Joanne Wicks QC, sitting as a Judge in the High Court, granted an injunction to restrain SG Global Group SRL (“SGG“) from presenting a winding-up petition against Colt Technology Services (“Colt UK“) in the matter of Colt Technology vs SG Global Group SRL  EWHC 1417 (Ch) on 3 June 2020.
SGG claimed that Colt UK was indebted to it in the sum of US$4,936,619.93 plus interest. Colt UK contended that the debt is bona fide disputed on substantial grounds, such that the Companies Court is not an appropriate forum to determine the dispute and the presentation of a winding-up petition would be an abuse of process.
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On 14 March 2016, Colt UK and SGG entered into an agreement under which SGG agreed to provide Colt UK with voice trading services. In January 2017, Colt UK’s auditors, PriceWaterhouseCoopers (“PwC”), raised concerns over what they considered to be anomalies regarding SGG. Colt UK stated that these raised suspicions that SGG was not the true supplier of the services under the Agreement, but was a shell company acting as a front for another supplier and was engaged in a form of VAT “missing trader” fraud
After further enquiries were made, Colt UK suspended payment of SGG’s outstanding invoices. On 21 June 2017 SGG commenced an action against Colt Italy before the Court of Milan for payment of the invoices (“the Milan Proceedings”). On 20 December 2019, following the first instance decision in the Milan Proceedings, SGG served a further statutory demand claiming that Colt UK owed it a debt of US$5,442,768.05, equivalent to £4,170,248.88, comprising the principal sum under the invoices plus contractual interest to the date thereof.
What was Colt UK’s position?
Colt UK contented that it has a properly arguable defence that the obligation to pay the invoices is unenforceable for illegality given that there are significant indications that SGG is part of a missing trader scheme to defraud the Italian tax authorities of VAT charged on the services supplied under the Agreement, and payment of the invoiced sums would involve the commission of a criminal offence by Colt UK under Italian law.
What was the judgment in this case?
In paragraph 69 of her judgment, the Judge noted that:
In my judgment Colt UK has a properly arguable case on the evidence that SGG is not an active trading company but is effectively a shell through which others (as yet unidentified) provided VoiP services to Colt Italy; that both SGG and New Energy are buffer companies inserted into the chain to disguise a “missing trader” and that they serve or served in effect as conduits through which the services passed up the chain to Colt Italy and the price and VAT passed back down the chain, with a view to being siphoned off rather than paid to the Italian tax authorities.Paragraph 69 of the Judgment
The Judge also applied the principle in the case of Ralli Brothers v Compania Naviera Sota y Aznar  2 KB 287 (“the Ralli Bros principle“), namely that a contractual obligation will not be enforced where doing so would require the obligor to commit a criminal offence in the place where the obligation falls to be performed. The Judge stated in paragraph 74 of her Judgement that:
.. I consider that Colt UK has a properly arguable illegality defence to the sums claimed by SGG based on the Ralli Bros principle.Paragraph 74 of the Judgment
In relation to the solvency of Colt UK, the Judge noted the following in paragraph 82 of her Judgment:
In my view, Colt UK is solvent. Although superficially its 2018 and draft 2019 balance sheets show a deficit, the vast bulk of the sums due within a year are owed to other group undertakings which have in practice been content to allow the debts to accumulate over many years and it has a parent company with very substantial net equity. Making the judgment which BNY directs, Colt UK can reasonably be expected to meet its prospective and contingent liabilities. The reason why Colt UK has not paid SGG’s debt is because that debt is disputed, not because it cannot do so.Paragraph 82 of the Judgment
Read the full judgment here:
Was the presentation of the petition an abuse of process?
Yes, the Judge noted that SGG’s service of a statutory demand was a clear attempt to shortcircuit the Milan appeal proceedings: in which, it must be noted, SGG’s case is that the liability to pay the invoices lies on Colt Italy, not Colt UK. The Judge, therefore, concluded that presentation of a winding-up petition against Colt UK would be an abuse of process and granted the application to restrain a winding up petition.
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