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Case Reporter
Iqbal Mohammed of St Philips reports on a recent insolvency law case

Salford Estates (No. 2) Limited v Section 82 of AA 1996 defines “legal proceedings” as “civil
proceedings in the High Court or a county court.”

AltoMart Limited FACTS

Salford Estates, the petitioner, let commercial premises to Altomart
[2014] EWCA 1575 under a lease, which required the payment by Altomart of service
charges, insurance and rent without deduction.
The lease contained an arbitration clause, which stated:
INTRODUCTION

n In Salford Estates (No. 2) Limited v AltoMart Limited [2014]

EWCA 1575, the Court of Appeal held that the mandatory
stay provisions under s 9 of the Arbitration Act 1996 (AA 1996) do
“Any dispute or difference arising between the Lessor and the
Lessee as to their respective rights duties or obligations or as
to any other matter arising out of or in connection with this
not apply to winding up petitions based on a company’s inability to Underlease shall be referred to a single arbitrator provided the
pay its debts, as such a petition is not a “claim” for payment, rather, parties are able to agree on one or otherwise to two arbitrators
it is an invocation of the statutory scheme, designed to dissolve one to be appointed by each party or their umpire in accordance
insolvent companies for the benefit of all creditors. with and subject to the provisions of the Arbitration Act 1950 or
However, under s 122(1)(f) of the Insolvency Act 1986 (IA any statutory modification or re-enactment thereof for the time
1986), the court’s discretionary power to wind up a company should being in force.”
be exercised consistently with the legislative policy of AA 1996, by
dismissing the petition and compelling the parties to resolve their The parties referred to arbitration a number of disputes over
dispute by their chosen method. Altomart’s obligation to pay the service charge and insurance rent.
The Court of Appeal left open the possibility of a court exercising Ultimately, the arbitrator found that there was a liability to pay
its discretion in a manner inconsistent with the legislative policy of AA the sum of £64,431 in respect of arrears over the last three years
1996, but described such a possibility as one of “wholly exceptional and also, that half of the costs of the arbitration were also payable
circumstances” which were “presently difficult to envisage.” by Altomart.
The award was not immediately paid. Salford Estates threatened to
BACKGROUND issue winding up proceedings and sought payment of a further £27,000
HHJ Bird, sitting as a High Court judge, ordered that a winding up due in respect of services charges and insurance rent since the award
petition presented by the appellant be stayed under s 9 of AA 1996. was made, arguing that this sum was due following the award or the
On appeal, the issue was whether or not a petition to wind up a reasoning contained within it.
company amounts to civil proceedings in the High Court. Salford Estates then presented a petition for the total of £92,000,
Section 9 of AA 1996 states: comprising the arbitration award and additional sums due. The
respondent applied for a stay or strike out of the petition on various
“(1) A party to an arbitration agreement against whom grounds, including under s 9.
legal proceedings are brought (whether by way of claim or
counterclaim) in respect of a matter which under the agreement DECISION
is to be referred to arbitration may (upon notice to the other HHJ Bird heard the application and gave immediate judgement
parties to the proceedings) apply to the court in which the staying the petition. The judge considered Rusant Limited v Traxys
proceedings have been brought to stay the proceedings so far as Far East Limited [2013] EWHC 4083 (Ch), in which a petition was
they concern that matter… restrained despite the absence of a bona fide dispute, on the grounds
that there was an arbitration clause. The judge also considered Halki
(4) On an application under this section the court shall grant a Shipping v Sopex Oils [1997] EWCA Civ 3062, in which it was held
stay unless satisfied that the arbitration agreement is null and that there is a dispute for the purposes of AA 1996 where a party
void, inoperative, or incapable of being performed.” simply does not admit liability.

36 February 2015 Corporate Rescue and Insolvency

 CASE REPORTER
Biog box
Iqbal Mohammed is a barrister at St Philips. Email: [email protected]
Case Reporter

