In the recently reported case of Misra Ventures Ltd v LDX International Group LLP  EWCA Civ 3030, the UK Court of Appeal considered what constituted a genuine and serious cross-claim sufficient to justify an injunction restraining the presentation of a winding up petition.
Decision of the UK High Court
At first instance, the UK High Court had granted an injunction in favour of LDX on the basis that there was a genuine and serious cross-claim which exceeded the amount of the petition debt. In granting the injunction, the High Court held:
- an injunction to prevent the presentation and advertisement of a winding-up petition was appropriate where the debtor was able to demonstrate the existence of a genuine and serious cross-claim – a claim which is “of substance” – in an amount exceeding the petitioner’s debt. The question of the debtor’s solvency was not relevant to that issue;
- if a serious cross-claim exists, the debtor should be allowed to establish that claim through the civil court – the insolvency court is not the place to determine that claim and the court should proceed cautiously because a winding-up order is a draconian measure which gives the company little commercial prospect of reviving if made in error;
- petitioning creditors should take a realistic view of whether the debtor has a genuine and substantial dispute;
- a debtor is not prevented from raising a cross-claim because it delayed in raising the claim, but the court is entitled to take any delay into account in its assessment of whether the cross-claim is genuine and serious;
- a petition being sought to secure some collateral purpose, such as to stifle related proceedings, would be an abuse of process and therefore liable to be restrained.
Misra appealed against the decision of the High Court to grant the injunction.
Decision of the Court of Appeal
The Court of Appeal allowed the appeal and dismissed the injunction, holding that the evidence was not sufficient to justify a conclusion that there was a cross claim of substance. The decision was on the basis that:
- whilst the High Court had correctly considered the basis upon which an injunction could be granted, the judge had not correctly applied the law to the facts;
- the evidence presented to the Court was wholly inadequate to support a finding that there was a cross-claim of substance – for example, no witness statement had been filed in support and the only evidence of the nature of the claim was contained in a letter before action and the debtor’s skeleton argument.
The High Court clearly and correctly summarised the issues to be taken into account when considering if there is a genuine and serious cross-claim sufficient to restrain the presentation of a winding up petition. However, in order for the Court to weigh up whether such a claim exists, detailed evidence that such a claim is “of substance” must be put before the Court in the form of a witness statement supported by the relevant documents.