In the recent Cayman case of In the Matter of NBRL Global, Ltd., The Honourable Justice Raj Parker refused to wind up the company. The petitioner (a creditor and also a shareholder) had refused to accept payment from the company because payment following the presentation of a winding up petition would be void under the Companies Law, in the absence of a validation order. The company had a number of other creditors (all of whom had apparently agreed to bespoke deferral of repayment terms) but none appeared before the Court to support the winding up petition. It was held that:
- It is well established that the statutory test for insolvency under the Companies Law is the inability to pay debts as and when they fall due – the cash flow test. While the company had significant liabilities, the Court accepted the company’s evidence that its cash flows were seasonally dependent, and that it expected sufficient revenue in the near future to pay its debts.
- The burden is on the petitioner to demonstrate insolvency. Presenting a winding up petition and then arguing that the debtor ought to prove its own solvency, was held to be the wrong way round. The Court did not accept the petitioner’s argument that the Court should draw a “negative inference” where the company has not put cash flow projections and management accounts into evidence.
- However, a company should document any agreed forbearance with other creditors. Here, the company relied on exchanges of emails with creditors to demonstrate the extended repayment arrangements. Its position would have been much clearer if the arrangements had been documented by deed or term sheet.
In Re a Company (No 0012209 of 1991)  2 All ER 797,  BCLC 865 it was held that it was an abuse of process to present a winding-up petition against a company as a means of putting pressure on it to pay a debt where there is a bona fide dispute as to whether that money is owed (see also Mann v Goldstein  2 All ER 769, Bryanston Finance Ltd v De Vries (No 2)  Ch 63,  1 All ER 25 and Re Pan Interiors  EWHC 3241 (Ch)). For any more information, please contact Nick Hoffman, Chai Ridgers or Lachlan Greig.