LDX International Group LLP v Misra Ventures Ltd (Rev 2) [2018] EWHC 275 (Ch)

[2018] EWHC 275 (Ch)Case No CR-2017-005245
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF LDX INTERNATIONAL GROUP LLP
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Venue 7 Rolls Buildings, Fetter LaneDate 21 February 2018
London, EC4A 1NL
Before
DAVID STONE(sitting as a Deputy High Court Judge)
Between
LDX INTERNATIONAL GROUP LLPApplicantMISRA VENTURES LIMITEDRespondent
Mr Cleon Catsambis (instructed by LDX International Group LLP) for ApplicantMr Simon Goldstone (instructed by Kemp Little LLP) for RespondentsHearing Hearing date: 22 January 2018
Judgment ApprovedDavid Stone (sitting as Deputy High Court Judge):
[1]LDX International Group LLP (LDX) has applied for an injunction to restrain Misra Ventures Limited (MVL) from presenting, advertising or otherwise publicising a winding up petition. The debt owed by LDX to MVL is not contested, nor is the statutory demand on which MVL relies. Rather, LDX requests an injunction because it says that it has a cross-claim against MVL which exceeds the value of the uncontested debt, and, hence the winding up petition would be an abuse of process.[2]The relevant law is well known. However, counsel for the parties urged on me two very different approaches to applying the relevant principles, and hence it is necessary to set out in some detail the relevant facts, the law, and the parties’ contentions.

The Facts

[3]I had before me witness statements of:a. Vijay Angelo, Managing Member of LDX;b. Dorothy Delahunt, Chief Legal and Compliance Officer of LDX; andc. Peter Dalton of MVL’s solicitors. None were cross-examined, and to the limited extent it was relied on I accept their evidence.[4]The relevant background facts are largely agreed and can be simply stated:a. In 2016, MVL loaned LDX £200,000 pursuant to an agreement dated 19 October 2016. At the time, LDX was named Global Markets Exchange Group International LLP, but nothing turns on the difference in name. Under the terms of the agreement, the money was to be repaid on 31 October 2017.b. On 9 May 2017, MVL served on LDX a statutory demand, alleging default by LDX which obliged LDX to repay the debt ahead of time (the First Statutory Demand). The First Statutory Demand was for the sum of £200,450 plus interest.c. On 23 May 2017, MVL withdrew the First Statutory Demand after LDX pointed out that the wrong form had been used.d. On 3 July 2017, MVL served a second statutory demand on MVL, this time for the sum of £160,902 plus interest (the Second Statutory Demand).e. On 5 July 2017, LDX wrote to MVL denying that the debt was repayable prior to 31 October 2017, asserting that it could meet its obligations under the agreement as they fell due, and asserting a cross-claim against MVL and its principal Mr Hirander Misra, claiming damages of £300,000.f. On 18 July 2017, LDX applied to this court for an injunction to restrain MVL from presenting and advertising a winding up petition (the First Injunction Application). The First Injunction Application was listed to be heard on 3 October 2017.g. On 4 August 2017, MVL withdrew the Second Statutory Demand, on the basis that the First Injunction Application was listed close to the date of the loan repayment. The hearing date was vacated.h. On 25 August 2017, LDX made an application for its costs of the First Injunction Application.i. On 21 September 2017, Deputy Registrar Briggs vacated the 3 October 2017 hearing date, and listed the costs application for 12 December 2017. At the hearing on costs, at which both parties were represented, Deputy Registrar Frith awarded LDX its costs of and occasioned by the First Injunction Application. Those costs have not yet been agreed, nor has the assessment process begun.j. On 11 October 2017, LDX sent MVL a Preliminary Notice, setting out allegations against MVL and four other potential defendants (including Mr Misra). Damages were put at £2.87million.k. On 15 November 2017, LDX informed MVL by e-mail that it was preparing a claim against MVL for breach of contract and misrepresentation.l. On 6 December 2017, MVL served a third statutory demand on LDX, the statutory demand on which these proceedings are based (the Third Statutory Demand.). That statutory demand was for £176,963.43, being £160,902.00 plus interest.m. This application for injunctive relief was issued on 22 December 2017 (the Second Injunction Application). There was correspondence between the parties between then and 15 January 2018, when LDX sent MVL a Letter of Claim. The Letter of Claim notes MVL’s failure to respond to the Preliminary Notice within the 21 day period set out in the relevant pre-action protocol, before setting out LDX’s position. The Letter of Claim was received by MVL six clear working days before the hearing before me. I return to the contents of the Letter of Claim below, but for present purposes, it is sufficient to record that it included LDX’s basis for its allegations and the facts on which it relies, and attached a large number of documents.

