Maud v Aabar Block S.A.R.L. & Anor [2015] EWHC 1626 (Ch)

Case No 218/SD/2014

[2015] EWHC 1626 (Ch)

IN THE HIGH COURT OF JUSTICE

IN BANKRUPTCY

RE: GLENN MAUD

Venue Royal Courts of Justice, Rolls Building, London, EC4A 1NL

Date 8 June 2015

Before

MRS JUSTICE ROSE

Between

GLENN MAUDApplicant

(1) AABAR BLOCK S.A.R.L.First Respondent

(2) EDGEWORTH CAPITAL (LUXEMBOURG ) S.A.R.L.Second Respondent

Peter Arden QC (instructed by Squire Patton Boggs (UK) LLP) for Applicant

Mark Phillips QC and William Wilson (instructed by Linklaters LLP) for Respondents

Hearing Hearing date: 12 May 2015

Judgment

Mrs Justice Rose DBE:

[1]The Applicant (‘Mr Maud’) applies to set aside a statutory demand dated 5 June 2014 and served on him by the Respondents. The statutory demand is for an unsecured sum of £41,384,196.17 (€50,985,620.07). This sum comprises a judgment debt in the sum of €52,565,110.31 that Mr Maud was ordered to pay the Respondents in a consent order made by Teare J on 17 June 2011 plus interest accruing on that amount since that order, less the amount of security held by the Respondents for that debt.

[2]The grounds on which the court may set aside a statutory demand are set out in the Insolvency Rules 1986 r. 6.5(4):(a) The debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or

(b) The debt is disputed on grounds which appear to the court to be substantial; or

(d) The court is satisfied on other grounds, that the demand ought to be set aside.

[3]Mr Maud applies to set aside the demand on two grounds. The first is under r 6.5(4)(b) because he contends that the debt has already been satisfied in full by Mr Derek Quinlan who was jointly and severally liable with Mr Maud for the original debts which were the subject of the judgment. He argues that the evidence he has put forward raises an arguable case that his liability for the original debt and hence for the judgment debt has been extinguished. Whether this is in fact what has happened is a matter which, he submits, needs to be explored at a trial and for present purposes this constitutes a substantial dispute as to whether the debt is still due. His second ground is that the statutory demand ought to be set aside because the Respondents are pursuing a collateral purpose by serving this statutory demand. That purpose is to trigger pre-emption rights set out in the articles of association of a company which is at the moment jointly owned by Mr Maud and Mr Quinlan and of which the Respondents wish to gain control. He submits that this collateral purpose means that the court should be satisfied ‘on other grounds’ that the demand should be set aside, for the purposes of r 6.5(4)(d).

[4]This application to set aside the statutory demand was heard on the day after I heard Mr Maud’s application to set aside a statutory demand served on him in unrelated proceedings by the Libyan Investment Authority regarding non-payment of a debt of about £17.5 million. I am handing down judgment on that application at the same time as I hand down this judgment. For the reasons I set out in this judgment, I refuse to set aside the statutory demand served by these Respondents. But I have set aside the statutory demand in those other proceedings: see Maud v The Libyan Investment Authority

[2015] EWHC 1625 (Ch)

[5]To understand both grounds relied on by Mr Maud to set aside the statutory demand served by these Respondents, it is necessary to explain two transactions which form the backdrop to the events giving rise to the debt. The first is the acquisition by the Marme group of companies of a substantial real estate complex known as Cuidad Financiera del Banco de Santander in Madrid (‘the Santander asset’). The premises houses, amongst other businesses, the global headquarters of the Santander international banking group. The Marme group of companies comprises: i) Ramblas Investments BV (‘Ramblas’), a Dutch company the shares in which are currently owned as to 50 per cent by Mr Maud and as to 50 per cent by Mr Quinlan; ii) Delma Projectontwikkeling BV (‘Delma’) a Dutch company which is wholly owned by Ramblas; and iii) Marme Inversiones 2007 S.L. (‘Marme’), a Spanish company which is wholly owned by Delma.

