SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS
AT ABERDEEN
L49/06
JUDGEMENT
of
SHERIFF
PRINCIPAL SIR STEPHEN S T YOUNG Bt QC
in the cause
MACPLANT SERVICES LIMITED
Pursuers and Appellants
against
CONTRACT LIFTING SERVICES (SCOTLAND) LIMITED
Defenders and Respondents
|
Act:
Mr D P Sellar QC instructed by Archibald Campbell & Harley WS, Edinburgh
Alt:
Mr A F Stewart, advocate, instructed by Peterkins, Aberdeen
Aberdeen: 6th June 2007
The
sheriff principal, having resumed consideration of the cause, allows the appeal
and recalls the interlocutor of the sheriff dated 8 February 2007; orders that
the defenders and respondents, namely Contract Lifting Services (Scotland)
Limited having their registered office at 100 Union Street, Aberdeen AB10 1QR,
should be wound up by the court under the provisions of the Insolvency Act 1986
and appoints Blair Carnegie Nimmo, Chartered Accountant and Qualified
Insolvency Practitioner, KPMG LLP, 37 Albyn Place, Aberdeen AB10 1JB to be
interim liquidator of the defenders and respondents; finds the pursuers and
appellants entitled to the whole expenses of the cause, including the appeal,
and directs the same to be expenses in the liquidation; allows an account of
these expenses to be given in and remits the same when lodged to the auditor of
court to tax and to report; certifies the appeal as suitable for the employment
by the pursuers and appellants of senior counsel; quoad ultra remits the cause
to the sheriff to proceed as accords.
Note
[1] In this case the pursuers and appellants
crave the court to order that the defenders and respondents should be wound up
by the court under the provisions of the Insolvency Act 1986. The initial writ was lodged on 17 November 2006, and on that same
day the sheriff made the usual order for intimation and service and in the
meantime appointed a chartered accountant to be provisional liquidator of the
defenders. Answers were lodged on their
behalf and two procedural hearings followed.
Finally, on 8 February 2007,
having heard parties' procurators on the pursuers' motion to appoint an interim
liquidator and the defenders' motion to recall the appointment of the
provisional liquidator, the sheriff in short recalled the provisional
liquidator's appointment and allowed parties a proof of their respective
averments. It is this interlocutor which
is the subject of the present appeal, and on behalf of the pursuers it was
submitted that the sheriff ought to have granted the winding-up order and appointed
an interim liquidator of the defenders.
[2] Section 122(1)(f) of the Act provides that
a company may be wound up by the court if the company is unable to pay its
debts. Section 123(1)(e) provides that a
company is deemed unable to pay its debts if it is proved to the satisfaction
of the court that the company is unable to pay its debts as they fall due. Section 123(2) provides that a company is
also deemed unable to pay its debts if it is proved to the satisfaction of the
court that the value of the company's assets is less than the amount of its
liabilities, taking into account its contingent and prospective
liabilities. Section 124(1) provides, inter alia, that an application to the
court for the winding-up of a company shall be by petition presented either by
the company, or the directors, or by any creditor or creditors, contributory or
contributories, or by all or any of those parties, together or separately. Section 125(1) provides, inter alia, that on hearing a winding-up petition the court may
dismiss it, or adjourn the hearing conditionally or unconditionally, or make an
interim order, or any other order that it thinks fit.
[3] In the sheriff court the procedure in a
petition to wind up a company is governed by the Sheriff Court Company
Insolvency Rules 1986. For present purposes
it is necessary to notice only two of these rules. Rule 18(2) provides that there shall be
lodged with the petition any document (a) instructing the title of the
petitioner; and (b) instructing the facts relied on, or otherwise founded on,
by the petitioner. Rule 33 provides that
the court may accept as evidence an affidavit lodged in support of a petition
or note.
[4] In this case the petition is founded on
sections 122(1)(f) and 123(1)(e) of the Act.