The Parties’ Positions

[5]Put shortly, it is LDX’s position that the amount set out in the Third Statutory Demand is due and payable. However, LDX says it is entitled to an injunction to prevent the presentation and advertisement of a winding up petition because it has a cross-claim against MVL which exceeds the value of the claimed debt. The cross-claim relied on is in two parts: first, the costs order it has obtained against MVL but which has not to date been agreed or assessed, and secondly, its claim against MVL as set out in the Letter of Claim.[6]Mr Cleon Catsambis, who appeared on behalf of LDX, submitted that, in assessing the cross-claim, it was not the role of the court to “get into the weeds” on the details – I need only satisfy myself that the cross-claim is genuine and serious, and exceeds in value the amount claimed in the statutory demand. If that is the case, so long as there were no “special circumstances” justifying the petition proceeding (and Mr Simon Goldstone, who appeared for MVL, did not allege that there were), then an injunction ought to issue.[7]In his written submissions, Mr Catsambis submitted for LDX that there were two further grounds for issuing an injunction to restrain presentation and advertisement of a winding up petition:a. Because MVL is seeking to obtain a collateral advantage rather than using the proceedings for the purpose for which they are properly designed; andb. Because MVL’s application is an abuse of process or otherwise bound to fail.[8]The collateral purpose ground was pressed at the hearing, but the abuse of process ground was not.[9]On behalf of MVL, Mr Goldstone took a different approach, submitting that the authorities require a detailed assessment of the strength of LDX’s cross-claim. Counsel for MVL submitted that I did indeed need to “get into the weeds”, and at the hearing he did just that, working from the detailed analysis helpfully set out in his written skeleton argument. He characterised the Letter of Claim as “totally unparticularised” and full of “bare and vague assertion[s] unsupported by evidence”. He submitted that a thorough examination of the evidence should lead to the conclusion that LDX has failed to show evidence of a serious and genuine cross-claim.[10]Counsel for MVL made a further point in relation to what he described as LDX’s failure to progress its cross-claim. LDX’s delay, he said, whilst not being a barrier to injunctive relief, was an indication that the cross-claim is not genuine and serious.[11]Counsel for MVL further criticised the costs claimed by LDX in relation to the order made by Deputy Registrar Frith. The current value of that costs claim, he said, was vastly overstated.[12]Finally, counsel for MVL took me in some detail to the solvency of LDX. For reasons which I explain below, I do not need to say anything further about this point.

