In Re a Company (No 5245 of 2017)  EWHC 275 (Ch), the High Court granted an injunction to restrain presentation of a winding up petition where the debtor had a genuine and serious cross-claim that exceeded the value of the debt.
The Company (D) had been served with various statutory demands by a former senior executive (A). The debt under one of the statutory demands was not contested. However, D submitted that an injunction should be granted to restrain presentation of the winding up petition because D had a cross-claim against A which exceeded the value of the uncontested debt. The cross-claim was for A’s alleged failure to carry out, to an acceptable standard, services for D.
It was well established that the court would restrain the presentation of a winding up petition if the debt was disputed on genuine and substantial grounds. Even if the debt itself was not disputed, the court would restrain the presentation of a winding up petition if the debtor had a genuine and serious cross-claim that exceeded the value of the debt.
If there was a genuine and serious cross-claim, the company should be allowed to establish its cross-claim in ordinary civil proceedings. The Companies Court was not the right court in which to engage in a detailed examination of claim and counterclaim. It was incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim was genuine and serious. However, it was not practical or appropriate to conduct a long and elaborate hearing, examining in detail the case made on each side.
If there was any doubt about the claim or the cross-claim, then the court should proceed cautiously. That was because a winding up order was a draconian order, which if wrongly made, gave the company little commercial prospect of reviving itself.
In the present case, D had established that it had a genuine and serious cross-claim that exceeded the value of the debt. It followed that it would be a proper exercise of the court’s discretion to issue an injunction to enable D an opportunity to substantiate its claim.