In article 4 of the condescendence the pursuers aver that as at 14 November 2006 the defenders were
indebted to them in the sum of £336,799.42 conform to a statement of account of
the same date and the invoices referred to therein. It is said that the defenders had failed to
pay these invoices, that they had not disputed or queried any of them and that
one of their directors, a Mr John Paul, had advised the pursuers' directors
that the defenders were unable to pay the sum said to be due by them. Reference is made to a letter to the pursuers
dated 14 November 2006 and
it is averred that this letter proposed a repayment schedule which was
unacceptable to the pursuers and had been rejected by them, and that
accordingly the defenders were unable to pay their debts as they fell due.
[5] A copy of the letter dated 14 November 2006 has been lodged in
the process. It is not in dispute that
this letter was sent by the defenders to the pursuers. It is headed: "MacPlant Account Settlement
Proposal". The account balance is stated
to be £350,000, and there follows a table which indicates that twenty payments,
each of £17,500, were to be made starting in November 2006 and ending in June
2008. Underneath are the words:
The above repayment schedule (£17.5K) will be met from
normal traiding (sic) contracts.
Any additional cash flow from new contracts will be added
to allow faster repayment as and when available.
We currently have two large legal disputes which if
settled in our favour would again facilitate faster repayment.
[6] A copy of the statement of account dated 14 November 2006 has also been
produced. It consists of eleven sheets on which, by my reckoning, two hundred
and forty one invoices and one credit note (copies of which have also been
produced) are itemised. These are dated between 16 May and 10 November 2006. The total said to be due is £336,799.42, of
which £847.49 is said to be current and £9448.66, £21,511.08 and £304,992.19
are indicated to have been outstanding for one, two and three months
respectively.
[7] The justification for the appointment of a
provisional liquidator is averred in article 5 of the condescendence. In short, it is said that Mr Paul had advised
the pursuers' directors that he had incorporated another company, Contracting
Lifting (Scotland) Limited, and that he intended to transfer the assets of the
defenders to this new company. It is
averred that there was accordingly a demonstrable risk of dissipation of assets
and of prejudice to creditors.
[8] In their answer 4 as adjusted the defenders
deny that they are unable to pay their debts.
They explain that they enjoyed the benefit of a contract with the owners
of Leith docks for the unloading and transportation of
coal from ships which called at that port and that the contract in question
required the use of substantial heavy plant and equipment which required
extensive maintenance and servicing on a regular basis. It is said that this maintenance and
servicing work was carried out by the pursuers and that in the year up to the presentation
of the petition the defenders had paid the pursuers sums totalling in the
region of £450,000 for these services.
Reference is then made to negotiations between the defenders and the
owners of Leith docks for the renewal of the contract
between them and difficulties which the defenders had incurred in these
negotiations. The defenders aver that the pursuers had been kept informed of
the progress of these negotiations and that one of the pursuers' directors, a
Mr McLean, had assisted the defenders in connection with these negotiations and
had dealt directly with the owners of the docks on behalf of the
defenders.
[9] Answer 4 continues:
In order to protect their respective
positions and in order to ensure that their business relationship continued the
Pursuers and Defenders entered into an arrangement. This agreement was entered into in or around
August 2006 by the Pursuers Managing Director Mr Stewart McLean and the
Defenders Financial Director Mr John Paul on behalf of and as authorised by their
respective companies. They agreed that
separate companies would be incorporated with a view to one of these new
companies obtaining the benefit of the fresh contract to be agreed in
connection with the unloading of the coal boats at Leith docks. These companies were duly set up with
the incorporation by the pursuers of a company known as Macplant Bulk Services
Ltd and by the Defenders by a company known as Contract Lifting (Scotland) Ltd.
The Pursuers and Defenders agreed further that the existing debts due by
the Defenders to the Pursuers would be maintained at their present levels but
that the debt would not require to repaid in full. They further agreed that in the event that
the Defenders obtained the benefit of the new contract then the contract would
be assigned to the said Contract Lifting (Scotland) Ltd with the Pursuers continuing to provide
the maintenance and servicing work as before.
