Creditors take note - English Court restrains winding up petition despite 'thin' evidence of cross-claim

Quick read

Background

A property development company (the debtor) applied to the court for an injunction to restrain a winding up petition against it on the well-established grounds that, even though the debt was undisputed, it had a genuine and substantial cross-claim against the creditor for a sum exceeding the debt.

Genuine and substantial cross-claim

The debtor claimed that it was owed around £44 million by the creditor which was greater than the debt owed to the creditor.

The creditor argued that:

The details of the alleged cross-claim were too vague.
The debtor had not exhibited any of the relevant contracts or referred to the relevant contractual obligations.
Even if the debt existed, its value was significantly less than the winding up petition debt.

Court's decision

In granting the application, the court held that the relevant question is whether the cross-claim has the potential to be set out in evidence, rather than whether all the evidence has already been put before the court. The judge did not find the debtor's lack of supporting evidence, or its delay in raising the cross-claim, as fatal to its case. The judge was satisfied that the debt was subject to a genuine and serious cross-claim.

Key takeaways

Debtors must only satisfy the court that a claim can be pleaded, rather than plead the claim in full when seeking to prevent winding up-petitions, although this may be a risky strategy to adopt. The judge found the absence of documentation in this case particularly "challenging".
Creditors should be careful when seeking a winding up-petition where a potential cross-claim exists, a winding up order is a draconian order and the threshold test for an injunction is low. If there is any doubt about the cross-claim, the court will proceed cautiously.