News
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Challenge to Winding-Up Order Where Indebtedness is Not in Dispute
In a judgment handed down by Deemster Kerruish on August 23 2005, the Chancery Division of the High Court confirmed the approach to be adopted where a creditor with locus standi (ie, the right to be heard) applies to have a company wound up, but another creditor challenges the making of the winding-up order.
The court analyzed the approach to be adopted where a challenge to a winding-up order was made by a minority creditor, in response to an application to wind the companies up by a significantly larger creditor. One of the arguments run on behalf of the minority creditor was that, in exercising the court's jurisdiction to make a winding-up order, other proceedings which had preceded the presentation of the winding-up application tainted the winding-up process, resulting in an abuse of process and/or causing it to fall foul of the principles of issue estoppel or res judicata (ie, the matter has already been finally decided).
In a detailed judgment the court reached the following conclusions, among others:
If the court is satisfied that a company is unable to pay its debts, a winding-up order will follow, unless there is some special reason to the contrary; the burden rests with any objector to show special reasons as to why the order should not be made.
The court was referred to a range of English decisions, including Re: Demagiss Holdings Limited [2001] 2 BCLC 633 and Re: Southard & Co Limited [1979] 1 ALLER 582. However, the court was careful to emphasize that the fact that the majority of the creditors in value support the making of a winding-up order is not necessarily decisive of every issue in every case.
The court also reviewed relevant Manx and English case law in respect of striking out a proceeding as an abuse of process or as falling foul of the principles of res
judicata and issue estoppel.
On the facts of the matter before it, the court found that no proper/special reasons existed, nor did it find that the winding-up proceedings were tainted by earlier or other proceedings. The winding-up orders were issued accordingly.
For further information please contact Kevin O'Riordan or Christopher Arrowsmith.
