The petition was not making good progress, and a creditor’s petition was then issued. The shareholder sought a stay.
Held: There was a sufficient allegation of insolvency in the petition, and it was right that the petition should be allowed to continue. A creditor in the circumstances mentioned is prima facie entitled to his order and is prima facie not bound to give time to enable the debtor to pay.
Slade J said: ‘On April 30th 1979 Chevron’s [the petitioner in the creditor’s petition] petition came before me for first hearing. I was then told of the petition pending in the Manchester District Registry, but was told that for practical purposes proceedings under that petition were frozen . . Counsel for Chevron asked for an order under section 231 of the Companies Act 1948 giving leave to Chevron, so far as leave might be necessary to proceed with its petition, and also for an appropriate adjournment for the purpose of dealing with evidence. Counsel for Mr Cooper [one of the director shareholders] asked for leave to be added to the list out of time on the usual undertaking and opposed the making of any order under section 231.
After hearing argument I decided, contrary to the submissions made on behalf of Mr Cooper, that there was a sufficient allegation of insolvency in the petition, and that in all the circumstances it was right that Chevron’s petition should be allowed to continue. I therefore made the order sought under section 231and gave certain further directions to which I need not refer.’
and ‘In my judgment, on the facts which I have summarised, the company was at the date of presentation of Chevron’s petition and is at the present date manifestly unable to pay its debts within the meaning of section 222(e) and section 223(d) [of the 1948 Act] in as much as it did not and does not have assets available for the discharge of all its current liabilities. Miss Arden on behalf of Chevron, and Mr Cone, on behalf of Mr Kreike [the other director shareholder] who supports Chevron’s petition, thus affirm and rely on the present inability of the company to pay its debts. Mr Mann, who opposes the petition on behalf of Mr Cooper does not dispute such inability . .’
Slade J discussed section 346 of the 1948 Act, saying: ‘Thus I think the Brighton Hotel Company decision throws light on the attitude which the court should generally adopt if faced with a request to make a winding up order in respect of a company shown to be unable to pay its debts, when that request is made by an undisputed unpaid creditor but opposing contributories seek an adjournment. Though there are a number of authorities which give guidance as to the attitude of the court where some creditors support the making of an immediate winding up order and other creditors oppose it, counsel have been unable to find any authority which gives guidance as to such attitude where the contest is between a petitioning creditor on the one hand and contributories on the other hand. I do not however feel much doubt in principle as to what that attitude should be. In the case of a creditor’s petition not opposed by other creditors, the general approach of the court was expressed by Lord Cranworth in Bows v Hope Life Insurance and Guarantee Co [1865] 11 HLCas 389,402:
‘I agree with what has been said, that it is not a discretionary matter with the court when a debt is established, and not satisfied, to say whether the company should be wound up or not; that is to say if there be a valid debt established, valid both at law and in equity. One does not like to say positively that no case could occur in which it would be right to refuse it; but, ordinarily speaking, it is the duty of the court to direct the winding up.’
In other words a creditor in the circumstances mentioned is prima facie entitled to his order and is prima facie not bound to give time to enable the debtor to pay. In my judgment, subject to the discretion given to it by sections 225 and 346 of the Companies Act 1948, to which I have already referred, the attitude of the court should be, and is, essentially unchanged today. While I recognise that it would have the right under those two sections to pay regard to the wishes of contributories, in deciding whether or not to make a winding up order on a creditors petition, or to adjourn the hearing, in my judgment it can, and should ordinarily attach little weight to the wishes of contributories, in comparison with the weight it attaches to the wishes of any creditor, who proves both that he is unpaid and that the company is ‘unable to pay its debts’.
For these reasons while I accept that the court would have jurisdiction to adjourn Chevron’s petition, as asked for by Mr Mann, I think it should only do so if it were satisfied that there were exceptional circumstances that justified this course.’
Judges:
Justice Slade
Citations:
[1979] 3 All ER 297, [1980] 1 WLR 86
Statutes:
Companies Act 1948 231 346(1), Insolvency Act 1986 195(1)(a) 346(1)
Jurisdiction:
England and Wales
Citing:
Cited – Bows v Hope Life Insurance and Guarantee Co HL 1865
In the case of a creditor’s petition not opposed by other creditors: ‘I agree with what has been said, that it is not a discretionary matter with the court when a debt is established, and not satisfied, to say whether the company should be wound up . .
Cited by:
Cited – Rodencroft Limited, W. G. Birch Developments Limited, H-M Birch Limited; Simon Allso v The Secretary for State for Trade and Industry ChD 23-Apr-2004
The Secretary of state sought the winding up of the companies saying it was expedient in the public interest to do so. A shareholder opposed this saying that the companies were solvent.
Held: The shareholder had, in the absence of any position . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 21 June 2022; Ref: scu.197019