[6]The aim of the purchase was to lease the Santander asset back to Santander bank on a long lease at a substantial rent in a way that could enable the monetisation of the cash flow deriving from it. In simplified terms, the purchase of the Santander asset was financed by the following loans, all agreed on 12 September 2008: i) A five year senior loan of €1.6 billion to Ramblas through a syndicate of banks headed by Royal Bank of Scotland (‘the senior loan’). The senior loan could be accelerated on the occurrence of certain events. ii) A junior loan for €200 million from Royal Bank of Scotland to Ramblas (‘the junior loan’). This was secured by, amongst other things,(a) a pledge executed by Mr Maud and Mr Quinlan over their shares in Ramblas in favour of RBS;

(b) a pledge executed by Ramblas over its shares in Delma; and

(c) a limited personal guarantee from Mr Maud and Mr Quinlan (‘the personal guarantee’). This personal guarantee from Mr Maud and Mr Quinlan was secured by a number of instruments, the most relevant one for our purposes being a charge given by Mr Quinlan in favour of RBS over shares and loan stock that he owned (directly or indirectly) in Coroin Ltd (his ‘Coroin stake’). iii) A personal loan made to Mr Maud and Mr Quinlan by RBS for €75 million and then loaned on by them to the Marme Group (‘the personal loan’). Mr Maud and Mr Quinlan were jointly and severally liable on this loan. This loan was also secured by a number of instruments, again the most relevant one for our purposes being the charge given by Mr Quinlan in favour of RBS over his Coroin stake.

[7]I refer to Mr Maud’s and Mr Quinlan’s joint and several liabilities under the personal loan and the personal guarantee as ‘the Marme debts’.

[8]In September 2010 there was a default which entitled RBS to accelerate the amounts due under the personal loan. On 30 November 2010 RBS transferred and assigned its rights under the junior loan and the personal loan together with the benefit of all the securities held in respect of those loans to the Respondents. In December 2010, the Respondents accelerated payment of the junior loan. In February 2011 the Respondents brought proceedings in the High Court against Ramblas in respect of the junior loan and against Mr Maud and Mr Quinlan in respect of the personal loan. It was the action against Mr Maud and Mr Quinlan in respect of the personal loan that gave rise to the judgment order of Teare J referred to earlier. A consent order was also approved on 17 June 2011 giving judgment in favour of the Respondents against Ramblas for €216.6 million.

[9]The second set of transactions that forms the relevant backdrop relates to Mr Quinlan’s shares and stock in Coroin Ltd (‘Coroin’). These, as I have said, were charged by him as security both for the personal loan and for his potential liability under the personal guarantee he entered into for the junior loan. That charge was in fact one of a number of charges over his substantial Coroin stake. There were two prior ranking charges on different holdings of Mr Quinlan’s Coroin shares originally granted in favour of(a) Bank of Scotland (Ireland) (‘BOSI’) securing loans to Mr Quinlan of about €65 million and

(b) Anglo Irish Bank Corporation plc (‘AIB’) securing loans to Mr Quinlan of about €42 million. It was common ground between the parties to the present dispute that Mr Quinlan’s Coroin stake was sufficiently valuable to provide a valuable security for his liabilities under the Marme debts even though it ranked behind the BOSI and AIB debts, and that indeed there was a substantial equity still left in the Coroin stake.

[10]In December 2010 the BOSI debt and the rights under the charge on Mr Quinlan’s Coroin stake securing that debt were bought by Sir David and Sir Frederick Barclay (‘the Barclay brothers’). The Barclay brothers’ long battle for control of Coroin is described in the judgment of David Richards J in Re Coroin Ltd (No 2)

[2012] EWHC 2343 (Ch)

[2013] 2 BCLC 58

.). In April 2011, the AIB debt and the rights under the charge securing that debt were bought by a Malaysian investor Mr Jho Low through a company called JQ2 Ltd. Thus the two charges which ranked in priority over the charge over Mr Quinlan’s Coroin stake held by the Respondents were now owned by people who appeared to be vying with each other for control of Coroin.

