Abusive Winding-up Petition Based on DIY Statutory Demands Restrained (Invenia v Hudson)

In the recent case of Invenia Technical Computing Corporation & Anor v Matthew Hudson [2024] EWHC 1302 (Ch), the High Court issued a landmark judgment that serves as a stark costs warning against the misuse of statutory demands and winding-up petitions. This case highlighted the severe consequences that can follow when a creditor takes a DIY approach and fails to seek appropriate legal advice before initiating such proceedings.

The case arose from a dispute between the Applicants, Invenia Technical Computing Corporation and Invenia Labs Limited, and the Respondent, Mr. Matthew Hudson. Mr. Hudson had issued five statutory demands against the Applicants, alleging a debt that was vehemently disputed. The Applicants sought an injunction to restrain Mr. Hudson from presenting winding-up petitions based on these statutory demands, which they argued were entirely without merit.

What is a Statutory Demand?

Insolvency Rules 2016 (“IR 2016”) parts 7.2 and 7.3 define a statutory demand as a written notice that requests payment of a debt that a company owes to a creditor. When a creditor serves a statutory demand on a company, it is a sign that the creditor intends to file a winding-up petition to dissolve the business if the relevant debt is not settled.

A statutory demand may also be used to require a person to pay a debt. Insolvency proceedings for people, however, are subject to different rules and are known as bankruptcy proceedings.

When a company’s debt is still owed and exceeds £750 in value, a creditor has the right to issue the company with a statutory demand.

A statutory demand outlines a creditor’s claim against a debtor.  The statutory demand is intended to be relied upon in further legal proceedings against the company or an individual (to wind up a company or partnership, or to bankrupt an individual) and which ought to:

• Provide details of the financial claim, with interest calculated to the date of the demand;
• Be served on the debtor personally or by post; and
• Tell the debtor what to do to comply with the demand, have it set aside and the consequences of doing neither.

The format must follow the guidelines set out in the Insolvency Rules 1986, but it is not a court document.  Although the demand is dated at the time of issue, it does not expire.  The time limits to deal with a demand only apply from the date of service.

Indemnity Costs Awarded Against Petitioner

The court, after careful consideration, granted the injunction and awarded costs against Mr. Hudson on an indemnity basis. This punitive cost order was made to reflect the court’s view that Mr. Hudson’s actions were not only unreasonable but also amounted to an abuse of process. The court found that Mr. Hudson had failed to conduct the necessary due diligence before issuing the statutory demands, and that his actions were driven by ulterior motives rather than a genuine belief that the debt was due.

What are Indemnity Costs?

A litigation court order for indemnity costs means the party that lost has been ordered to pay a higher costs contribution to the winner than is standard. Judges order indemnity costs to punish litigants that engage in poor litigation conduct.

An indemnity costs order is designed to fully compensate a party for the costs and inconvenience of litigation. Costs in a lawsuit can be calculated on one of two bases: the standard basis or the indemnity basis. The indemnity basis is intended to cover expenses as comprehensively as possible.

An award of indemnity costs might give a party in a lawsuit a major advantage, due to the fact that the paying party will be responsible for the legal expenses and the proportionality criterion will not be applied. Since costs on the standard basis are the norm, the indemnity costs principle (included in Civil Procedure Rules 44.3(3)) can be considered punitive in nature.

Risks of Issuing a Baseless Statutory Demand

This case underscores the significant risks associated with issuing statutory demands without proper legal advice. Mr. Hudson’s actions in this case serve as a cautionary tale for any creditor considering taking similar steps. The court was particularly critical of Mr. Hudson’s failure to acknowledge the existence of a genuine and substantial cross-claim, which significantly undermined the validity of his statutory demands.

By issuing these demands and threatening winding-up petitions without fully understanding the legal requirements, Mr. Hudson exposed himself to considerable financial liability. The court’s decision to award indemnity costs against him reflects the seriousness of his misconduct and the importance of acting reasonably in legal proceedings.

Download the Judgment Here

Importance of Due Diligence in Winding Up Proceedings

The judgment in this case serves as a reminder of the critical importance of due diligence in winding-up proceedings. Creditors must be aware that issuing a statutory demand is a serious step that can have significant legal and financial consequences. It is essential to ensure that the debt is undisputed and that there is no viable cross-claim before taking such action.

Failure to do so can result in a court not only restraining the presentation of a winding-up petition but also imposing punitive cost orders, as seen in this case. The court’s decision to award indemnity costs underscores the need for creditors to act responsibly and with due consideration for the legal process.

Expert London Insolvency Lawyers

At LEXLAW, we understand the complexities and risks involved in issuing statutory demands and pursuing winding-up petitions. Our experienced team of solicitors is here to provide expert legal advice to ensure that your actions are legally sound and that you are fully aware of the potential consequences. Whether you are a creditor seeking to recover a debt or a company facing a winding-up petition, we can guide you through the process, protect your interests, and help you achieve the best possible outcome. Contact us today at 02071830529 for a consultation.

Expert Legal Advice on Statutory Demands and Winding-up Petitions

The case of Invenia Technical Computing Corporation & Anor v Matthew Hudson serves as a clear warning to creditors: do not issue statutory demands or threaten winding-up petitions without first seeking expert legal advice. The consequences of failing to do so can be severe, including the potential for indemnity costs orders and significant financial liability. Always ensure that your actions are based on solid legal grounds to avoid costly and damaging litigation.

How Can We Help You Oppose a Winding Up Petition?

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors. If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition on the following grounds:

That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company; Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or In certain other limited circumstances (for example such as jurisdiction, technical or procedural error or delay).

To oppose a winding-up petition, you will initially need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing.

Your company is entitled to appear at the petition hearing so as to oppose the making of a winding-up order. It is a routine matter for companies to instruct solicitors and/or barristers to appear on their behalf at the hearing.

Our Winding-Up Experts are able to give specialist legal information and advice relating to winding up matters and connected applications. To contact one of our Solicitors or Barristers please click here or call 02071830529.