Insolvency: Dismissal of a winding-up petition where the petition debt is disputed

Background and Key Facts

The Applicant, Ro-Bal Steel Fabrications Limited (“Ro-Bal”), sought an order to strike out a winding-up petition presented against it by the Respondent, G Jones Site Services Limited (“G Jones”), and/or to restrain the advertisement of the petition on the basis that there was substantial grounds for dispute over the debt that formed the basis of the petition.

Ro-Bal carried out fabrication and erection of steel works at two different locations for G Jones, namely at West Lane and St. Joseph’s.

The work carried out at St. Joseph’s was invoiced by Ro-Bal and paid in full by G Jones. However, there was a dispute about the works carried out at West Lane. G Jones and others carried out the remedial works at the West Lane site and sought the cost of doing so from Ro-Bal. Only part payment was made and subsequently G Jones presented a winding up petition to the Companies Court.

The basis upon which the winding-up petition was founded was under the provisions of the Housing Grants, Construction and Regeneration Act 1996 (“the Act”) and the Scheme for Constructions Contracts Regulations 1999 (“the Regulations”). These allow for terms to be imported into a contract where no such terms are provided for by the parties. Under section 109 of the Act, a party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless

• (a) it is specified in the contract that the duration of the work is to be less than 45 days [not the case here]; or
  
• (b) it is agreed between the parties that the duration of the work is estimated to be less than 45 days [this was the case here].
  

Ro-Bal argued that these two contracts fell outside of section 109 of the Act because there was an agreed duration of less than 45 days and, in any event, the contracts were lump sum payments. G Jones argued that the provisions applied to all construction contracts. There was a fundamental disagreement between the parties as to the applicability of the Act and therefore the provisions imported by it by the Regulations and thus the debt which the petition was founded upon.

Judgment

The Companies Court is not the appropriate forum for the determination of this issue. It is a technical issue which would be better suited to the Technology and Construction Court.

The Companies Court dismissed the winding up petition on the basis that there was a dispute on substantial grounds as to whether there was a debt in the sum pressed for by G Jones.

The Court awarded costs on the indemnity basis to Ro-Bal. The Judge also commented that an order for costs on the indemnity basis is almost a policy in relation to failed winding-up petitions.

Conclusion

Creditors need to make sure that there is not a substantial dispute over a debt forming the basis of a winding up petition and that there are no technical issues to be resolved which would be better suited to another forum when presenting a winding up petition. A failed winding up petition is likely to attract indemnity costs.

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