[11]In or about September 2011 an agreement was entered into which was shortly after amended by deed. The initial agreement and the amending deed, dated 23 September 2011 were between B Overseas Ltd (effectively the Barclay brothers), the First Respondent (effectively on behalf also of the Second Respondent) and JQ2 Ltd. Under the agreement as amended by the deed: i) JQ2 agreed to transfer to the Barclay brothers the debt that Mr Quinlan owed them (which debt JQ2 had bought from AIB) and also to transfer to them JQ2’s rights under the charge over Mr Quinlan’s Coroin stake. This was in return for a payment to JQ2 from the Barclay brothers of £49.1 million in cash. This marked Mr Low’s exit from the fray as regards the future control of Coroin. ii) The First Respondent agreed to procure that it and the Second Respondent would release the charge that they held over Mr Quinlan’s Coroin stake securing the personal loan and personal guarantee under the Santander asset arrangements (which rights the Respondents had bought from RBS) in return for a payment to them from the Barclay brothers of £9.4 million in cash. This marked the Respondents’ exit from the fray as regards the future control of Coroin. iii) The First Respondent agreed that it would procure that Mr Quinlan transfer to the First Respondent all his interest in his Ramblas shares for €1.

[12]Also on 23 September 2011, Mr Quinlan entered into a Deed of Sale and Adherence with the Respondents. Under this Mr Quinlan agreed to sell his shares in Ramblas (representing 50 per cent of all the Ramblas shares) to the Respondents in return for one Euro. Clause 9 of this agreement provided (the Buyers being the Respondents and the Seller being Mr Quinlan):

“9. Buyer’s undertaking The Buyers agree that, subject to the Seller complying with his obligations under this Deed they will not present a petition for a bankruptcy order in respect of the Seller ... in connection with the Ramblas indebtedness. The Buyers’ obligations with respect to this Clause 9 will terminate immediately upon the Seller breaching any of his obligations under this Deed”

The Buyers agree that, subject to the Seller complying with his obligations under this Deed they will not present a petition for a bankruptcy order in respect of the Seller ... in connection with the Ramblas indebtedness. The Buyers’ obligations with respect to this Clause 9 will terminate immediately upon the Seller breaching any of his obligations under this Deed”

[13]The ‘Ramblas indebtedness’ was defined in the Deed of Adherence as ‘any and all indebtedness owing by the Seller to the Buyers in relation to [Ramblas] or any of its subsidiaries’. I shall refer to the initial agreement, the deed of arrangement and the Deed of Sale and Adherence together as ‘the September 2011 arrangements’.

[14]On 5 March 2014, the district court in Madrid opened voluntary insolvency proceedings (‘Concurso voluntario’) in relation Marme, Delma and Ramblas at the request of the companies’ respective directors. This was done in order to facilitate the restructuring of the Marme group’s senior and junior debt in relation to the Santander asset. According to Mr Maud’s evidence in support of his application to set aside the statutory demand, the rationale behind this was that the Spanish insolvency legislation prevents the junior lenders (including the Respondents) from enforcing their security (that is the pledge of the shares) at both the Ramblas and Delma levels and also prevents the senior lenders from enforcing their security over the shares in Marme held by Delma. In Concurso proceedings there is, according to Mr Maud, a minimum moratorium period of 12 months during which the group companies are protected from their creditors and no enforcement proceedings are allowed.

Has the judgment debt been extinguished?

[15]Mr Maud’s contention is that there is a substantial dispute as to whether what Mr Quinlan and the Respondents agreed as part of or alongside the September 2011 arrangements was in fact to extinguish the debts that Mr Quinlan owed to the Respondents. If the debts were extinguished, then Mr Maud’s joint and several liability to the Respondents is also extinguished, though he may of course be required at some point to make a contribution to Mr Quinlan.

[16]Mr Maud’s argument is as follows. i) The effect of the September 2011 arrangements was that the Respondents surrendered a valuable charge they held over Mr Quinlan’s Coroin stake as security for his Marme debts, apparently in exchange for a payment to them from the Barclay brothers of £9.4 million. The value of the Marme debts owed by Mr Quinlan to the Respondents and secured by the charge they were surrendering was considerably more than that sum and the Coroin stake was a valuable security for those larger debts. ii) Mr Quinlan in his turn agreed to transfer his 50 per cent share in Ramblas in return for only one Euro, plus an undertaking on the part of the Respondents not to make him bankrupt over the Marme debts plus the release of one of the charges over his Coroin stake. iii) Given the substantial value of the 50 per cent holding in Ramblas, this does not make commercial sense for Mr Quinlan, particularly since his motivation at the time was to reduce his overall level of indebtedness. iv) There must be somewhere an agreement, not yet disclosed, under which Mr Quinlan is in fact discharged from the Marme debts he and Mr Maud owe in return for the substantial value that the Respondents receive under the September 2011 arrangements. He argues that whether or not this turns out to be the case will need to be explored in litigation – though quite what form that litigation would take given that there is already a judgment in existence was not clear.

