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TMI Blog1967 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... company are held equally between Mr. Mann on the one hand and Mr. Goldstein on the other hand, or between Mr. and Mrs. Mann on the one hand and Mr. and Mrs. Goldstein on the other hand. Mr. Mann managed the Joanita business in Pinner and Mr. Goldstein the Charmaine business in Haverstock Hill. Since July, there have been strained relations between Mr. Mann and Mr. Goldstein, apparently, partly because Mr. Mann thought that he did not have a fair deal over the sale of a subsidiary company of Charmaine called Charmaine Marguerite Ltd. which was sold to Mr. Goldstein. It was also partly due to friction over Marguerite's business continuing to be conducted from the Charmaine premises at Haverstock Hill after that sale. Proposals for one side to buy out the other in Charmaine and Joanita * were made, but no agreement was reached, and in these circumstances Mr. Goldstein presented a creditor's winding-up petition to wind up Joanita -and I quote from the petition-"...for loans made to or monies left in the company, the present amount of such indebtedness being 1,869 16s. 3d." And the defendant company, Wallands, presented a petition to wind up Charmaine as creditor for 340 for goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitions are bound to fail even though the company be insolvent. So if a creditor's petition is not restrained by such an application as is now before me and comes before the Companies Court, that court will, in limine, before proceeding further, consider the petitioner's claim to be a creditor. As stated in Buckley on the Companies Act, 13th ed. (1957) p. 451, in a passage quoted with approval by Lord Greene M.R. in In re Welsh Brick Industries [1946] 2 All E.R. 197, 198, C.A: "Some years ago petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed." And then it goes on: "The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order. " What the Companies Court will not do is to proceed any further at all on a petition founded on a debt which is not thus shown in limine to exist, for in such a case there is not, of course, the necessary creditor required by section 224 to apply for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to pursue a substantial claim in accordance with the procedure provided and in the normal manner, even though with personal hostility or even venom, and from some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala file but acting bona fide in accordance with the process. And certainly no authority suggesting' otherwise has been brought to my attention. In In re Welsh Brick Industries [1946] 2 All. ER 197 , Lord Greene M. R. treated a bona fide claim as being a claim based on some substantial ground when he referred to Ibid 198 "considering whether or not the dispute is a bona fide dispute, or, putting it in another way, whether or not there is some substantial ground for defending the action." And, so far as is material here, the winding-up process provides that the petition shall be presented by a creditor and that the winding-up order shall be on the ground that the company is unable to pay its debts. As Malins V.C. said in Cadiz Waterworks Co. v. Barnett [1874] LR Eq 182, 196, if the court "sees a petition to wind up presented, not for a bona fide purpose of winding up the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of a debt where these circumstances exist -solvency and a disputed debt." As Sir George Jessel M.R. said in the judgment from which I have already quoted 18 Ch. D. 557, 559: " When a company is solvent, the right course is to bring an action for the debt." So, to pursue a winding-up petition in such circumstances is an abuse of the process of the court. But what if the debt is disputed by the company on some substantial ground but it appears that the company is unable to pay its debts? Researches have not produced any decision covering this point. Words interpreted out of context are amply available to support the plaintiff's claim that this court should, in such circumstances, grant the injunction. Thus, for example, in In re Imperial Guardian Life Assurance Society, [1869] L.R. 9 Eq. 447, 450, Sir William James V.C. said: "A winding-up petition is not to be used as machinery for trying a common law action." But in that case voluntary liquidators had in fact offered to be personally liable and set aside assets to meet the disputed claim if proved and that was the only claim against or debt due from the company. In In re Gold Hill Mines [1883] 23 Ch.D. 210, 211 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt-if the question is not a mere question of quantum, but whether there is in fact a debt or not-a petition ought not to be presented, and therefore the court ought to restrain the presentation of the petition." No reference was expressly made here to irreparable damage to the company, but, again, it appears, from the end of the argument as reported, that the company was in fact solvent, and it could then well go without saying that the presentation of the petition which was restrained would cause irreparable damage to the solvent company. If the company is unable to pay its debts as they fall due it seems to me that the presentation or advertisement of the petition might or might not cause it damage. It might prevent its pulling through a period of financial