The High Court has considered whether a winding-up petition is permitted where the Petitioner has a collateral purpose for bringing the petition. The collateral purpose, also referred to as an ulterior motive, would result in the Petitioner making a gain, financial or otherwise, from bringing the petition. The court found that in the event that the affected class of creditors were still treated the same as when the petition is brought without a collateral purpose there would not be an abuse of process.

In Astra Resources plc v Credit Veritas USA LLC[1] Astra (the “Applicant”) applied for an injunction to restrain the presentation of a winding-up petition against it by Credit Veritas (the “Respondent”). The Respondent had previously served a statutory demand on the Applicant for the sum of US$1,535,000.

The Applicant submitted two grounds for the injunction. First, there was a sufficient dispute in regards to the amount claimed in the petition. Second, the Respondent had a collateral purpose for submitting the petition. On the first ground the court considered the various components of the statutory demand and concluded that there was sufficient evidence for a claim of US$600,000 to be brought. In relation to the second ground, the Applicant claimed that the petition was made for the sole benefit of the Respondent rather than for its benefit due to its position as a creditor.

The Applicant alleged that the collateral purpose of the petition was clearly demonstrated by an email between a director of the Respondent and a director of the Applicant. The email states that the purpose of the petition was to force the company into an English liquidation, following which the Respondent would be able to use English insolvency procedures to submit a ‘restructuring plan’, and thus ‘obtain control of the company’. The Judge notes that, in English terms, the Respondent would have been able to use either a scheme of arrangement (“Scheme”) or a company voluntary arrangement (“CVA”) to achieve its collateral purpose.

The court highlighted that for a Scheme or a CVA to take effect, the proposal would have to be beneficial to the class of unsecured creditors as a whole, rather than just the Respondent. It is on this point that the case turns; the court stated that the abovementioned insolvency processes could only be instigated ‘if the liquidator and the court were satisfied that it was in the interests of the unsecured creditors as a class’. From the judgement, it appears that the court did not wish to be a moral arbiter; instead it reached an objective decision as to whether the winding-up petition resulted in the class of creditors, as a whole, being treated rateably.

The Judge referred to the principle set out in Re a Company (No 001573 of 1983) [2] in which it was decided that the petitioner’s motive must be ignored if the petitioner and his class are treated rateably following the winding-up. Re a Company states that ‘if the petitioner can show that he and his class stand together and will benefit or suffer rateably, then his ill motive is nothing to the point’. However in the present case, the petitioner stood to gain at the expense of the other creditors in its class.

This decision reinforces the perception of the UK as a jurisdiction with a strong rescue culture. It has been made clear that creditors will not be penalised for taking commercially advantageous decisions, if those decisions do not result in the other creditors in the same class ending up in a less advantageous position than they would have been if (as in this case) the petitioner did not hold a collateral purpose. Although this has provided further certainty to the area, it is perhaps inevitable that further changes will take place in order to further refine the test for determining whether the creditors are being treated in the same way that they would have been had the creditor not held a collateral purpose.

[1] [2015] EWHC 1830 (Ch)

[2] [1983] BCLC 492