[17]Mr Maud’s first witness statement dated 1 July 2014 was made before he had sight of the documents comprising the September 2011 arrangements. He sets out his understanding of the negotiations which took place over the summer of 2011, gleaned from discussions he has had with those involved since he was not of course a party to those negotiations. His belief is that terms were agreed between the Barclay brothers, Mr Quinlan and the Respondents that in consideration of Mr Quinlan agreeing to hold the economic interest in his shares in Ramblas for the benefit of the First Respondent (and exercising his shareholder rights in accordance with their instructions) the Respondents agreed not to enforce their security over Mr Quinlan’s Coroin stake or to exercise their right under the equity of redemption in relation to the security held by the Barclay brothers over Mr Quinlan’s Coroin stake. As a result of this, he says, the Respondents have obtained ‘effective control’ over half the shares in Ramblas without a formal transfer of the shares, thereby avoiding the triggering of the pre-emption rights in Mr Maud’s favour as the co-shareholder in Ramblas. He describes various other contacts he has had with the Respondents and those acting for them in which the Respondents offer to buy his 50 per shareholding in Ramblas for a nominal sum and seek his cooperation in what he calls the Respondents’ ‘loan to own’ strategy. In the absence of his agreement to sell and cooperate with them, he believes that they will continue to adopt every strategy available to them to force him to accept their terms. This strategy includes trying to make Mr Maud bankrupt. As Mr Maud puts it in his evidence:

“99. In accordance with the articles of association of Ramblas, my bankruptcy would trigger a right of pre-emption in favour of [Mr Quinlan] as my co-shareholder in Ramblas. As a result of the agreement reached between the Respondents, [Mr Quinlan], and the Barclay brothers, the Respondents have already obtained effective control over 50% of the shares in Ramblas. [Mr Quinlan] has agreed to (i) hold the economic interest in his shares in Ramblas for the benefit of Aabar and (ii) vote his shareholding in Ramblas and in his capacity as a Director of Marme in accordance with the instructions of the Respondents. Accordingly, should I be made bankrupt, the Respondents would be able to obtain complete control of the shareholding in Ramblas. 100. I also believe that if I am made bankrupt, through recognition proceedings in Spain, the Respondents would attempt to have me removed as a director of Ramblas, Marme and Delma.”

[18]Once Mr Maud had sight of the documents comprising the September 2011 arrangements he made a second witness statement. He said that could not believe that the Respondents as highly astute and well-advised commercial entities would enter into an agreement whereby the value of the security released (that is their charge over the Coroin stake) was less than the value of the benefit derived.

[19]There are, however, two problems with Mr Maud’s contention. The first is that the documentation of the September 2011 arrangements nowhere states that the personal loan made to Mr Quinlan (and hence the judgment debt owed by Mr Maud) is paid off or is treated as having been paid off. On the contrary, any such suggestion is contradicted by the wording of the documents in the following ways. First, the September 2011 arrangements require the First Respondent in return for £9.4 million to procure the release of the security interests they hold over the Coroin stake as security for Mr Quinlan’s debts under the Santander asset arrangements. If the debts were in fact extinguished by the arrangements there would be no continuing security to be released. Secondly, the Deed of Adherence refers to the ‘Ramblas indebtedness’ as meaning all or any indebtedness owed by Mr Quinlan to the Respondents in relation to Ramblas or any of its subsidiaries. This again assumes that such indebtedness continues to exist. Thirdly, the Respondents’ undertaking in clause 9 of the Deed of Adherence not to present a bankruptcy petition in connection with the Ramblas indebtedness only makes sense if that indebtedness continues to exist. Moreover, in the Deed of Adherence the Respondents impose other obligations on Mr Quinlan in an attempt to tether him firmly within the Respondents’ camp in this world of shifting alliances and conflicting interests. For example:(i) Mr Quinlan undertakes in clause 5.1.1 to use his influence as director and shareholder of Ramblas to maintain the business of Ramblas as a going concern between the date of the Deed and the date on which his 50 per cent share is transferred to the Respondents;