The Law

[13]It is well established that the court will restrain the presentation of a winding up petition if the debt is disputed on genuine and substantial grounds. Even if the debt itself is not disputed, the court will restrain the presentation of a winding up petition if the debtor has a genuine and serious cross-claim that exceeds the value of the debt.[14](I note in passing that, technically, the cross-claim need only equal the debt less £750. Whilst the £750 will be material in some cases, it is not in this case, and so I say no more about it.)[15]In In re Bayoil SA [1999] 1 WLR 147, Nourse LJ, with whom Ward and Mantell LJJ agreed, said this (at page 155):
“The ability of a petitioning creditor to levy execution against the company does not entitle him to have it wound up. Moreover, an order that a company be wound up, unlike a bankruptcy order, is often a death knell. Nor can it be certain that a liquidator, even with security behind him, will prosecute the company’s claims with the diligence and efficiency of its directors. These, I believe, are considerations which go to justify the practice in cross-claim cases. I emphasise that the cross-claim must be genuine and serious or, if you prefer, one of substance; that it must be one which the company has been unable to litigate; and must be in an amount exceeding the amount of the petitioner’s debt.”
[16]I note in passing that later courts have occasionally reworded slightly Nourse LJ’s requirement that the cross-claim be “genuine and serious or, if you prefer, one of substance” (emphasis added) to a requirement that the cross-claim be “genuine and serious and of substance” (emphasis added): see, for example, Laddie J in Orion Media Marketing Limited v Media Brook Limited and Anor [2002] 1 BCLC 184 at paragraph 35. I have, below, adopted the Court of Appeal’s formulation.[17]In In re Bayoil, Ward LJ added this (at page 156):
“Fourthly, a winding up order is a draconian order. If wrongly made, the company has little commercial prospect of reviving itself and recovering its former position. If there is any doubt about the claim or the cross-claim, that seems to me to require that the court should proceed cautiously.”
[18]As counsel for MVL rightly conceded, Lord Justice Nourse’s remark that the company be “unable to litigate” its claim is not a barrier to injunctive relief. In Dennis Rye Limited v Bolsover District Council [2009] EWCA Civ 372, Mummery LJ, with whom Elias LJ agreed, said this (at paragraph 19):
“Cases familiar to practitioners in the Companies Court were cited: Re Bayoil SA [1999] 1 WLR 147 at 155 per Nourse LJ; Re a Debtor (No 87 of 1999) [2000] BPIR 589 at 592H- 594G (Rimer J in a bankruptcy case); Montgomery v Wanda Modes Ltd [2003] BPIR 457 at paragraphs 28 to 36 (Park J). The authorities are illustrations of the well established practice of the Companies Court that, if a company has a genuine and serious cross-claim, which is likely to exceed the petition debt, the court will normally exercise its discretion by dismissing the winding up petition and allowing the company the opportunity to establish its cross-claim in ordinary civil proceedings. A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed in bringing proceedings on the cross-claim. The failure to litigate the cross-claim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so.”
See also Popely v Popely [2004] EWCA Civ 463 at paragraph 123 per Jonathan Parker LJ, with whom Ward LJ and Moses J agreed.[19]This court, and the Court of Appeal, have also been clear that an application for injunctive relief is not the occasion for a detailed analysis of the claimed cross-claim. For example, in Tallington Lakes Limited v Ancasta International Boat Sales Limited [2012] EWCA Civ 1712, David Richards J, with whom Thorpe and Patten LJJ agreed, said this (at paragraph 41):
“The practical issue is the extent to which the court must go in determining whether there is a genuine dispute on substantial grounds. The court must, as Oliver LJ put it, take a view whether, on the evidence, there really is substance in the dispute. … It is not, however, practical or appropriate to conduct a long and elaborate hearing, examining in minute detail the case made on each side. Such a course will involve both delay in getting the issue ready for hearing and a potentially lengthy hearing. In this case, the evidence went through several rounds over a period of some six months. This time would have been better spent in getting a Part 7 claim underway. A lengthy hearing is likely to result in a wasteful duplication of court time. Petitioning creditors must take a realistic view of whether the company is likely to establish a genuine and substantial dispute.”
[20]Park J put it this way in Montgomery (at paragraph 8):
“I wish to add one other point of legal principle which is in my view clearly established by the authorities. The point is familiar in cases where the company’s ground of opposition to the petition is that it disputes the debt relied on by the petitioner. In the present case WML admits the debt but says that it has a cross-claim in a greater amount. However, I believe that the principle which I am about to state is equally applicable in either context. The principle is that, if the ground of opposition by the company raises substantial questions of fact or law (or both) which are genuinely disputed by it, the petition should be dismissed: a court hearing on a winding-up petition is not the appropriate forum to determine such questions. Rather they should be litigated in the normal forum for resolving them.”
[21]Counsel for MVL relied on the decision in Orion Media Marketing Limited v Media Brook Limited [2002] 1 BCLC 184 in which Laddie J said (at paragraph 31) “if the recipient of a statutory demand wishes to put forward a substantial defence to the sums claimed, or a cross-claim, it is incumbent upon it to show that the defence or the cross-claim is indeed genuine, serious and of substance”. Bare assertions will not suffice for an injunction, he submitted, citing Warren J in In the matter of Pan Interiors Limited [2005] EWHC 3241 (Ch). As Mr David Foxton QC sitting as a Deputy High Court

