ABSTRACT

There are seven permissible grounds on which a petition may be based; the only one relevant to insolvency law14 is s 122(f) of the Insolvency Act 1986, that ‘the company is unable to pay its debts’.

Section 123 of the Insolvency Act 1986 defines the situations in which a company in England or Wales will be deemed unable to pay its debts. The first is where the company has been served with a statutory demand15 by a creditor to whom the company is indebted in a sum exceeding £750 and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor. It would appear not to be possible for creditors with debts smaller than £750 to band together to serve a statutory demand. In Re London and Paris Banking Corporation16 it was held that neglecting to pay means omitting to pay without reasonable excuse so that refusal to pay where the existence of the debt is disputed on substantial grounds does not give rise to a ground for a winding up order. In Re Tweeds Garages,17 it was held that if there is no dispute as to the fact of the indebtedness but there is a dispute as to the amount, then, provided the undisputed balance exceeds £750, a statutory demand can be served for that amount. Where there is a genuine dispute as to the company’s liability to pay the creditor, the court will usually dismiss the petition and the creditor will have to sue the company for the debt to establish the right to base a petition on it.18