They also agreed that if the said Macplant Bulk Services Ltd obtained
the contract then the contract would be assigned to Contract Lifting (Scotland)
Ltd with the Pursuers again continuing to provide the service and maintenance
work as before. It was further agreed
that if a new contract was awarded to one or other of the said companies that
the Defenders would be placed in liquidation with the debts due to the Pursuers
and all other creditors being paid from the assets of the Defenders
which were sufficient in value to cover all sums due to the creditors including
the Pursuers. At no time have the
Pursuers called upon the Defenders to pay the sum which they claim is due. In any event the sum claimed as being due is
excessive. The Pursuers are presently
holding plant and equipment belonging to the Defenders to the value of at least
£80,000 which they agreed to sell and set off against the Defenders
account. In addition to this at least
£50,000 of the sum claimed as being due is not in fact due and has been
overcharged. Further a sum of £9448.66
was paid to the Pursuers on or around 14th November 2006 which the Pursuers have not taken into
account. The sums claimed as being due
by the Pursuers are therefore not debts falling due in terms of the Insolvency
Act 1986. The Pursuers are personally
barred from insisting upon these proceedings by virtue of their actings as
hereinbefore outlined. As at the date of
the presentation of this petition the Defenders were solvent. Their assets exceeded their liabilities and
they were not unable to pay their debts.
Explained that the Defenders are a wholly owned subsidiary of Business
Investment Group Ltd (their parent company).
The Defenders had a facility provided to them by their parent company
whereby funds would be made available to cover debts such as the debt claimed
by the Pursuers. The said parent company
had ample funds at their disposal for this purpose. In particular the parent company had a credit
balance totalling £468,254.52 in their bank accounts as at 17th
November 2006 which
was the date of the First Deliverance in this action. Reference is made to the letter dated 12th
January 2007 from the
Royal Bank of Scotland to John Paul which is lodged in process and
whose terms are held to be adopted herein brevitatis
causa. Explained further
that the document dated 14th November 2006 referred to by the Pursuers as a letter, was
given to the Pursuers Director Mr Mark Cooper by the Defenders Financial
Director Mr John Paul. The said Mark
Cooper had requested this document as he wished to give it to the Pursuers
bankers. It was given for that reason
only and was not an admission that the sums claimed as being due were actually
due and payable. The document purported
to cover a period after which the Defenders would have been in liquidation (as
outlined above) and after which any sums which were due to be paid to the
Pursuers would have been paid off following upon the liquidation of the
Defenders and the disposal of their assets.
It was given on the basis that it was beneficial to the Pursuers in view
of the good trading relationship which they had enjoyed with the Defenders up
to that time. In all the circumstances
the Pursuers are not entitled to the order craved and the Petition should be
dismissed.
[10] In their answer 5 the
defenders deny the pursuers' averments in article 5 in regard to Mr Paul's
alleged intention to transfer the defenders' assets to the new company which he
had incorporated.
[11] In response to the
defenders' answers the pursuers adjusted article 4 of the condescendence by
adding at the end the following averments:
With reference to the
averments in Answer, it is believed to be true that the defender had a contract
with the owners of Leith docks, for the unloading and transportation of coal
from ships which called at Leith, under explanation that the precise nature and
extent of any dealings between the defender anent that contract and any proposed
extension of it are not known and not admitted.
Admitted that in the period up to the presentation of this Petition, the
defender had paid the pursuer approximately £450,000 for maintenance and
servicing work carried out by the pursuer, under explanation that the precise
sum so paid was £444,142.96. Not known
and not admitted that the defender is a wholly owned subsidiary of
Business Investment Group
Ltd. Quoad
ultra the averments in
answer are denied. Explained and averred that at no stage did the pursuer's Mr
Stewart McLean (or any other representative of the pursuer) agree that existing
debts due by the defender to the pursuer would be maintained at existing levels
and would not require to be repaid in full.