(ii) in clause 7.2 Mr Quinlan promises not to challenge or contest in any way any steps taken by the Respondents to enforce any pledges over shares in the Marme Group; and

(iii) in clause 7.4 Mr Quinlan promises not to help Mr Maud to frustrate or delay the Respondents’ acquisition of control of the Marme Group. The promise in clause 9 not to petition for Mr Quinlan’s bankruptcy in connection with the Ramblas indebtedness terminates immediately upon Mr Quinlan breaching any of his obligations under the Deed. Thus it is clearly intended by the parties to the Deed that the constant threat of facing a bankruptcy petition in respect of his Marme debts should hang over Mr Quinlan’s head to encourage him to comply with his obligations under the Deed and not to switch his allegiance. This threat is meaningless if the Ramblas indebtedness is extinguished by the September 2011 arrangements.

[20]There is therefore nothing in the September 2011 arrangements to indicate that Mr Quinlan’s debt under the personal loan was paid off either by him or by any other party to those arrangements and a great deal to indicate to the contrary. Indeed, Mr Maud’s reliance on the astuteness and commercial strategy of the Respondents proves too much because it is clearly not in the Respondents’ commercial interests for the debt jointly owed by Mr Quinlan and Mr Maud to be discharged. If the debt had been discharged then the Respondents’ plan to use Mr Maud’s continued liability as a basis for making him bankrupt and thereby gaining control of his shares through the pre-emption rights in the Ramblas articles of association would be thwarted. It is only because the debt was not discharged that the ‘loan to own’ strategy that he accuses the Respondents of pursuing actually works.

[21]The second difficulty with Mr Maud’s application argument is that it rests in part on the supposition that the sale of Mr Quinlan’s shares in Ramblas for €1 was at a significant undervalue. The consideration for the shares must, he submits, be more than the €1 he receives. It is that additional consideration which makes commercial sense of the release of the security over the Coroin shares in return for only £9.4 million from the Barclay brothers. Mr Maud relies on the reports produced by the administrator handling the concurso of the three companies in the Marme group, Rafael Gimeno-Bayón Cobos of the firm Lexaudit & Concursal LLP. Señor Gimeno-Bayón has produced a consolidated liquidation plan for Ramblas, Delma and Marme, the most recent version of which is dated 30 April 2015. Mr Maud points to the fact that this values the Santander asset at between €2.6 and €3.1 billion and takes a midway point of €2.88 billion as its value. He submits that even taking into account the debts secured against the asset, there is still a substantial value in the asset.

[22]Having considered the Report, it appears to me that the matter is not so straightforward. First, in the paragraphs of the report immediately following the valuation at €2.88 billion, Señor Gimeno-Bayón notes (the translation is provided by the parties):

“168. However, this Insolvency Administration is aware that the assessment of any asset is not an exact science, as proved by the different assessments carried out by different independent experts. 169. It is also aware that in the forced disposal of unique assets for which there is not a more or less regular market, one matter is the value and another very different matter is the obtainable price, influenced by the scarcity of potential purchasers and the involuntary nature of the sale, at less that its true value. 170 … the assessment of Cuidad Financiera is the object of controversy both on the part of the various financial creditors and the Insolvent Company itself, which has resulted in several ancillary complaints currently pending challenging the value reflected in the Provisional Report.”

[23]Señor Gimeno-Bayón also points out various other features of the insolvency: i) There is the senior loan valued at €1.6 billion owed by the Marme group and secured on the asset. There also appears to be €710 million claimed by various banks under interest swap arrangements that the banks have terminated. There is €370 million of junior debt owed by Ramblas to the Respondents and substantial shareholder loans outstanding. ii) There are an ‘exceptional number of law suits’ in train relating to the Santander asset and the creditors of Ramblas and the amount at issue is about €1.2 billion. The disputes appear to relate to the ranking of the liabilities and the interest payable. iii) Ramblas ‘has not met the various demands for economic-accounting-financial information and documentation necessary to be able to evaluate, evidence and support’ the items included in its financial statements over recent years. The annual accounts for 2011 had not been signed by the directors so the administrator was unable to obtain evidence that the accounts ‘conform to those actually duly prepared, approved and deposited’. He notes that as at the date of the liquidation plan, demands for information and documentation ‘continue to go unheeded’. iv) The sale he contemplates is the sale of all the unencumbered assets of the group, with the extinguishment of the mortgages and pledges that may exist on them but having the lease agreement (to Santander bank) remain in effect on its own terms. The transferee of the shares of Marme will assume all the liabilities of the company that include post-insolvency order claims, pre-insolvency order claims and claims currently in litigation regardless of their result. The transferee must also assume all the tax costs and levies of any kind on the transaction.

