We acted for a corporate tenant facing an imminent winding-up petition founded on a statutory demand for over £50,000, the vast majority of which comprised disputed damages claims rather than any genuine debt. Acting under significant time pressure, we obtained an urgent without-notice injunction restraining presentation of the petition, defended a subsequent challenge from the landlord, and ultimately secured a consent order permanently restraining the petition and an award of costs in our client's favour.
Background & Key Facts
Our client, a property investment company, had for several years been named as the corporate tenant on a residential tenancy, with the actual occupiers being a family connected to one of our client's directors. The tenancy had run without apparent issue for around six years before the occupiers vacated the property in July 2020.
Almost a year later, our client received a statutory demand for approximately £50,000, comprising four heads of claim:
A modest sum for unpaid rent, said to be covered by a security deposit that the landlord's own agent had already confirmed would be applied towards any arrears.
A substantial sum for alleged property damage caused by an "unauthorised occupant", despite a check-out inventory recording the property in reasonable condition and a friendly message from the landlord thanking the occupiers as they left.
A further sum said to reflect six months of lost rent while renovations took place, notwithstanding evidence that the property had in fact been re-let within around two months.
Professional consultants' fees, oddly expressed in a foreign currency, for which no basis was ever explained.
Our client instructed us to challenge the statutory demand as an abuse of the insolvency process. Correspondence was exchanged over several weeks, including a clear warning that an injunction application would follow if the landlord did not withdraw or provide an undertaking not to petition. When the landlord confirmed she intended to proceed with a winding-up petition, we acted immediately to protect our client.
Legal Issues & Our Approach
This matter turned on well-established principles governing the misuse of statutory demands and winding-up petitions as a means of enforcing disputed debts.
Legal Standing of the Petition - a creditor can only found a winding-up petition on an undisputed debt. Claims that are, in substance, unliquidated damages claims cannot properly support a statutory demand or petition, regardless of how they are labelled.
Genuine dispute on substantial grounds - even the one arguable debt element was genuinely disputed, given the agent's own confirmation that the deposit had been earmarked to cover any arrears, and the absence of any supporting statement of account.
Abuse of process - pursuing a petition in these circumstances risked being an abuse of the court's insolvency jurisdiction, which exists to address genuine insolvency, not to exert commercial pressure to pay a disputed sum.
Urgency and proportionality - the reputational and commercial harm a company can suffer merely from the presentation of a winding-up petition, before any adjudication of the underlying dispute, made urgent injunctive relief the appropriate remedy.
Our Strategy
We combined firm early correspondence with decisive court action once it became clear that a commercial resolution would not be reached.
Pre-action engagement - we set out the basis of the dispute in detail at an early stage, explained why the statutory demand was flawed, and gave the landlord a clear opportunity and deadline to withdraw or provide an undertaking, while demonstrating our client's ability to pay any sum genuinely found to be due.
Urgent injunction application - when the landlord confirmed she would proceed regardless, we issued an urgent application in the High Court's Business and Property Courts (Insolvency and Companies List), supported by a detailed witness statement and counsel's skeleton argument, and obtained an interim injunction restraining presentation of any petition, together with directions for the exchange of evidence and a further hearing.
Robust response to a late procedural challenge - when the landlord, acting in person, applied for a 35-day extension of time to file her evidence and complained of being manoeuvred into an unfair position, we prepared a further witness statement addressing each point raised, showing that she had been given ample notice and opportunity throughout, that a consent order had already been offered as an amicable route to resolution, and that there was no good reason for her delay.
Continued openness to a negotiated resolution - throughout, we kept open the possibility of a consent order, which ultimately allowed the matter to be resolved without a further contested hearing on the merits.
Outcome
The matter was ultimately resolved by consent, on terms favourable to our client.
The landlord agreed to a consent order permanently restraining her from presenting a winding-up petition against our client unless and until she obtained a judgment against the company in ordinary civil proceedings.
The scheduled contested hearing was vacated, avoiding further costs and management time.
The landlord agreed to pay our client's costs of the application, to be assessed if not agreed.
This outcome removed the immediate threat to our client's standing and its commercial relationships, including an ongoing contract to supply housing to a local authority, while leaving the landlord free to pursue any genuine claim through the ordinary civil courts, where it would need to be proved rather than presumed.
Key Takeaways
A statutory demand and winding-up petition cannot properly be used to enforce a debt that is genuinely disputed on substantial grounds, or that is, in substance, an unliquidated damages claim.
Acting quickly and decisively, including seeking urgent injunctive relief where necessary, is critical to protecting a company from the reputational and commercial harm that even the threat of a petition can cause.
Clear, well-evidenced pre-action correspondence builds a strong foundation for urgent applications and puts the other side on notice of the consequences of proceeding regardless.
Remaining open to a negotiated, consent-based resolution throughout contested proceedings can secure a favourable outcome, including costs, without the delay and expense of a full contested hearing.
