Aggressive Debt Recovery

We are often contacted by companies that are facing aggressive debt recovery action in the form of a winding-up petition with little to no notice at all.

Often such a petition has been presented against a company for an improper or wrongful motive (a collateral purpose); perhaps to seek to avoid the lengthy timeframe of a County Court or High Court claim where there is in all reality a dispute.

A petition founded on a debt that is disputed on genuine and substantial grounds would be an abuse of process and/or is bound to fail.

Mann v Goldstein [1968] 1 WLR 1091

A dispute about a petition debt may nevertheless be determined on the hearing of the petition if it is sufficiently simple and straightforward and all the evidence necessary to resolve it is before the court, particularly if there is a short point of law or construction.

Defending Abusive Debt Recovery Petitions

A company that suffers an aggressive petition must firstly defend the petition robustly and later after dismissal also consider bringing a Court claim for malicious prosecution against the petitioner. Our barristers and a solicitors have a great deal of professional experience in defending against improper and aggressive debt recovery petitions.

Below are a few example case studies where we successfully defended aggressive petitions (and one where we issued and successfully maintained a robust winding-up petition in the face of a purported dispute):

Case Study 1: Successful Dismissal of Petition issued for a Collateral Purpose over a Disputed Debt

We acted for the Applicant in Re PGH Investments Ltd v Sean Ewing [2021] EWHC 533 (Ch) before Deputy ICC Judge Passfield (which went on to an appeal which we also succeeded in).

Our insolvency defence team were instructed to defend an aggressive and abusive winding up petition for a disputed debt of over £0.825m presented by Mr Ewing via Wedlake Bell solicitors against our client company. The learned judge concluded that, on a proper construction of the Agreement (also prepared by Messrs Wedlake Bell), the Company was not liable to pay the Alleged Debt to the Petitioner.

Accordingly, the Petition was successfully dismissed with the award of costs on the indemnity basis against the Petitioner in favour of our client.

The case also raised important points concerning winding-up petitions in light of the Corporate Insolvency and Governance Act 2020, including as to the meaning of ‘financial effect’ and the burden of proof. These have been referred to in subsequent winding-up petition cases.

An appeal was lodged by the Petitioner. Mrs Justice Falk subsequently dismissed the appeal presented by Peter Shaw KC and Keidan Harrison solicitors on behalf of Mr Ewing against the decision of Deputy ICC Judge Passfield. The failed appeal concerned the construction of a guarantee in the context of a disputed winding up petition.

The petitioner ended up paying considerable legal costs both to his own legal teams (two sets of teams) and towards our client’s legal costs of and occasioned by:

• (i) the petition;
• (ii) our application for an injunction against advertisement and early dismissal; and
• (iii) his failed appeal.

Clearly getting the best possible advice at the outset and choosing the right legal team to pursue their advised legal strategies was critical for our client who enjoyed very successful outcomes in this dispute.

Case Study 2: Defeated – Defective Petition Issued by National Firm of Solicitors met with Successful Injunction to Restrain Advertisement

A premature winding-up petition was issued against our client company by a former investor in the client company. We analysed the papers and advised the petition was defective. We then entered into urgent correspondence with the other side’s national firm of solicitors (that seemed to lack specialist experience in winding-up petitions) and quickly issued an appropriate emergency injunction application.

Eventually after 27 days exchanging evidence and opponent wriggling by applying to submit amended winding-up petitions, we successfully forced the petitioner and his legal representatives to capitulate (just before the hearing) to dismiss the petition by way of a consent order agreed between the parties and to pay substantial costs to our client on the indemnity basis (a punitive basis ordered where a party does something improper).

The arguments we rehearsed were:

• (a) The debt was disputed on genuine and substantial grounds;
• (b) The petition was unjust and inequitable and an abuse of process and serves to prejudice the company and has been presented otherwise than for the purpose of getting the company wound up;
• (c) The Petition was bound to fail as a matter of fact; and
• (d) The Company was solvent and able to pay its debts when they fall due.

We also advised our client on a claim against the petitioner for malicious prosecution of a winding up petition and for abuse of the civil process arising out of the presentation of the same winding up petition: the existence of such a tort having been confirmed by the decision in Crawford Adjusters (Cayman) Ltd v Sagicor Insurance (Cayman) Ltd [2014] A.C. 355.

Case Study 3 : Issuing a Winding-up Petition and maintaining it in the face of an Injunction to Restrain alleging a Dispute

This is a very interesting case where we were instructed by an RICS Professional Surveyor who had rendered circa £20,000 of invoices and been made various failed promises to pay before the debtor company instructed a solicitor in response to a Statutory Demand. The debtor’s solicitor raised a raft of new arguments to assert the debt was disputed.

We reviewed the papers and felt confident that our client would be right to issue a winding-up petition and we were instructed to do so. The other side argued the petition was aggressive and improper and issued an injunction application. We filed lengthy evidence in response highlighting the petition debt was in fact agreed in multiple written items of correspondence.

At the hearing of their application to restrain the other side were ordered:

• To give a solicitor’s undertaking to pay the petition debt and late payment charges and interest in full on the same day;
• To pay a substantial interim payment of costs;
• To pay our client’s petition costs on the standard basis; and
• To pay our client’s injunction application costs on the indemnity basis

This was an interesting result and highlighted that robust action over an unpaid debt by a Company was perfectly proper in the circumstances of this case. This is why we always wish to review all the case papers carefully and give legal advice on the same from both a barrister and solicitor at the outset of any instruction. This ensures the best possible results.

Case Study 4: The curious case of a two-day Demand Letter (sent by snail mail)

Our client discovered from an insolvency practitioner via Linkedin that a winding-up petition had been issued against it. Our client was in dispute with the Petitioner who was wrongfully claiming payment of a string of invoices with no contractual agreement in place and with clear written and telephone disputes over those very invoices. We issued an injunction and await the outcome of the same. Watch this space!