Accordingly, unless the arbitration agreement is null and void, “If several alleged debts are stated in the winding up petition
inoperative or incapable of being performed pursuant to s 9(4) of AA as evidence of the company’s inability to pay its debts within
1996, the mandatory stay provisions in s 9(1) and (4) are engaged, even IA 1986, s 122(1)(f) and only some arise out of a transaction
if, absent an arbitration agreement and s 9, the claimant could have containing an arbitration agreement, the concept of a non-
obtained summary judgment. discretionary “stay” of the winding up petition pursuant to
The judge held that but for the binding authorities above, he s 9(1) and (4) of the 1996 Act makes no sense. Plainly, there is no
would have dismissed the application, as there was no bona fide and basis for staying the Petition itself; and, if the Petition proceeds,
substantial dispute. there can be no reference to arbitration of any of the debts because the
making of a winding up order brings into effect the statutory scheme
APPEAL for proof of debts which supersedes any arbitration agreement.
On appeal, the appellant argued that the judge was wrong to follow
Rusant and that Halki was wrongly decided. It was argued that unlike Considering parliamentary intent, the Chancellor considered it
an ordinary money claim where the proceedings are for payment of “improbable” that Parliament “without any express provision to that
what is due, a winding up petition is not a claim for payment. effect, intended s 9 of [AA 1996] to confer on a debtor the right to a
It was argued that winding up is in the nature of a class action in non-discretionary order striking at the heart of the jurisdiction and
the public interest; it brings into operation the statutory regime for discretionary power of the court to wind up companies in the public
realising and distributing the assets of the company for the benefit of interest where companies are not able to pay their debts”.
its body of creditors. It does not, in principle or in fact, result in the Consequently, s 9 is not capable of depriving the court of its
payment of the sum owed. As an arbitrator has no power to wind up a discretion, even where there is an arbitration clause in place.
company, it was submitted that a winding up petition is, accordingly, For this reason, the conclusion of Warren J In Rusant, that any
not “arbitrable” and not a “claim” within s 9 of AA 1996. issue between the parties on presentation of a petition becomes a claim
On this basis, it was contended that, in accordance with long within the meaning of s 9, was expressly disapproved.
established jurisprudence, the court should only stay or dismiss a However, the Court of Appeal was conscious that to exercise its
petition based on an unpaid debt if the debt is subject to a bona fide discretion inconsistently with AA 1996 would encourage parties to
dispute on substantial grounds. bypass an arbitration agreement and present a winding up petition to
pressurise another to pay up, in contrast to the scheme and purpose of
JUDGMENT AA 1996 and the parties’ own agreement. This would undermine the
Sir Terence Etherton, the Chancellor of the High Court, giving intention of Parliament and the legislative scheme of AA 1996.
judgment for the Court of Appeal, held that proceedings to wind up The court considered that the debt in this case was subject to the
a company are “legal proceedings” within the meaning of very wide terms of the arbitration clause. It was also not admitted
s 82. However, applying the provisions of IA 1986, specifically the and therefore constituted a dispute within the meaning of AA 1996,
grounds on which a company may be wound up under s 122(1), it was following the approach of Halki. While there is no automatic stay as a
held that s 9 of AA 1996 does not apply to a petition brought on the result of s 9, the Court of Appeal considered that:
grounds that a company is unable to pay its debt.
The respondent did not dispute that a failure to pay an undisputed “As a matter of the exercise of the court’s discretion under IA
debt is evidence of an inability to pay under s 122(1)(f) of IA 1986, or 1986 s 122(1)(f), it was right for the court either to dismiss
that even if a debt is substantially disputed, so long as the undisputed or to stay the Petition so as to compel the parties to resolve
sum exceeds the statutory minimum of £750, a petition would not their dispute over the debt by their chosen method of dispute
be dismissed. resolution rather than require the court to investigate whether or
In essence, non-payment is evidence of a company’s inability to pay not the debt is bona fide disputed on substantial grounds.”
its debts, to invoke the court’s jurisdiction under s 123(1)(e) , rather
than a claim or counterclaim. It was held that a petition to wind up is It therefore dismissed the appeal.
not a claim for payment of a debt, but a petition to exercise the court’s
power to wind up an insolvent company (see para 31-32). The granting CONCLUSION
of such relief would not result in the sums sought being paid, rather, This was the first time the Court of Appeal specifically grappled with
winding up results in a class remedy and distribution to all creditors, the inconsistency between the schemes operating in AA 1996 on the
necessarily reducing the money available to the petitioner. one hand and IA 1986 on the other. Interpreting s 9 restrictively to
This was an important and significant distinction between winding keep intact the judicial discretion afforded by s 122(1)(f) was perhaps
up petitions and claims within the meaning of AA 1996. Only claims the only option available to allow for each scheme to be interpreted
and counterclaims are subject to a mandatory stay. consistently with the other. However, for practical purposes, the Court
Futhermore, on the interplay between arbitration clauses and the of Appeal has confirmed that winding up petitions cannot be used to
statutory scheme, it was held that (emphasis added): thwart arbitration clauses and the statutory stay provided by s 9.  n

Corporate Rescue and Insolvency February 2015 37