The pursuer has repeatedly called upon the defender to pay the sums owed
by it. Between May and November 2006,
the pursuer continued to invoice the defender for sums owed by it. Fortnightly
statements of account were sent by the pursuer to the defender. At no time did the defender challenge or
dispute the sums claimed. On the
contrary, by the said letter dated 14 November
2006,
the defender's Mr Paul acknowledged the extent of the defenders indebtedness to
the pursuer and proposed a re-payment schedule at the rate of £17,500 per
month. In or about the beginning of
August 2006 the defender's Mr Paul asked the said Mr McLean to sell certain
Volvo articulated dump trucks held by the pursuer and to apply the proceeds of
such sale against the defender's outstanding indebtedness to the pursuer. The estimated value of the trucks was
approximately £80,000. On investigation,
the pursuer established that the said trucks were all subject to hire purchase
agreements on which approximately £108,000 remained outstanding. On 17 November
2006,
Blair Carnegie Nimmo of KPMG was appointed as provisional liquidator of the
defender. On 22
November 2006, a representative of Mr Nimmo, Mr James Stephen Watson
Thornton of KPMG met the defender's Mr Paul at KPMG's offices at 191 West George Street, Glasgow. At that meeting Mr Paul
confirmed to Mr Thornton that the defender did not dispute its indebtedness to
the pursuer in the sum of £336,799.42.
Mr Paul also confirmed to the said Mr Thornton that there was no prospect
of the defender being able to pay the said sum and that as the defender had no
funds to settle the debt, there was no alternative to liquidation of the
defender. Subsequently, in a telephone
conversation on 11 December 2006, Mr Paul again confirmed to
Mr Thornton that the debt was not disputed and again confirmed that liquidation
was the only option. At no point did Mr
Paul suggest to Mr Thornton that the debt was disputed by the defender. An Estimated Statement of Affairs of the
Defender prepared on behalf of the provisional liquidator as at 17 November 2006 showed aggregate unsecured creditors of £628,158 and
a total deficiency as regards creditors of £523,180. On 21 November
2006
the Pursuer received a payment towards the defender's indebtedness of
£9,448.66 from a company called
Propshaft Services Limited. At no time
has Business Investment Group Ltd or any other person offered to discharge the
defender's indebtedness to the pursuer.
The defender is called upon to specify precisely which of the pursuer's
invoices contain the alleged overcharge of £50,000. It is called upon to specify any other
invoices disputed by it and any basis for such dispute. Its failure (to) answer these calls will be
founded upon.
[12] At the
hearing on 8 February 2007 the sheriff had before him four
affidavits. The first of these was from
a Mr James Thornton who is a manager in the employment of the provisional
liquidator's firm (KPMG LLP). In
paragraph 2 of this affidavit Mr Thornton described how he and a colleague, Mr
Craig Allison, met the defenders' Mr John Paul on 22
November 2006. Mr Thornton advised
Mr Paul that the winding-up petition stated that the defenders were indebted to
the pursuers in the sum of £336,799.42.
Mr Thornton then stated that he asked Mr Paul three specific questions,
namely:
(1)
Did the Company in any way dispute the debt claimed by
Macplant Services Limited. Mr Paul
replied that the debt was not disputed by the Company and that the sum claimed
was due to Macplant Services Limited.
(2)
Was the Company in a position to pay the debt due to Macplant
Services Limited? Mr Paul replied that
there was no prospect of the Company being able to pay the sum due to Macplant
Services Limited.
(3)
Was there any alternative to the liquidation of the
Company? Mr Paul replied that the Company
did not have funds to settle the debt and that there was no alternative to the
liquidation of the Company. He confirmed
that he would co-operate fully with KPMG and would assist in any way possible
to ensure that the liquidation proceeded as smoothly as possible.
[13] In
paragraph 3 of his affidavit Mr Thornton described how he had spoken to Mr Paul
on a number of occasions since their meeting on 22
November 2006. He said that Mr Paul
had provided him with information which he had previously requested and had
been co-operative and helpful throughout and that during a telephone
conversation on 11 December 2006, after answers had been lodged on behalf of
the defenders, Mr Paul had not disputed the pursuers' claim and had admitted
that liquidation of the defenders was the only route forward for them.