[24]I bear in mind that at this stage I am considering only whether it is arguable that by transferring his half share of Ramblas to the Respondents for €1 as part of the September 2011 arrangements he was in fact transferring to them something of considerably more value than that and hence must be taken in effect to be transferring the assets to pay off the debts that he owed them that had previously been secured on his Coroin stake. In my judgment, having regard to the great uncertainty about the value of the shares in Ramblas there is nothing there that could justify contradicting the clear wording of the documents themselves, bearing in mind the commercial aims of the parties.

[25]In my judgment therefore, there is no substantial dispute about whether this judgment debt is due because it is not arguable that the debt has been paid already by Mr Quinlan.

Collateral purpose

[26]Mr Maud’s second ground for setting aside the statutory demand is that the demand has been served and the bankruptcy proceedings are being pursued to enable the Respondents to achieve a collateral advantage which constitutes an abuse of the process of the court. The principle Mr Maud relies on was expounded in In Re Majory a debtor

[1955] 1 Ch 600

. Evershed MR stated (page 623-4) that the principle was no more than an application of the more general rule that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist. A party so using or threatening proceedings will be guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he had abused. Whether such abuse exists is a question of fact in all the circumstances of the case. In that case, the Court of Appeal held that there had been no such abuse.

[27]A collateral purpose was found to exist in Re Leigh Estates (UK) Ltd

[1994] BCC 292

. There the local council had presented a winding up petition on the basis of unpaid rates on an unoccupied premises owned by the company which was in administrative receivership. The administrator had been appointed by banks who were owed substantially more money than the council. The council’s view was that if a winding up order were made, the receivers or possibly the banks would become liable for the rates on the premises. The creditors opposing the petition argued that a winding up would damage the process of realisation of the company’s assets by the administrator to the disadvantage of creditors generally. Richard Sykes QC sitting as a deputy High Court Judge dismissed the petition on the grounds that the council’s reason for seeking to wind up the company was not to swell the company’s estate or otherwise improve the lot of the unsecured creditors as a body but rather to gain for itself a preference over the other creditors. The right of a petitioning creditor to a winding up order was a ‘class right’ but there the winding up order was likely to cause the available assets to be reduced. More recently the principle was considered by the Privy Council in Ebbvale Ltd v Hosking

[2013] UKPC 1

(‘Ebbvale’). In that case the petitioning creditor was a trustee in bankruptcy of an individual and was seeking to wind up a company on the basis of a debt owed by the company and assigned to him. The company opposed the petition on the grounds that the respondent was using the petition process for the improper purpose of securing for himself an advantage in a High Court action between the bankrupt and the company. The respondent, it was said, intended if the petition was granted to ensure the replacement of the company directors with a liquidator who would be a weaker opponent and more likely to settle the High Court action. The Privy Council held that there was no abuse in those circumstances. Lord Wilson, giving the judgment of the Board, referred to a number of earlier cases in which it appeared that the petitioning creditor did not actually want to wind up the company but wanted rather to use the threat of winding up to pressure the company’s management to take some other action in the petitioning creditor’s interest. For example in Re Bellador Silk Ltd

[1965] 1 All ER 667

, Plowman J dismissed the petition having found that the petition was launched not with the genuine object of obtaining the relief claimed but with the object of exerting pressure in order to achieve a collateral purpose, in that case that the company should repay a different loan to a different company in which the petitioner was interested. Lord Wilson in Ebbvale also quoted from the judgment of Harman J in Re a company (No 001573 of 1983)