Judge put it in Re a Company [2016] EWHC 3811 (Ch) at paragraph 33:

“I accept Mr Davies’ submission that applications for injunctions to restrain the presentation or advertisement of a petition are brought on in haste and both this factor and the role of the Companies Court on such applications must temper the court’s expectations as to the extent of the evidence which will be available. Nevertheless, as is clear from Warren J’s judgment in Pan Interiors, there is some minimum evidential threshold necessary before it can be said that there is a substantial dispute.”
[22]It seems to me that a number of uncontroversial propositions can be drawn from these cases. Given the clarity of the language of the Court of Appeal and judges of this court, it is appropriate, where possible, for me simply and respectfully to repeat their remarks:a. In the absence of special circumstances, it will be appropriate to issue an injunction to prevent the presentation and advertisement of a winding up order where there is a genuine and serious cross-claim in an amount exceeding the petitioner’s debt. The cross-claim must be genuine and serious, or, in other words, one of substance: Inre Bayoil, at page 155.b. If there is a genuine and serious cross-claim, the company should be allowed to establish its cross-claim in ordinary civil proceedings: the Companies Court is not the right court in which to engage in a detailed examination of claim and counterclaim: Dennis Rye, at paragraph 19.c. It is incumbent on the recipient of the statutory demand to demonstrate, with evidence, that the cross-claim is genuine and serious: Orion Media, at paragraph 31. Bare assertions will not suffice: there is a minimum evidential threshold: Re a Company, at paragraph 33.d. But it is not practical or appropriate to conduct a long and elaborate hearing, examining in minute detail the case made on each side. A lengthy hearing is likely to result in a wasteful duplication of court time: Tallington Lakes, at paragraph 41.e. If there is any doubt about the claim or the cross-claim, then the court should proceed cautiously. This is because a winding up order is a draconian order, which, if wrongly made, gives the company little commercial prospect of reviving itself: Inre Bayoil, at page 156.f. Petitioning creditors must take a realistic view of whether the company is likely to establish a genuine and substantial dispute: Tallington Lakes, at paragraph 41.g. A company is not prevented from raising a cross-claim simply because it could have raised or litigated the claim earlier, or because it has delayed in bringing proceedings on the cross-claim. However, the court is entitled to take any delay into account in its assessment of whether the cross-claim is genuine and serious: Dennis Rye, at paragraph 19.[23]Counsel for LDX submitted that the threshold test for a genuine and serious cross-claim was a “relatively low one” – it must be “more than merely arguable” and have some substance to it. Counsel for MVL argued in response that “more than merely arguable” is not the test, and I agree. As I have set out above, I do not consider those suggestions to be an improvement on the language of the Court of Appeal. I have therefore applied the test set out by the Court of Appeal in In re Bayoil – is the cross-claim genuine and serious or one of substance?[24]In relation to winding up petitions presented for a collateral purpose, I was directed to In Re Majory [1955] Ch 600, where Evershed MR, Jenkins and Romer LJJ said this a page 623:
“…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; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused. …the court will always look strictly at the conduct of a creditor using or threatening such proceedings; and if it concludes that the creditor has used or threatened the proceedings at all oppressively, for example, in order to obtain some payment or promise from the debtor or some other collateral advantage to himself properly attributable to the use of the threat, the court will not hesitate to declare the creditor’s conduct extortionate and will not allow him to make use of the process which he has abused.”
[25]I accept counsel for LDX’s statement of the law that a petition being sought to secure some collateral purpose, such as to stifle related proceedings, would be an abuse of process, and therefore liable to be restrained.[26]For present purposes, the parties agreed that there is no difference in the principles that apply to(i) an injunction to restrain presentation of a winding up petition,(ii) an injunction to restrain the advertisement of a winding up petition, or(iii) an injunction to restrain other publicising of a winding up petition. I have proceeded on the basis that they stand and fall together.[27]Whilst Counsel for MVL made detailed submissions as to LDX’s solvency, I was not taken to any authority which suggests that solvency is part of the assessment to be made as to whether or not LDX has a genuine and serious cross-claim. Again, this application is not the appropriate forum in which to test LDX’s solvency. I therefore say nothing further about it.

