Lloyd's Maritime and Commercial Law Quarterly
WINDING UP RECALCITRANT DEBTORS
Fidelis Oditah*
Insolvent liquidation is a terminal procedure. A winding up petition could have drastic consequences for any type of company. It is therefore hardly surprising that many companies would resist any attempt to place them into liquidation. If their resistance is upheld by the court, the petitioner might be punished with costs, sometimes on an indemnity basis. On the other hand, an unpaid creditor for an undisputed debt is entitled, as between himself and the company, to a winding up order ex debito justitiae. The courts must balance the need to protect companies from the improper pressure which a winding up petition can engender, on the one hand, with the almost unqualified right of unpaid creditors to a winding up order, on the other. This article considers how the courts strike this balance in practice, by examining, inter alia, the legitimacy of using winding up for debt collection; the relevance and effect of cross-claims owed to the company by the petitioner; the status and scope of what is referred to as the Claybridge principle; the position of contingent creditors petitioning for winding up; and the relevance of the petitioner’s motive.
Introduction
The proper method of enforcing payment of a debt is to obtain a judgment for the debt and if the judgment is unsatisfied to enforce it by an execution against the property of the debtor. The procedure for obtaining judgment, even summary judgment, and levying execution are both expensive and time consuming, principally because of the slowness with which the mills of justice grind. Notwithstanding this slowness, it is very much the preferred solution for the majority of creditors because whatever is recovered enures to their sole benefit. By contrast, winding up is a class remedy with little or no scope for collateral individual benefit. Sometimes, however, creditors simply do not want to go through the hoop of obtaining judgment and then bringing fresh proceedings to enforce their judgment. In periods of recession many debtors are known to give themselves credit not provided for by the contract and an action for debt, followed by an execution, would give them a considerable grace period during which time they might have deteriorated and/or dissipated further assets in a failed bid to remain afloat. The law must in such cases give creditors the option to wind up the debtor rather than waste money in bringing other
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