[14] Finally
in paragraph 4 of his affidavit Mr Thornton stated:
At no point throughout any
of my discussions with Mr Paul has he indicated that the debt due to Macplant
Services Limited was in any way disputed by the Company. He has accepted that the debt is due to
Macplant Services Limited, that the Company is unable to pay its debts as they
fall due and that it is in the best interests of its creditors that the Company
be wound up.
[15] The
second affidavit was from Mr Allison and, in short, corroborated Mr Thornton's
account of the meeting with Mr Paul on 22 November
2006.
[16] The
third and fourth affidavits were from two of the pursuers' directors, Mr
Stewart McLean and Mr Mark Cooper. In
short, they described how they had made repeated demands of the defenders to
reduce their indebtedness to the pursuers, and both denied that an arrangement
had been made between the pursuers and the defenders as averred by the latter
in their answer 4. Both made comments to
the effect that this alleged scheme made no commercial sense whatsoever.
[17] The
sheriff also had before him two statements of affairs of the defenders as at 17 November 2006. The first of
these had been prepared on behalf of the provisional liquidator. This showed that the defenders had assets
with a book value of £357,336 which were estimated to realise £129,978. The defenders' liabilities were stated as £628,158
so that the deficiency as regards creditors was £523,180. The liabilities were stated to include the
sum of £381,625 due to trade creditors.
Appended to the statement was a separate schedule which gave details of
these trade creditors. The pursuers were
by far the largest of these, being owed a total sum of £352,978. Importantly, of this sum only £2,101 was
stated to be current. £6,333 was stated
to be thirty days overdue, £13,382 sixty days overdue, £101,369 ninety days
overdue and the balance of £229,794 overdue for even longer than these
periods.
[18] The
second statement of affairs was prepared on the basis of the information
supplied by the defenders' Mr Paul. The
figures appear to have been rounded up or down more or less to the nearest
£1,000. This statement brings out a
deficiency as regards creditors of £262,000.
Attached to it was a schedule which indicated that the total balance due
to the defenders' trade creditors according to the ledger was £380,000 of which
£353,000 was due to the pursuers. The
schedule indicated further that, of this balance of £380,000, £283,000 was in
dispute and a further £10,000 had been paid before 17
November 2006 but had not been reflected in the ledger balance. The resulting sum shown as due to the
defenders' trade creditors was £87,000.
[19] In
addition to these documents, the pursuers had also produced a copy of their
bank statement for a short period in November 2006 which appeared to bear out
the averment in their adjustments to article 4 of the condescendence to the
effect that on 21 November 2006 they received a payment towards the defenders'
indebtedness of £9,448.66 from a company called Propshaft Services
Limited. (It may or may not be a
coincidence that this sum is exactly the same as the sum indicated on the
pursuers' invoice dated 14 November 2006 as having been outstanding
for one month).
[20] Finally
in this context it should be noted too that the defenders had produced the
original of the letter dated 12 January 2007 from the Royal Bank of Scotland to
Mr Paul to which they had referred in their answer 4 and which appeared to bear
out the averment that Business Investment Group Limited had credit balances
totalling £468,254.52 in their bank accounts as at 17 November 2006.
[21] Following
the lodging of the appeal the sheriff prepared a note in support of his
interlocutor dated 8 February 2007. This speaks for itself and it is unnecessary
to set it out in full here. In short,
the sheriff summarised the submissions that were made to him on behalf of both
the pursuers and the defenders and then explained why he had decided to allow a
proof of their respective averments.
Reading this explanation, I have to confess that it is not altogether
clear to me why the sheriff thought it appropriate to order a proof. He was evidently very suspicious of the
dealings that were said to have taken place between the pursuers and the
defenders during the course of 2006 in regard to the contract with the owners
of Leith docks and expressed the
view that "the whole situation reeks of lack of bona fides". He went on to observe that the pursuers had
not sought "to set up the indebtedness by obtaining a decree or even stimulate
a legal presumption by way of statutory demand". My impression in light of what he says is
that the sheriff was not satisfied upon the basis of the material which had
been put before him that the defenders were unable to pay their debts as they
fell due, and it appears that it was chiefly in order to establish whether or
not this was true that he allowed a proof.
