JMW successfully restrain the advertising of a winding-up petition

JMW partner Nathan Dean and associate Lenna Abulhawa successfully obtained an injunction at the High Court to restrain the advertisement of a winding up petition, and their client was awarded indemnity costs.

Background

JMW represented the Applicant in the case. It was alleged that JMW’s client owed the Respondent other party in excess of a quarter of a million pounds. JMW’s client and the Respondent had worked together on a number of projects and had worked profitably together for a number of years.

The other party would source and carry out retrofit energy improvement works and would then pass these ‘work ready orders’ to JMW’s client to submit claims to energy suppliers for payment under the relevant government scheme.

This continued very profitably for a number of years.

The dispute between the parties arose as the Respondent claimed that JMW’s client was liable to make payment to it for work ready orders it had provided and had been submitted to the energy suppliers for payment. JMW’s client denied that there was any payment due as the oral agreement between the parties was that the Respondent would be paid by JMW’s client only when funds had been received from the energy supplier, which they had not been. The Respondent maintained that was not the case and JMW’s client was liable to pay them the sums claimed irrespective of whether or not they had received payment. The Respondent also alleged that the agreement between the parties was a ‘construction contract’ and was therefore subject to the implied terms of the Housing Grants, Construction and Regeneration Act 1996, amended by the Local Democracy, Economic Development and Construction Act 2009, which prohibited any ‘pay when paid’ terms being in construction contracts, meaning our client could not rely on this argument and the sum would be due.    

How did JMW help?

Nathan Dean and Lenna Abulhawa carefully reviewed the legal case and were of the view that the sums claimed by the Respondent were subject to a genuine dispute and that it was an abuse of process for the Respondent to issue a winding up petition as it had done. In circumstances where there is a disputed debt, a winding up petition is not the appropriate route for a creditor to take to seek to recover that debt.

For context, a winding up petition is a legal action that a creditor can take to request the liquidation of a company on the basis that the company cannot pay its debts. Once the winding up petition is advertised in the Gazette, the petition will then become public knowledge and bank accounts may be frozen. For any company faced with the threat of a winding up petition for a debt which is disputed, it is important to take immediate action in order to prevent the very serious issues and business disruption which follows the presentation and advertisement of a winding up petition.

What was the outcome?

At the hearing, the Judge found in favour of all JMW’s client’s arguments, namely that:

1. It was likely that the agreement between the parties was not a construction contract and was instead an agency relationship as submitted by the Applicant; and
2. The sum claimed was subject to a genuine dispute as the commercial reality of the situation strongly suggested that the Applicant would have only agreed to submit claims on the Respondent’s behalf on a ‘pay when paid’ basis, as to do otherwise would expose it to massive commercial risk if payment was not received from the energy supplier. Ultimately, this meant that JMW’s client was only liable to make payment to the Respondent once it had received corresponding funds from the energy supplier.  

The Judge also awarded JMW’s client indemnity costs, which is a type of legal costs award where the Court orders the losing party to pay a much larger share of the successful party’s legal fees. The Court made this order as it found the issuing of the winding up petition to be an abuse of process in the circumstances.

Nathan Dean said, “I am delighted with the result, and it brings a swift conclusion to an issue which could have caused significant business disruption to our client. The threat of a winding up petition being advertised has the potential to cause serious damage to our client’s reputation and relationships with its customers, suppliers and credit providers. It is likely the other party hoped the winding up petition would pressure our client into making payment of the debt, which was genuinely disputed, just so our client could avoid those potential issues arising. Thankfully, we were able to take steps to stop the petition from being advertised and were also able to recover the majority of our client’s legal costs.”