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Is it an abuse of process to prosecute a winding up petition following repayment of the undisputed tranche of an otherwise disputed debt?

Earlier this year in the Cayman Islands Grand Court the Honourable Justice Kawaley delivered the reasons for his decision, in December 2018, to appoint joint provisional liquidators over ACL Asean Tower Holdco Limited. Those reasons will be of interest to practitioners and creditors alike. In particular: if a petitioning creditor is repaid the undisputed tranche of his otherwise disputed debt following the presentation (but before the hearing) of a winding up petition, is he entitled notwithstanding to seek a winding up?

Alcazar Capital Limited and Forest Capital Holdings Limited (Petitioners) presented a petition in respect of ACL (Company) on the grounds of its failure to pay alleged debts of approximately $2.5m. Subsequently, the Company tendered partial payment of approximately $350,000 (which was accepted by the Petitioners) and sought to strike out the petition on the basis that the remainder of the debt was disputed.

Because the Company had made partial payment following the presentation of the petition, it was not in dispute that the Petitioners had standing to present the petition in the first place (the Company having effectively admitted that such sum had been due and owing as at the date of the petition). Given, however, that the remainder of the debt was disputed, the Company argued that it would be an abuse of process following that partial repayment for the Petitioners to continue to seek a winding up.

At the beginning of the hearing Justice Kawaley indicated a provisional view that the Company’s strike out application would be likely to succeed. However, the Petitioners were able to displace that provisional view by conceding (in accordance with section 99 of the Companies Law) that were a winding up order to be made, the $350,000 payment that had been made to them post-petition (i.e. after the commencement of the winding up, pursuant to section 100(2) of the Law) would be void. As such, given the Petitioners’ unambiguous election to seek a winding up order rather than to retain the $350,000 and seek further payment from the Company of the disputed debt, the practical result was that the undisputed sums (i.e. $350,000) remained outstanding and had not in law been paid. The Company’s strike out summons was accordingly dismissed. The Court would consider the winding-up petition on its merits.

We have previously blogged on the ACL Asean Tower Holdco Limited proceedings. See here for a discussion of the principles that the Grand Court will apply in considering applications to adjourn a creditor’s winding up petition.

Is it an abuse of process to prosecute a winding up petition following repayment of the undisputed tranche of an otherwise disputed debt?

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