[22] Counsel
for both the pursuers and the defenders were agreed about the basic approach to
be taken by a court in a case such as this in which the creditor of a company
seeks an order for its winding-up on the basis of sections 122(1)(f), 123(1)(e)
and 123(2) of the Act. The court must
decide, firstly, whether the pursuer is the creditor of the company and,
secondly, whether the company is unable to pay its debts within the meaning of
section 123(1)(e) and/or (2). If the
court is satisfied on both these matters, then, notwithstanding the use of the
word "may" in the opening part of section 122(1), the pursuer is to all intents
and purposes entitled to a winding-up order save in the most exceptional
circumstances - see In re Southard &
Co Limited 1979 1WLR 1198 at pages 1202/3 and Palmer's Company Law
paragraph 15.212.
[23] It is
well established that in this context a creditor of a company within the
meaning of section 124(1) of the Act does not include a party who claims that a
debt is owing to him by the company where the existence of the debt is disputed
by the company in good faith and on substantial grounds - see Re a Company 1997 BCC 830. Accordingly, if in a case such as this the
court is satisfied that the debt upon which the pursuer founds is indeed
disputed in good faith and on substantial grounds, then it should dismiss the
winding-up petition. Likewise, the
petition should be dismissed if the court is not satisfied that the company is
unable to pay its debts.
[24] As I
understood them, the only difference between counsel for the pursuers and
counsel for the defenders was whether, in determining whether the debt founded
upon by the pursuers was disputed in good faith and on substantial grounds, the
court should decide this issue on the basis of the parties' pleadings and
submissions and the productions put before the court (including any affidavits)
or whether, on the other hand, the court was entitled to order a proof of
parties' respective averments before deciding this issue. Counsel for the pursuers argued in favour of
the former approach, whereas counsel for the defenders, founding in particular
on section 125(1), submitted that a proof might indeed be ordered before the
issue was resolved by the court. For
present purposes, and for reasons which I hope will become apparent shortly, I
do not think that I need to resolve this particular dilemma in the context of
this appeal.
[25] Counsel
for the pursuers submitted in short that the sheriff's reasoning as expressed
in his note was flawed by his failure to identify the correct approach to the
question whether the defenders should be wound up and to apply that correct
approach to the circumstances. It was
submitted that, had the sheriff identified and applied the correct approach, he
would have found that the pursuers were indeed creditors of the defenders, that
the latter were unable to pay their debts in the sense of both balance sheet
and cash flow insolvency and that a winding-up order should therefore have been
made and an interim liquidator appointed.
It was submitted further that the sheriff, in addition to having
misdirected himself on the law to be applied, had failed to address adequately
the material which had been put before him and had made a number of irrelevant
comments with the result that I should hold the matter to be at large on appeal
and grant the winding-up order.
[26] Counsel
for the defenders submitted that the sheriff's decision to order a proof had
been a competent and proper exercise of his discretion and should not be
interfered with by myself on appeal. As
indicated, his position was that it was open to the sheriff to order a proof in
order to determine whether or not the pursuers were creditors of the defenders,
and this he said (contrary to my own reading of the sheriff's note) was the
reason why the sheriff had ordered a proof.
In these circumstances the appeal should be refused and the interlocutor
of the sheriff dated 8 February 2007 sustained.
[27] I have
the impression that this has been one of those not unfamiliar cases in which
the arguments presented on appeal may have been more fully developed than those
presented at first instance. This may explain why I do not see in the sheriff's
note any clear indication that he considered fully in light of the material
that had been put before him whether the pursuers were creditors of the
defenders and whether the latter were unable to pay their debts and, if so,
whether there were any exceptional circumstances standing in the way of the
granting of a winding-up order. At all events I am persuaded that this is a
case in which I am entitled to treat the matter as at large on appeal and to
resolve it myself accordingly.
[28] In my
opinion it is clear beyond peradventure that as at 17
November 2006 the pursuers were creditors of the defenders and that there
were no substantial grounds upon which the defenders could in good faith have
disputed their indebtedness to the pursuers.