LDX’s Cross-claim

[28]As set out above, LDX’s potential cross-claim is based on its claim against MVL and on the costs order it has obtained.[29]The most recent version of LDX’s claim against MVL is set out in its Letter of Claim dated 15 January 2017, but counsel for LDX also relied on LDX’s First Injunction Application dated 18 July 2017 and the Preliminary Notice. He submitted that LDX’s claim as set out in its Letter of Claim is “substantive, well-researched and founded on compelling evidence compiled by external legal, accounting and data forensic experts”. He thus submitted that it comfortably cleared the hurdle of being genuine and serious.[30]LDX puts its claim as set out below. I should add for completeness that these claims are hotly contested by MVL, and, I take it, by Mr Misra to whom they largely relate: a) On 1 March 2013, LDX retained MVL to provide senior executive management and advisory services relating to exchange markets, products, business development and markets structures, together with strategic business advice to the boards of directors of several subsidiaries of LDX. b) Those services were provided to LDX by Mr Misra, acting on behalf of MVL. c) Mr Misra was a founder member and major equity holder in LDX. i. To ensure that the consulting services were provided with the care, skill and diligence required in accordance with the best practice in the industry, profession or trade; ii. To procure that Mr Misra complied with MVL’s obligations; iii. To ensure Mr Misra carried out his duties and obligations with the utmost good faith and honesty; iv. To maintain all business information in confidence and not to use or disclose any business information, trade secrets etc in competition with LDX’s subsidiaries; v. To require Mr Misra to “perform his duties, whether statutory, fiduciary or common law, faithfully, efficiently and diligently to a standard commensurate with both the functions of his role and his knowledge, skills and experience”; and vi. To require Mr Misra, if appointed a director, to exercise his powers in his role as a director in an appropriate manner. i. He was the subject of multiple external and internal corporate misconduct investigations; ii. He was notified to the FCA; iii. He presented misleading financial accounting information resulting in the creation of a £1,000,000 contingent liability of LDX; iv. He used confidential information to benefit the legal and financial position of MVL and himself personally in breach of his fiduciary duties; v. He misled LDX and the LDX subsidiaries by both act and omission on the true financial and legal status of a transaction known as Continental Africa Holdings Limited (the CAHL Transaction); vi. He misrepresented the revenues of one of the LDX subsidiaries, thereby triggering an additional £1,000,000 investment in LDX; vii. He acted without board authorisation in relation to several high-risk commercial understandings and indicative agreements; and viii. He used without permission the name/brand/reputation of key investors. i. A contingent liability in the sum of £1,000,000; ii. Extensive losses of management time devoted to internal and external corporate investigations; iii. Loss of investment opportunities; iv. Loss of two key blue-chip investors; and v. Reputation damage necessitating restructuring and rebranding. g) LDX also claims interest and costs.[31]LDX has retained KPMG to undertake an audit; instructed law firm Fieldfisher LLP to investigate and produce reports; instructed Bond Solicitors to conduct investigations; and retained a digital data specialist firm to conduct forensic examination into LDX’s electronic data system.[32]MVL criticised LDX for not disclosing various documents. This was done by Counsel for MVL in his skeleton argument and at the hearing, and in a witness statement of Mr Peter Dalton of MVL’s solicitors. Whilst there are undoubtedly documents missing, there were in evidence before me three lever-arch files of documents, many of which I was referred to. It is to be remembered that this is not a final hearing of LDX’s allegations, and it cannot be expected that a company seeking to prevent a winding up petition being presented will put before the court all the documents on which it may one day seek to rely. I therefore do not consider that there is anything more to be said about the allegation of missing documents.