[1983] BCLC 492

where the judge said that he was not concerned with the motives of the petitioner or with the past conduct of the company which may have led the petitioner to have a justifiable dislike for and a desire to see the downfall of some person such as the main protagonist of the company. The only proper purpose for which a petition can be presented is for the proper administration of the company’s assets for the benefit of all the relevant class. Harman J said: (quoted at paragraph 28 of Ebbvale) -- “The question, therefore, is not 'does the petitioner genuinely wish to wind up this company', as counsel for the petitioner... submitted. It would be hard for me to find that this petitioner, which has taken all regular steps to prosecute its petition and which plainly has reasons to desire the winding-up of this company, since that must put beyond much cavil the future of the company's lease, does not in truth desire to wind up the company. In my judgment the true question is 'for what purpose does the petitioner wish to wind up this company'. A judge has to decide whether the petition is for the benefit of the class of which the petitioner forms a part or is for some purpose of his own. If the latter, then it is not properly brought. If the petitioner can show that he and his class stand together and will benefit or suffer rateably, then his ill motive is nothing to the point. But here it is plain that no such even-handedness exists. If the petition is properly brought, then the petitioner stands to get a valuable asset for itself and the rest of the class of creditors are likely to get nothing."

[28]Lord Wilson in Ebbvale also made clear that motive is irrelevant. He accepted that it was probably the case that the petitioning trustee in Ebbvale regarded a winding up order as likely to be of advantage to him in his capacity as the claimant in the High Court action as well as in his capacity as the petitioning creditor. But, Lord Wilson went on to hold, ‘a winding up order was also, objectively, likely to be of substantial advantage to him in his capacity as the petitioning creditor, and to secure such an advantage was the other of his purposes’. He held that it was not necessary that it should have been the trustee’s principal purpose. It was to the advantage of the company’s creditors that a professional decision should be taken as to whether the company should incur further costs in defending the High Court action. The company had therefore failed to establish that the trustee’s petition was an abuse of the process and had failed to displace his entitlement to an order.

[29]In the light of these authorities I conclude that the pursuit of insolvency proceedings in respect of a debt which is otherwise undisputed will amount to an abuse in two situations. The first is where the petitioner does not really want to obtain the liquidation or bankruptcy of the company or individual at all, but issues or threatens to issue the proceedings to put pressure on the target to take some other action which the target is otherwise unwilling to take. The second is where the petitioner does want to achieve the relief sought but he is not acting in the interests of the class of creditors of which he is one or where the success of his petition will operate to the disadvantage of the body of creditors. It is also clear from those authorities, and as a matter of common sense, that the jurisdiction of the court to dismiss a petition based on an undisputed debt on the grounds of collateral purpose must be exercised sparingly. Bankruptcy proceedings cannot be allowed to become the forum for a detailed investigation into past and present relationships or an exploration of what the petitioner hopes to gain from the insolvency of the company or individual, in financial or personal terms and a consideration of whether those hopes are legitimate or not.

[30]Applying the authorities to the present case, there is no abuse of process here. This is not a case where the Respondents do not really want to make Mr Maud bankrupt – on the contrary Mr Maud’s case is that it is his bankruptcy that will trigger the pre-emption rights that will entitle either Mr Quinlan or the First Respondent (depending on whether the share transfer of Mr Quinlan’s half has been completed) to get hold of his half of Ramblas’ share capital. Secondly, it has not been suggested that the bankruptcy would damage the prospects of Mr Maud’s other creditors. There is no reason to suppose Mr Maud’s Ramblas shares will be sold under the pre-emption provisions of the Ramblas articles of association at less than their proper price. Those monies will then be available for the general body of Mr Maud’s creditors.

[31]Mr Maud has expressed the hope and expectation that if he is given a little more time to put his affairs in order, he will be able to realise some of his assets and generate enough money to pay off all his creditors. But this judgment debt has been unpaid for nearly four years now and I do not consider that the court is bound to enquire into the reasons why the Respondents have been prepared to wait that long or why they are prepared to wait no longer. That trespasses into considering the Respondents’ motive for the petition which, as the Privy Council held, is irrelevant to the court’s jurisdiction.

[32]I therefore hold that even if the Respondents’ motive in bringing this petition is to trigger, by Mr Maud’s bankruptcy, Mr Quinlan’s rights of pre-emption over Mr Maud’s shares in Ramblas, that does not mean that the petition is an abuse of process or that there are other grounds within Insolvency Rules r 6.5(4)(d) why I should be satisfied that the statutory demand should be set aside.

[33]I therefore dismiss the application to set aside the demand.

Cited in 12 later judgments

and 3 more of the most senior