It may be that there was a legitimate dispute as to the exact amount of
this indebtedness. But on any view it is
plain in light of the documents which have been produced and the import of
which I have set out above that the amount was substantial (and far more, for
example, than the sum of £750 referred to in section 123(1)(a) of the
Act).
[29] Turning
to the question whether the defenders were unable to pay their debts as at 17
November 2006, I recognise that the pursuers have not sought to invoke the
procedure set out in section 123(1)(a) or (c) of the Act. But that is not the end of the matter and in
an appropriate case an inability to pay a debt may be inferred from the mere
failure by the debtor company to pay it - see Re Taylor's Industrial Flooring Limited 1990 BCC 44 at pages
49H/50D. In the present case there were
before the sheriff three sources of evidence which in my opinion demonstrate
conclusively that the defenders were unable to pay their debts as they fell due
as at 17 November 2006.
[30] In the
first place there was the affidavit by Mr Thornton to which I have already
referred in paragraphs [12] to [14] above.
The sheriff in his note described the provisional liquidator as the
"pursuers' nominee". This is true only
in the sense that his name was proposed to the court as a suitable person to be
appointed as provisional liquidator at the original hearing on 17 November 2006. I am not sure
whether the sheriff, in referring to the provisional liquidator in this way,
was somehow suggesting that he or a member of his staff might be biased in some
way in favour of the pursuers. If this
was the case, then in my opinion the sheriff was mistaken since a provisional
liquidator is not a representative of any particular creditor or class of
creditors. On the contrary, he is an
independent person appointed by, and operating under the direction of, the
court for the purpose of preserving a debtor company's assets pending the
making of a winding-up order - see Re
Bank of Credit and Commerce International SA (No. 2) 1992 BCLC 579 at page
582e. It follows in my opinion that the
court ought to attach considerable weight to the affidavit of Mr Thornton as a
member of the provisional liquidator's staff, corroborated as it is in regard
to the events of the meeting on 22 November 2006 by the affidavit of another
member of the provisional liquidator's staff, namely Mr Allison.
[31] Counsel
for the defenders suggested that the production of these affidavits were no
substitute for a proper examination of witnesses at a proof. In particular, he explained that Mr Paul had
received a telephone call on the morning of 22
November 2006 inviting him to the meeting with Mr Thornton and Mr Allison
that afternoon. He had duly attended the
meeting and counsel suggested that he (Mr Paul) should be given an opportunity
to explain what he had said then to Mr Thornton. But significantly counsel did not go on to
suggest what Mr Paul might have to say by way of explanation, and it seems to
me scarcely credible that he would be able to undermine the very clear evidence
given by Mr Thornton in his affidavit.
[32] In the
second place in this context there was the letter of 14 November 2006 which was admittedly sent by the defenders to the
pursuers. The defenders' explanation for
the sending of this letter is contained in the final part of their answer
4. Quite what this passage is intended
to mean I am not sure. Counsel for the
defenders suggested that the reason why the defenders had sent this letter to
the pursuers could be fully explored at proof, but he did not elaborate further
upon what was said at the end of answer 4.
In my opinion the obvious inference to be drawn from this letter was
that the defenders were unable there and then to pay the balance admitted to be
due of £350,000 and hence wished to pay it by instalments of £17,500 per
month. It will be noted that it was said
that this schedule of payments would be met from normal trading contracts and
that any additional cash flow from new contracts would be added to allow faster
repayment as and when available and further that the defenders had two legal
disputes which, if settled in their favour, would again facilitate faster
repayment. One wonders why they thought
it necessary to refer to the possibility of faster repayment if it was not
because the sum of £350,000 was due and payable as at 14 November 2006 when the letter was sent.
[33] Finally
there were the two statements of affairs to which I have referred in paragraphs
[17] and [18] above. In his note the
sheriff suggested that these were "far from clear". It seems to me that the statement of affairs
prepared on behalf of the provisional liquidator is eloquent of a company that
was unable to pay its debts as they fell due.