[33]Helpfully, to avoid a detailed examination of all LDX’s claims, counsel for LDX drew to my attention three of what he described as “concrete examples of alleged breaches by Mr Misra” which, he said, establish loss in excess of the debt owed to MVL.[34]First, LDX alleges that Mr Misra took money out of LDX former subsidiary GMEX Technologies that ought instead to have been repaid to LDX and that GMEX Technologies is currently in default of a loan for £532,000 plus interest which it owes to LDX. I was referred to a judgment of Morgan J in this court of 23 January 2017 in which London Derivatives Exchange Limited was restrained from presenting winding up petitions against GMEX Technologies and GMEX Innovation Limited: GMEX Technologies Limited and Anor v London Derivatives Exchange Limited [2017] EWHC 553 (Ch). Counsel for LDX then pointed to the financial statements for GMEX Technologies to demonstrate that the “ultimate controlling party” of that entity is Mr Misra. Counsel for LDX then took me to a note in those accounts which records a payment of £249,534 to a company controlled by one of the directors – Mr Catsambis says that this is Mr Misra. So, rather than repaying the loan owed by GMEX Technologies, LDX says that Mr Misra has instead caused GMEX Technologies to pay an amount of £249,534 to a company controlled by Mr Misra.[35]Second, LDX alleges that Mr Misra used confidential information of LDX to his own benefit. These allegations are set out in Mr Angelo’s witness statement. Counsel for LDX took me to a letter of 8 December 2016 (attached to the Letter of Claim) which was purposely not sent to Mr Misra or MVL because it related to the allegations concerning Mr Misra. However, Mr Misra did in fact obtain it, as a director of GMEX Technologies (confirmed in a letter of 20 June 2017 from MVL to LDX), and, counsel for LDX says, has now wielded it to the benefit of MVL against LDX, to whom Mr Misra owed fiduciary and contractual duties. In this regard, counsel for LDX pointed to the First Statutory Demand served by MVL on LDX – the letter of 8 December 2016 is referred to there. LDX says that this was “plainly improper”.[36]Third, LDX alleges that Mr Misra misrepresented the correct valuation of the CAHL Transaction, and that, as a result, LDX has a significant claim available to it. LDX has conducted three reviews into the CAHL Transaction. The first was by Fieldfisher. Counsel for MVL said that that report clears Mr Misra. Counsel for LDX disagreed, noting that the report states “it would appear from the documents we have reviewed that insubstantial documentation was provided to the board by Mr Misra regarding the valuation of CAHL and as a consequence there is an indication that the board has been misled.” The second report, from an Independent Committee Investigation concluded that there was no evidence that suggests that Mr Misra misled the board. The third report, from Bond Solicitors, was not in evidence. But counsel for LDX pointed to the minutes of a management meeting of LDX on 28 June 2017 in which a presentation from Bond Solicitors is noted and it is confirmed that a third party has a £1,000,000 claim against both LDX and a third party for the CAHL Transaction. This is also set out in the First Injunction Application. Further, counsel for LDX took me to an email from LDX’s Chief Legal Officer to the FCA, in which she says “Bond Solicitors identified a number of serious misrepresentations, lapses and breaches of fiduciary by Mr Misra, corroborated by an authorised digital data intelligence report examining Mr Misra’s official business communications whilst at the GMEX group of companies.”[37]As noted above, counsel for MVL concedes that any delay in litigating a cross-claim is not, in and of itself, grounds for rejecting an application for an injunction to prevent presentation of a winding up petition. But I accept that it is something I should take into account in my assessment of whether the cross-claim is genuine and serious. Counsel for MVL criticised LDX’s delay in the following ways. First, he said that the Fieldfisher report is dated July 2016, and so LDX has had 18 months in which to formulate its claim. The difficulty with this argument is that, in Mr Goldman’s submission, the Fieldfisher report exonerated Mr Misra. He therefore cannot be heard to say that any claim should have been commenced at that time. In any event, whilst 18 months is longer than one may wish, it is by no means a significant delay in a complex case.