Are you unsure where to issue a Winding Up Petition?
Problem: Winding up petition on unpaid debt of £11,500 relating to letting management fees assigned to the petitioner issued in London
Outcome: the Winding-up petition should have been issued in the local Court to the debtor i.e. where the debt occurred, case transferred to Newcastle.
The Case
In The One Collection Real Estate Ltd v Insolvency & Law Ltd [2023] EWHC 2673 (Ch). HHJ Kramer clarified the need to pursue the debtor on their home territory, where the debt occurred. The judge held that the petition should be transferred to Newcastle and the days when everything went to London, are now long gone.
The Petitioner, who had taken assigned of a debt totalling £11,500, issued a winding up petition in the Business and Property Courts in London. To continue trading, the debtor needed a validation order and an application for both a validation order and for the transfer of the proceedings to Newcastle made for such an order on 2 March 2023. HHJ Kramer deals with these applications in his Judgment, summarised below.
What is a Validation Order?
A validation order is a Court order which allows a company that has been presented with a winding-up petition to continue to trade after being served with a petition. Importantly, given the insolvency rules, if an application for a validation order is not granted any payments from the company will be void unless authorised by the Court. Therefore, an application is required effectively to validate the payments to company wishes to make, these could be payments from the company bank account:
- To allow payments to employees, HMRC, suppliers or creditors
- Dispositions of property in the company’s ordinary course of business
- Specific transactions beneficial to the company or creditors
Validation orders are usually heard on an urgent basis given the need for the company to continue to trade, and can be heard within a few days depending on Court availability. However, the application must be robust and detailed to ensure it is successful particularly given the nature of the application to allow ongoing payments in circumstances where a creditor (the petitioner) is alleging that the company is insolvent.
If you want to know more about validation order, please see our dedicated page here.
The Debtor’s Application
The Debtor made an application for the transfer of a winding up petition from the Business and Property Courts in London to the Business and Property Courts in Newcastle. It argued that is the petition should have been issued out of the District Registry in Newcastle. The Debtor sought to apply Practice Direction 57AA 2.2(1), pursuant to which if a case has links with a circuit, it should be issued on that circuit. If it has got links with several circuits, it should be issued in the registry with the most links or the closest links.
Judgment
HHJ Kramer agreed with the Debtor. He noted that apart from the assignment of the debt to the petitioner all relevant matters took place in Newcastle and that the company’s legal representatives, its directors and its accountants were very heavily based in Newcastle. Overwhelmingly, the links to this case were with the North East of England and not with London.
In his Judgment, HHJ Kramer points out the practical problems that can arise out of the Debtor’s submissions relating to Practice Direction 57AA 2.2(1), and states in paragraph 12 of his Judgment:
12. First, a practice has developed of bulk issuers of winding up petitions, such as Local Authorities, contracting with particular firms of solicitors who handle all their work. Such solicitors ordinarily issue everything through a single court as a matter of commercial convenience. Secondly, if 57AA has to be followed to the letter, the winding up days in the London courts, where I am told it is not uncommon for the hearing of petitions relating to cases involving activities in locations covered by registries outside London, would result in large numbers of orders for the transfer of cases to the eight BPC district registries. Whilst this would happen electronically, I am aware it takes some time to organise and this may create administrative inconvenience.
He subsequently addresses the Insolvency Rules and clarifies its application to this particular case in paragraphs 20 to 23 of his Judgment:
The impact of my conclusion is that if the only significant links are with a circuit outside London, the petition must be issued in the B&PC district registry with which it has significant links. If, however, there are significant links with more than one circuit, then they ought to be issued on the circuit or in the location with the most significant links.
HHJ Kramer further notes that Insolvency rules on the subject are not particularly helpful given that they simply refer to transfers between the High Court and a specialist hearing centre, which is a County Court centre which deals with insolvency work. He therefore assesses to what amounts to a link with a particular circuit.
That, however, is not the end of the story, because on transfer, there are further considerations, and these are to be found in Rule 30 of the CPR. Rule 30.2(4) says that the “High Court may, having regard to the criteria in rule 30.3, order proceedings… to be transferred in the Royal Courts of Justice or a district registry or from a district registry to the Royal Courts of Justice or to another district registry”
The factors referred to are those set out in Rule 30.3(2), and these are:
“(a) the financial value of the claim and the amount in dispute, if different.”
“(b) Whether it would be more convenient or fair for hearings, including the trial to be held in some other court.”
The Court is also required to look at the PD57AA factors set out in paragraph 3.3. I have dealt with 3.3(a) which concerns the links between the case and this circuit. As regards:
“(b) whether court’s resources, deployment constraints or fairness require that the hearing be held in another court than the court where it was issued.”
The fact is, we have more capacity in Newcastle to deal with this quickly than they have in London, which is an important point.
“(c) the wishes of the parties, which bear special weight in the decision but may not be determinative.” The parties are at odds about this, so that might be regarded as an equal and opposite consideration.
“(d) the international nature of the case”
This is not an international case. I notice that the paragraph suggests that trial centres with international transport links are ultimately suitable for international cases. It is the fact that Newcastle has international transport links and, on that basis, would be suitable for cases which are international in nature, but, as I said, that it is not an issue in this case.
Based on all the above considerations, HHJ Kramer is in favour of the transfer and concludes that the petition is to be heard in Newcastle.
Free Consultation with Expert Insolvency Lawyers
This recent case highlights the importance of presenting proceedings in the correct court and applying a considered analysis at the very outset as to which Court is the most appropriate forum to present a winding-up petition. The costs of various applications and a hearing could have been avoided. Our insolvency and restructuring lawyers represent clients across the UK and can advise you on the best location to present legal proceedings to avoid arguments and administrative hearings to resolve this.
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