A malicious winding-up petition is one that has been presented against a company for an improper or wrongful motive. A company that suffers a malicious petition can bring a Court claim for malicious prosecution against the petitioner.
What is a Malicious Petition?
A malicious petition is a winding up petition that has been brought wrongly. It is a tort (civil wrong) to present a winding up petition maliciously without reasonable or probable cause. Where evidence of this malice exists the company can ask the court to dismiss the winding up petition. The company can argue it has suffered costs, damage and loss as a result of the winding up petition and can ask the Companies Court for costs at the hearing of the petition. A claim for damages on the grounds that a petition was presented maliciously and without reasonable cause can then in addition be brought by way of a separate civil action (as damages cannot be awarded at the winding up hearing).
Legal Grounds Malicious Prosecution Claim
In order to succeed in a claim for malicious prosecution, the debtor company must prove the following:
- Proceedings on the Petition Ended in Favour of the Company
- Absence of Reasonable or Probable Cause for Presenting the Petition
- Evidence of Malice or an Improper Motive
1. Proceedings on the Petition Ended in Favour of the Company
A claim for malicious prosecution can only be made in respect of proceedings which actually ended in favour of the Company that was petitioned against. Proceedings for malicious prosecution cannot be instituted on the basis that new evidence will show that the petition should have ended in the Company’s favour.
2. Absence of Reasonable or Probable Cause for Presenting the Petition
To bring a claim for malicious prosecution, the Company must show that the petitioner did not have reasonable or probable cause to present the petition. When presented with a claim for malicious prosecution, the petitioner must show a genuine belief that there were good grounds for presenting the petition against the company. The fact that the petitioner acted on professional legal advice will usually be sufficient for this purpose.
3. Evidence of Malice or an Improper Motive
The debtor must show that the petitioning creditor brought the winding up petition against the company with malice or improper motive. The Privy Council in the case of Gibbs v Rea  AC 786 stated that ‘malice or improper, wrongful motive’ includes ‘intentional abuse of the winding up petition process and of the Court’ and covers ‘not only spite, ill-will and also improper motives’. It is worth noting that absence of reasonable cause will not necessarily be sufficient evidence of malice.
Malicious Prosecution: Case Study
In this case, a claim for damages was brought against a petitioning creditor for maliciously presenting a winding up petition. The Claimant carried on a business as a bicycle supplier and repair shop. The Defendant carried on business as a supplier of bicycle accessories and was the Claimant’s main supplier.
By a written contract, the Defendant agreed to supply to the Claimant 10 bicycles, at a cost each of £100, making a total price of £5000. The Claimant argued that the bicycles delivered by the Defendant were not of satisfactory quality and neither were they fit for their purpose in that inadequate materials had been used. The Claimant informed the Defendant that the goods were not merchantable quality and not fit for their purpose, however, in the absence of payment, the Defendant presented a winding-up petition against the Claimant for the sum of £5000.
The Court held that the winding up petition was brought maliciously and without reasonable and probable cause. The Court was particular influenced by reliable evidence that the Defendant knew that there was a genuine dispute concerning the quality of the goods supplied to the Claimant.
In addition, the Defendant had indicated to the Claimant that the purpose of the winding up petition was to cause the Claimant to end proceedings against a third party, a business associate of the Defendant. As such, the Court held that the Defendant had maliciously presented a winding up petition against the Claimant and therefore the Claimant had sustained loss and damage for which it was entitled redress.
What to do if you are facing a Malicious Petition?
Where a winding up petition is opposed by the company on grounds of malicious prosecution, our expert winding up solicitors and barristers can assist you to ensure the winding up petition is dismissed. Our team of expert Barristers & Solicitors is able to advise your company on the best approach to oppose a winding-up petition. Contact us by clicking here or calling 0845 8622 529.