[38]Damages, in the sum of £300,000 were first claimed against MVL and Mr Misra on 5 July 2017. Since then, LDX has refined its claim, leading to the Preliminary Notice dated 11 October 2017, the expulsion of Mr Misra from LDX on 12 October 2017, and the Letter of Claim dated 15 January 2018. Whilst it obviously would have been helpful for MVL to have the particularisation set out in, and documents attached to, the Letter of Claim earlier than six clear days before the hearing of the application before me, it does not seem to me that the delay in setting out its claim was in any way unusual or unconscionable. It also does not seem to me to be appropriate to criticise LDX for following the pre-action protocol by providing a Letter of Claim and an opportunity to respond, rather than simply filing proceedings. It is unlikely that a filed claim form would have been of any greater assistance to MVL than the Letter of Claim – indeed, without fully drafted particulars of claim, the claim form would have provided significantly less information than the Letter of Claim.[39]Counsel for LDX submitted three reasons for any delay by LDX, which, he said, support his submission that the cross-claim is genuine and serious. First, he said that dealing with the three statutory demands (and I would add the costs claim instigated by LDX) has occupied management time. Second, he conceded that LDX’s claim against MVL is complicated. Third, he claimed that LDX is a “responsible and prudent party” and did not wish to rush into litigation. I might add that the allegations against Mr Misra are serious ones, which ought not to be made lightly.[40]As noted above, it is in the nature of applications to prevent the presentation and advertisement of a winding up petition that they come on quickly. Having previously flagged its concerns in correspondence as early as 5 July 2017, and in more detail in the Preliminary Notice dated 11 October 2017 (two months before MVL’s Third Statutory Demand), I do not consider that it can be said that LDX’s cross-claim is so lacking in prosecution as not to be genuine and serious.[41]Whilst the second of LDX’s three examples set out above was not quantified, the other two claims are clearly for amounts in excess of the debt LDX owes to MVL as set out in the Third Statutory Demand.[42]Having reviewed LDX’s three examples, including in the context of the alleged delay, it is, in my judgment, established that the cross-claim set out in the Letter of Claim is of substance – it is genuine and serious. Following the guidance of the Court of Appeal, it is appropriate to proceed cautiously – particularly given the draconian result should a winding up petition be presented. I have therefore reached the conclusion that LDX ought to be given an opportunity to particularise and file its claim, an opportunity it will likely be denied if MVL is not restrained from presenting a petition. That is not to say that I have reached the conclusion that the cross-claim will succeed. But that is not the test. LDX need only establish that its cross-claim is genuine and serious – of substance – and in my judgment it has done so.[43]I should add that had I accepted counsel for MVL’s submission that I should follow him “into the weeds” (my words, not his) and conduct a mini-trial on the merits, I would still have come to the same conclusion. The hearing lasted nearly a full day, and I had the benefit of detailed written and oral submissions from experienced counsel on both sides. I have since read all the documents to which I was taken or referred. There is in my judgment nothing in the minute detail of the case before me which would lead to a different conclusion than the one I have set out above. But I repeat for abundant caution – as the Court of Appeal has been very clear, it is not the role of the Companies Court in these sorts of applications to conduct a mini-trial on the merits: to do so risks wasting court resources on factual examinations better conducted elsewhere.

