Debt word cloudA recent English High Court decision has further clarified the position on what amounts to an “abuse of process” when it comes to determining the motive behind the presentation of a winding up petition by a creditor. The High Court has ruled that only where a petition is issued for a purpose other than to ensure the equitable winding-up of a debtor company can it be considered an “abuse of process”, and goes on to outline what may constitute such an abuse.

In Astra Resources plc v Credit Veritas USA LLC [2015], the debtor company (A) applied for an injunction to restrain a creditor (CV) from presenting a winding-up petition on the basis that (a) the debt claimed by CV was disputed on substantial grounds and (b) the petition was thus an abuse of process. An abuse of process was asserted on the grounds that CV’s purpose in presenting the petition was not for the benefit of CV as a creditor but for an ulterior motive, namely to take control of A from its directors and implement a creditor-led restructuring plan.

A relied on Re a Company (No 001573 of 1983) in which a petition was dismissed because it was issued with the intention of causing the forfeiture of the company’s lease so that the landlord would be in a position to grant a new lease to the petitioner. In that case, the High Court held that the issue of a petition for a purpose other than to ensure the equitable winding-up of the debtor company was an abuse of process.

In Astra, the Companies Court dismissed A’s application, holding that A had been unable to demonstrate there was abuse of process. It distinguished Re a Company (No 001573 of 1983) on the grounds that if CV had a collateral purpose in presenting a petition, it was to implement a restructuring plan which was for the benefit of creditors as a whole.

The Court ruled that, provided the purpose of a winding-up petition was to achieve an outcome consistent with the proper process of a winding-up, it was not an abuse of process.

A link to the case is here: Astra Resources plc v Credit Veritas USA LLC [2015] EWHC 1830 (Ch) (23 June 2015)