Who Should Pay the Petition Fee After Petition Debt Settlement?

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Reliance Wholesale Ltd v AM2PM Feltham Ltd [2019]

In the recent Reliance Wholesale Ltd v AM2PM Feltham Ltd case, the High Court provided much-needed guidance and clarification on how the Court should approach cost issues

when a petition claim is rejected following full payment made by the debtor company, even when such payment is made “under protest” without acknowledgment of liability for the petition claim.

Background

Reliance Wholesale Ltd (“the Applicant”) brought a petition for liquidation against AM2PM Feltham Ltd (“the Company”) claiming that the Company had failed to repay a loan of approximately £ 39,000.

Subsequently, on December 3, 2018, the Company agreed to pay the deemed debt described in the liquidation petition. However, the company made it clear that it was making the payment “under protest” as it totally disagreed that the petition debt was ever due and payable.

After the necessary payment was made, the parties agreed by consent that the liquidation petition should be dismissed and on December 5, 2018, Insolvency and Corporate Court Chief Justice Briggs dismissed the petition, not anticipating no provision for the costs of the request. It follows, of course, that each party bears its own costs.

The Chief Registrar, with few documents at his disposal, found that it was difficult for him to decide the issue of costs and therefore decided that the fairest way to resolve this issue was to order that each party bear its costs. own costs.

This decision gave rise to an appeal by the petitioner who argued that the Chief Registrar should have ordered that the company pay the costs of the petition.

What did the Court decide?

The judgment of Justice Morgan, sitting in the Chancellery Division of the High Court, is clear that the Court had some sympathy as to why the Chief Registrar ordered each party to bear their own costs of the petition. .

However, Justice Morgan summed up the position by explaining that “it seems to me that the decision of the Registrar did not amount to a truly judicial decision on the point on which there was a dispute and on which there were arguments. from either side “. (see [27] judgment).

Because the Court of Appeal had evidence that the lower court had not seen, it was in a better position to make a decision as to the correct approach to take.

The case law on this specific point seems to indicate that if the petition debt was paid before the petition hearing, it was normally fair to infer that the payment indicated that the money was due after all and therefore that the costs of the petition were due. petitioner should be paid by the debtor.

However, in the present case, such a deduction could not be drawn because the company paid the petition debt “under reserve” and reserved the right to request collection of the petition debt from the petitioner. through a separate procedure.

The Court could not therefore be satisfied that the Company had admitted that it owed the sums indicated in the application. The case was therefore based on the Court’s assessment, on the elements submitted to it, as to whether there was a good faith dispute for substantial reasons linked to the claim in the application.

Morgan J accepted that there was at least some basis for accepting the company’s account as to payment, but significantly only up to an amount of around £ 33,000. However, the Company was unable to explain the balance of some £ 6,000 which was owed to it. As a result, the Court could not see how the Company could have a good faith defense on substantial grounds of £ 6,000.

The petitioner was entitled to bring his claim against the company on the basis of the remaining balance of £ 6,000 and therefore had the company not paid £ 6,000 by 3 December 2018 the petitioner could have continued the petition . The petition was therefore justified.

Although the petition was dismissed, it was done because the full amount of the petition debt had been paid before the hearing. The Court was therefore entitled to make the usual order that the Company should pay the costs of the Applicant’s petition.

Summary

This case is useful in that it clarifies the approach to be taken and the correct principles to be followed when a court considers the order for costs to be made when a winding-up motion has been dismissed by consent following payment in full. claim debt.

It is also helpful in that it explains how the payment of the petition debt “under reserve” impacts the court’s approach to making the costs order correct.

Further, as long as the Court is satisfied that the debtor company does not have a bona fide substantive cause dispute as to the enforceability of the petition debt, then even if the petition debt is paid ” subject ”, the usual order as to costs will follow.



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