The Costs Claim

[44]LDX also claims that the costs order it has obtained against MVL contributes to its cross-claim against MVL. Given my findings above, it is not necessary to deal with this aspect of the dispute in any detail.[45]MVL does not deny that LDX is entitled to its costs as ordered by Deputy Registrar Frith. However, MVL does dispute the value that LDX puts on those costs.[46]When initially claimed, LDX put its costs of and occasioned by the First Injunction Application at £38,000. It should be remembered that the Second Statutory Demand was served on 3 July 2017, the First Injunction Application was filed just two weeks later on 18 July 2017, and then the Second Statutory Demand was withdrawn on 4 August 2017. The issue was therefore live for a month and a day.[47]By the time LDX’s costs application was heard before the Deputy Registrar, its costs had, in Mr Goldstone’s words, “rocketed” to £105,844.56. This was not adequately explained, but in any event, if costs cannot be agreed, then they will have to be assessed in the usual way and in due course. For the purposes of what is before me, I need only say this. If I am wrong in relation to the claim set out in the Letter of Claim, then LDX’s costs claim is not sufficient to meet the level of debt set out in the statutory demand (even if £750 is deducted). As counsel for LDX quite rightly conceded, if he fails in relation to the claim set out in the Letter of Demand, his costs claim is not in itself sufficient to enable the court to exercise its discretion to grant an injunction to prevent presentation and advertisement of the winding up petition.[48]I should also add for completeness that the evidence relied on by LDX in the application before me was the same evidence as was filed in the First Injunction Application, which was the subject of Deputy Registrar Frith’s cost order. Therefore, it seems to me that any costs recovered under the order of the Deputy Registrar cannot also be recovered in these proceedings.

Collateral Purpose

[49]Very little attention was paid to this claim in the parties’ written and oral submissions (on MVL’s part because it had thought this claim to have been abandoned). However, as it was still pressed by counsel for LDX in his skeleton argument and at the hearing, I comment on it briefly.[50]Counsel for LDX submitted that MVL’s purpose in seeking to present a winding up petition was to inflict as much damage as possible on LDX, and to liquidate LDX so as to forestall the bringing of the cross-claim against MVL and Mr Misra. Counsel for LDX relied on two pieces of evidence for this allegation:a. MVL refused to accept an offer of prepayment made by LDX on 19 June 2017; andb. MVL specifically assigned a third party priority in the case of LDX failing – thus, in the event of a winding up, MVL could not expect to recover the value of the Third Statutory Demand.[51]I do not consider that either factor is sufficient to justify a finding that the Third Statutory Demand was instituted for a collateral purpose. In relation to the 19 June 2017 offer of prepayment, it is clear, and counsel for LDX conceded, that the offer was conditional – it required (amongst other things) Mr Misra to resign from LDX and to disclaim all present and future interests in his membership units and other equity holding in LDX and/or its affiliates. Whilst Mr Catsambis said that the offer was “eminently reasonable”, Mr Goldstone disagreed, and these proceedings are not the appropriate forum for debating who is right. MVL declined the deal some months before the Third Statutory Demand was served, and it is no longer open for acceptance. In my judgment, there is nothing to support counsel for LDX’s submission that any failure to accept the conditional offer prior to the date of the Third Statutory Demand renders that demand for a collateral purpose.[52]In relation to counsel for LDX’s second submission, even put at its highest, I do not accept that this indicates that the Third Statutory Demand was served for a collateral purpose. Companies are wound up every day with low or no expectation of recovery of the debt owed. In my judgment, that is not sufficient to prevent a petitioner from proceeding.[53]For these reasons, I reject LDX’s application on the basis of “collateral purpose”.[54]As noted above, LDX’s further claim that the Third Statutory Demand was an abuse of process was no longer pressed at the hearing.

Outcome

[55]Both counsel urged on me that there is no half-way house. Having suggested in his skeleton argument as a fall-back position (and without prejudice to his primary submission that there should be no injunction) that any injunction should be on condition that LDX pay an appropriate sum into court, counsel for MVL abandoned this position in his oral argument. Both parties were therefore of the position that I should either issue the injunction set out in the application notice, or dismiss the application.[56]For the reasons set out above, I am satisfied that LDX has a genuine and serious cross-claim that exceeds the value of the debt and that it would be a proper exercise of my discretion to issue an injunction to enable LDX an opportunity to substantiate its claim. I therefore grant LDX’s application. An injunction should issue to restrain MVL from presenting, advertising or otherwise publicising a petition to wind up LDX.[57]If the terms of the order (including costs) cannot be agreed, I will hear argument on a date to be fixed.

Cited in 8 later judgments