Here again, it is important to notice that this was prepared on behalf
of an independent party, namely the provisional liquidator. Moreover, it was not suggested that the
details in the schedule of trade creditors of the periods of time that various
sums had been due and owing to the pursuers were inaccurate. I refer here in particular to the fact that
the sum of £101,369 was stated to have been outstanding for ninety days and the
sum of £229,794 for even longer. As for
the statement of affairs prepared on the basis of information supplied by Mr
Paul, even this brought out a deficiency as regards creditors of £262,000 and a
balance due to trade creditors of £87,000.
This last balance was calculated after making allowance for a payment of
£10,000. It may be that this is one and
the same payment as the payment of £9,448.66 which is shown in the pursuers'
bank statement as having been credited to their account on 21 November 2006 and which the defenders refer to in their answer
4. If this is correct, then it may be
asked why a sum supposedly due by the defenders to the pursuers should have
been paid to the pursuers by another company.
[34] In my
opinion the irresistible inference to be drawn from all this material is that
the defenders were unable to pay their debts as they fell due as at 17 November 2006, and the sheriff ought to have so found without
further ado. In other words, even if it
was competent for him to have done so, I do not consider that there was any
need for him to have fixed a proof on this question, and I think that he erred
in doing so.
[35] The
sheriff was evidently concerned at what was said to be the conspiracy between
the parties to preserve the contract with the owners of Leith docks. I confess that I find the averments in answer
4 about this aspect of the matter hard to understand, and in any event it seems
to me to have been essentially beside the point that, if the defenders are to
be believed, the parties were co-operating in some way to secure a continuation
of the contract with the owners of the docks.
It is said towards the end of answer 4 that the pursuers are personally
barred from insisting upon these proceedings by virtue of their actings as
previously outlined. But counsel for the
defenders did not seek to elaborate upon this particular averment in the course
of his submissions and I do not myself see any basis in law upon which it might
be maintained that the pursuers are personally barred from seeking an order for
the winding-up of the defenders given that as at 17 November 2006 they were
creditors of the defenders and the latter were unable to pay their debts as
they fell due. Indeed, earlier on in
answer 4 the defenders refer explicitly to the possibility of their being
placed in liquidation.
[36] It is
also said in answer 4 that the defenders are a wholly owned subsidiary of
Business Investment Group Limited and that they had a facility provided to them
by this company whereby funds would be made available to cover debts such as
the debt claimed by the pursuers. It is
said that the parent company had ample funds at their disposal for this purpose
and reference is made to the letter from the Royal Bank of Scotland dated 12 January 2007. The sheriff
refers to this in his note when he explains why at an earlier hearing on 22 January 2007 he had granted an adjournment until 8 February 2007. He records that: "It was also important to
know if the defenders' shareholder company did intend to pay if the provisional
liquidator was removed". As to this, I
should have thought that there could be no plainer indication of a company's
inability to pay its debts than that it should be said that its parent company
was in a position to pay its debts on its behalf. Besides the effect of the
defenders' parent company paying their debts would simply be to substitute one
creditor of the defenders for another in their balance sheet.
[37] On the
whole matter I am quite satisfied that a winding-up order ought to have been
made in this case, and I have granted decree accordingly.
[38] It was
agreed that expenses should follow success and that the appeal should be
certified as suitable for the employment by the pursuers of senior counsel. For my own part, I am satisfied that it was
indeed appropriate for the pursuers to employ senior counsel.
[39] In
addition to the authorities which I have already mentioned, I was referred to Baker Hughes Limited v CCG Contracting
International Limited 2005 1SC 65, In
Re Tweeds Garages Limited 1962 Ch 406, Byblos
Bank SAL v Al-Khudhairy 1986 2BCC 99549, In Re Fildes Bros. Limited 1970 1WLR 592, Bryanston Finance Limited v De Vries (No. 2) 1976 Ch 63, Re Capital Annuities Limited 1978 3ALL
ER 704, J G Innes Petitioner (Court
of Session, 16 March 2004, unreported) and Lynda
Todd v James Watson (Court of Session, 25 June 2004, unreported).