difficulty and becoming solvent, or it might result in worse insolvency. In the case of Charmaine the evidence is that its profits are improving, and in the case of both companies that a winding-up petition would injure goodwill. It might be suggested that this court should, where the company is insolvent, intervene on the ground that it would be to the detriment of future possible creditors to countenance the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return to what was mentioned earlier in this judgment, that it is an abuse of the process of the court to prosecute a winding-up application otherwise than in accordance with the legitimate purpose of such a process. The legitimate purpose of such a process is to wind up a company on a ground specified in the Companies Act, which, so far as material to this case, is the ground that it is unable to pay its debts. It is not its legitimate purpose to decide whether a petitioner claiming to be a creditor is a creditor, because section 224 makes it a prerequisite that he should be a creditor before he is even entitled to present a petition at all and before any consideration of the company's insolvency can become relevant. So, in my view, when a petitioning creditor's debt is disputed on some such substantial ground this court should restrain the prosecution of the petition as an abuse of the process of the court even though it should appear to the court that the company is insolvent. So I come to examine the debts which the defendants allege to be due to them from the company in this case. The defendant Mr. Goldstein alleges a debt of 1,869 for directors' fees and its payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the entries therein both Mr. Mann and I were drawing a gross salary of 26 per week from that company." The book does show from its commencement such entries of 26 gross each for the last 15 weeks of one year and the first 20 weeks of the following year, making a total of 35 weeks. I am then invited to deduct the 26 gross mentioned by Mr. Goldstein from the 33 drawings mentioned by Mr. Mann as drawn from both companies to produce the figure of 7 which I have mentioned, and, further, to infer that Mr. Goldstein's drawings from Joanita were limited to that 7 not only during the 35 weeks which I have mentioned, but throughout the much longer period since October, 1965, mentioned by Mr. Mann. Mr. Mann, although he stated that 33 was drawn from both companies, also stated, perfectly clearly, that he and Mr. Goldstein drew 15 per week from Joanita. Mr. Goldstein has had ample opportunity to deal with that statement about Joanita. Nevertheless, his quoted observations appear to be directed entirely to drawings from Charmaine and not expressly, at any rate, to drawings from Joanita at all. I feel quite unable to conclude, on the material before me, that Mr. Goldstein's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Muller's list-"...were ordered by me on behalf of Charmaine, were delivered to Charmaine and subsequently sold to Charmaine's customers." Statements so phrased themselves invite doubt whether the goods were sold to Charmaine at all. Mr. Muller, in his affidavit, said that Charmaine paid, in May, 1967, 87 6s. Od. in respect of debts due from it up to December 31, 1966. The 87 6s. Od. was certainly paid by a cheque of Charmaine Coiffeur d'Art Ltd. But it seems clear from the evidence of Mr. Shelley, a chartered accountant, who gave evidence for the plaintiffs, that, of the six invoices for this debt, only one was invoiced in 1966, namely, on December 27, 1966, for l7, and that the rest were in 1967 ; that four invoices were to " Marguerite, " that one was to "Charmaine Marguerite " and only one to " Charmaine" without the addition of "Marguerite" or "Coiffeur d'Art" and that not one was invoiced to Charmaine Coiffeur d'Art. It seems that here not only was Mr. Muller confused in respect of the debts, but he was treating goods invoiced to Marguerite as goods supplied to Charmaine and that, in so far as any sum is owing in respect of debts now relied on by Wallands, it is the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that requires thorough investigation, with full discovery and opportunity for cross-examination. As in Mr. Goldstein's alleged debt against Joanita, I am not satisfied that any of the debt on which Wallands founds its petition is owing, though the debt may, of course, be established in proper proceedings for the purpose. As I have indicated, winding-up proceedings are not proper proceedings for that purpose. There remain two matters which I can quite quickly dispose of. The first is the plaintiffs' allegation of the lack of bona fide s in the defendants in presenting their petitions. I have already dealt with the meaning of bona fide s in presenting a petition. It is clear, if I am correct in my conclusion so far, that, as the debts are disputed on substantial grounds, to pursue the petitions would be an abuse of the process of the court. That is all I need say on bona fide s or that it is advisable that I would say on it at this stage of the conflict between the parties. The second matter to mention is the company's insolvency. Insolvency in connection with a winding-up petition means inability to pay debts as they fall due and not a deficiency of assets as compared with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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