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The Insolvency and Companies Court, in A Company -v- Visionary Future LLC & ors. (unreported), has dismissed an application by a company seeking to strike out, or alternatively restrain advertisement of, a winding-up petition brought by creditors. The judgment underlines the critical importance of providing proper and substantiated evidence in insolvency proceedings.
Lewis Silkin acted for the petitioners (the respondents in the application), who have since been successful in winding up the company in question.
Background
The petitioners had invested a significant sum into the company by way of convertible loan notes with a repayment date of 31 December 2025; those convertible loan notes also accrued interest which would fall payable on the same date. The petitioners presented the petition on the basis of contingent (the repayment of the notes) and prospective (the payment of the interest) debts.
According to documents the petitioners had access to, the company was clearly insolvent on both the balance sheet and cash flow bases at the time the petition was presented and it had no prospect of changing that position by 31 December 2025. The petitioners submitted two substantive witness statements in support of the petition.
The company applied to strike out the petition, arguing that the petition was an abuse of process as it was bound to fail. The company relied upon evidence that, it said, showed the company was not insolvent. It further sought the strike out on the basis of collateral purpose or lack of legitimate interest. It also sought an injunction to restrain advertisement of the petition.
The company entered around 60 pages of witness evidence and lengthy exhibits with its application. The petitioners in turn submitted several short responsive witness statements. The application had been brought on several grounds, all of which needed to be dealt with but several of which the company subsequently dropped. The company then proceeded to serve eight further witness statements in reply, which adduced more than 400 pages of further evidence. On its face, much of that evidence was irrelevant to the company's application.
The Court's decision
Insolvency and Companies Court Judge Agnello KC delivered a detailed judgment, focusing on the evidential requirements in such applications. The judge noted that the burden was on the company to prove that the petition was bound to fail, a high threshold requiring clear and convincing evidence.
The company's evidence was found wanting. Its accounts for the year ending December 2023 showed a deficit of over $1.6 million, and management accounts for 2024 indicated a worsening position. On its own evidence, the company had effectively admitted to being balance sheet insolvent and relied heavily on the prospect of future funding, particularly a proposed $75 million investment from an institutional investor. However, the judge found that there was no concrete evidence that this funding would materialise: due diligence was ongoing, and there was no binding commitment or documentation from the investor to support the company's assertions. The company had also sought to rely on statements and forbearance agreements with supportive creditors, which did not alter the position in the judge's view.
The judge was highly critical of the company's failure to provide up-to-date management accounts, proper financial statements, or any detailed evidence regarding the likelihood of the anticipated funding. Instead, the company relied on bare assertions and unsupported cash flow forecasts. There was no evidence provided by the company's accountants or any draft accounts. The judge highlighted that, in insolvency proceedings, especially where the company is not trading and has no income (which was the case here), it is essential to provide robust, verifiable evidence of solvency or of the likelihood of future funding.
The judge also noted that the prospective debt, being the interest accrued on the loan notes, was not only that which would fall owing to the petitioners. There was already just under $1.7mn of interest accrued as at December 2024, according to the latest financial information before the judge. Around $6mn of loan notes had since been issued. Interest continued to accrue on all of these loan notes and, on the basis of the evidence before the judge, there was no reason to believe that the company would not continue to be balance sheet insolvent when that interest fell due.
Conclusions
The application to strike out the petition was dismissed, and the petitioners were found to have a legitimate interest as creditors. The judge also awarded costs against the company on an indemnity basis. She acknowledged that it was right that weak cases do not merit indemnity costs, but this case was not just weak. ICC Judge Agnello KC described the application as hopeless, speculative, and unsupported by proper evidence.
The judgment serves as a clear warning to companies facing insolvency petitions: there is a relatively high bar for successful strike out applications. Unsupported assertions and speculative funding hopes are insufficient. Proper, detailed, and independently verifiable evidence is required to persuade the court to strike out a winding-up petition.
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