The companies court recently ruled in the case of Lakehouse Contracts Ltd v UPR Services Ltd and made it again clear that winding-up petitions are not to be used as a debt collection tool. Using a winding-up petition where the underlying debt is disputed is considered an abuse of the process of the court whilst refusing to mediate may be found to be unreasonable resulting in adverse costs sanctions.
Lakehouse Contracts Ltd v UPR Services Ltd
The dispute between in this case concerned the value of scaffolding work UPR had invoiced to Lakehouse. Lakehouse put forth their reasons as to why UPR’s valuation of the works was disputed but paid the sum which had been agreed. The company subsequently faced a (wrongfully issued) winding up petition for a disputed portion of a scaffolding invoice. UPR then took it upon themselves to issue a winding up petition for the balance, however they sensibly undertook not to advertise the petition without giving 14 days notice. UPR also offered to mediate the dispute so as to prevent further costs incurring. Lakehouse refused this offer of mediation unless the petition was withdrawn and its costs paid.
At the return hearing of the petition, UPR asserted that the petition ought to be dismissed on the basis there would be a mediation of the underlying dispute. Lakehouse refused to mediate the petition costs.
The companies court reaffirmed that the presentation of a petition where the debt is genuinely disputed is an abuse of the proper process of the court which applied improper pressure on a company to pay a disputed debt. It should be noted that an order for indemnity costs against the petitioner is the usual order following such abuse.
Whilst there was a genuine dispute on substantial grounds of the entirety of the petition debt, the court also held that Lakehouse had acted unreasonably in refusing mediation of the underlying dispute and then in respect of the costs of the petition. Lakehouse therefore only received its costs of the petition whilst its conduct was reasonable (ie the costs up to the point where they initially refused to mediate the underlying dispute and no costs after that date).
Costs risk of refusing to Mediate a Winding-up Petition Dispute
Whilst it is an abuse of process to issue a petition where the debt is genuinely disputed, the conduct of the parties will be examined by the court in relation to deciding to apportion costs. It is clear that the courts are keen to ensure that parties mediate and resolve disputes wherever reasonably practicable rather than allow the court process to continue. Measured professional legal advice and careful handling of the opponent is imperative when dealing with insolvency litigation even where the opponent has abused the process of the court.
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