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OUTER HOUSE, COURT OF SESSION
[2022] CSOH 97
P447/22
OPINION OF LORD CLARK
In the cause
KINGSTON PARK HOUSE LIMITED
Petitioner
for
an order under Section 221 of the Insolvency Act 1986 to wind-up
GRANTON COMMERCIAL INDUSTRIAL PROPERTIES LIMITED
Respondent
Petitioner: McBrearty KC; MacRoberts LLP
Respondent: McIlvride KC, Tosh; Turcan Connell
3 November 2022
Introduction
[1]
The petitioner is a private limited company, incorporated and registered in England
and Wales. The respondent is a private limited company, incorporated and registered in
Jersey. In this application, the petitioner seeks an order for the winding-up of the
respondent, on the basis that it is unable to pay its debts. That is opposed by the
respondent, on two grounds. Firstly, that this court does not have jurisdiction to wind-up
the respondent, and even if it does, it is more appropriate for the matter to be dealt with by
the court in Jersey. Secondly, that the circumstances favour the exercise of the court's
2
discretion to refuse to grant an order to wind-up the respondent, principally because the
debt is partly disputed and the respondent's present inability to pay any debt properly due
to the petitioner has been caused by the actings of the petitioner. For convenience, the first
issue will be referred to below as "Jurisdiction" and the second issue as "The merits".
[2]
In light of the fact that winding-up is sought and thereby creates commercial
exigencies, I gave my ruling orally and in summary form on 3 November 2022. The order
for winding-up was granted. This Opinion now sets out my reasoning in full.
Background
[3]
The respondent was incorporated on 15 April 2015. It went on to purchase heritable
properties forming part of the Granton Harbour Estate in Granton, Scotland (the
"development site") with a view to developing that land and selling it on at a profit. The
plots on the development site are in effect the only substantive assets of the respondent. The
court was advised that the respondent's only other asset is £205 held in a bank account. In
order to finance the purchase of parts of the development site, the respondent borrowed
sums from the petitioner. A total of £3,870,000 was borrowed under agreements dated
12 June 2019, 2 October 2019 and 16 January 2020. The original repayment date for those
sums was 12 March 2020. The respondent did not repay the sums due on that date and
intimated that it would require to sell the plots in the development site in order to do so. By
way of supplemental agreements dated 26 March 2020 and 16 July 2020, the repayment date
was extended and became 12 December 2020.
[4]
The respondent was not able to sell the plots within the development site by
12 December 2020. In February 2021, the petitioner served the respondent with a demand
for repayment of the sums due. Thereafter, the petitioner took steps to enforce the standard
3
securities granted in its favour by the respondent in respect of the various plots for which
the loans had been given. Calling-up notices were served in respect of the standard
securities on 18 March 2021.
[5]
In June 2021, the petitioner agreed to provide the respondent with another
opportunity to sell the properties within the development site. The petitioner states that it
agreed to do so on the basis of a representation by the respondent that a prospective
purchaser had been found and that negotiations were going well. It was agreed that the
sums due to the petitioner by the respondent would be repayable in two tranches. First, the
sum of £4,000,000 would be repayable on the earlier of: (i) the completion of a disposal of
one defined part of the development site; and (ii) 31 July 2021. Thereafter, the balance
outstanding would be payable on the earlier of: (i) the completion of the disposal of the
second defined part; and (ii) 30 September 2021.
[6]
The respondent provided the petitioner with a draft balance sheet as at 31 May 2021.
That document disclosed that the respondent had fixed assets of £12,365,000. These fixed
assets comprised plots of land which make up the development site. It also disclosed that
the respondent had cash at bank and in hand of £1,305. The document identified two
categories of creditors of the respondent. The first was the petitioner, whose claim was
valued at £5,660,437. The second was sums due to other companies within the same group
of companies as the respondent. Those unsecured debts are valued at £5,752,180.
[7]
On 10 September 2021, the petitioner presented a petition to this court for the
liquidation of the respondent. The parties subsequently reached a negotiated settlement of
those liquidation proceedings in January 2022. As part of the settlement, the petitioner
agreed to provide the respondent with another opportunity to sell the properties within the
development site. Again, the petitioner states that it agreed to this based on a representation
4
by the respondent that a prospective purchaser had been found and that negotiations were
going well. The terms of the agreement reached between the parties were set out in a letter
of amendment, consent and waiver dated 7 February 2022, under which the parties agreed
inter alia that the date for repayment of amounts owed would be extended to 29 April 2022.
[8]
On 26 April 2022, the petitioner provided the respondent with a redemption
statement stating that the total sum due as at 28 April 2022 in respect of loans, interest and
costs was £7,146,289.78. That figure was in error to the extent that it included a duplicate fee
note, in the sum of £28,854.86. The total amount shown on the redemption statement should
have been £7,117,434.92. Interest continues to accrue on the loans at a daily rate of £3,287.67.
[9]
The development site has not been sold. The respondent did not make payment of
the £7,117,434.92 due to the petitioner by 29 April 2022. On 5 May 2022, the petitioner
served a notice on the respondent demanding repayment of the full sums outstanding. The
respondent has not made payment of the sums said to be due. It disputes that certain
elements of the total sum are due. On 5 August 2022, the respondent offered to make
payment to the petitioner of £6,238,000 in full and final settlement. The petitioner did not
accept that offer.
Insolvency Act 1986
[10]
It is not disputed that the respondent is an unregistered company, as defined in
section 220 of the Insolvency Act 1986, because it is not registered in the United Kingdom.
For present purposes, the relevant provisions of the 1986 Act are as follows:
"221. Winding-up of unregistered companies.
(1)
Subject to the provisions of this Part, any unregistered company may be wound
up under this Act; and all the provisions about winding-up apply to an
unregistered company with the exceptions and additions mentioned in the
following subsections....
5
...
(3) For the purpose of determining a court's winding-up jurisdiction, an unregistered
company is deemed--
(a) to be registered in England and Wales or Scotland, according as its
principal place of business is situated in England and Wales or Scotland, or
(b) if it has a principal place of business situated in both countries, to be
registered in both countries;
and the principal place of business situated in that part of Great Britain in which
proceedings are being instituted is, for all purposes of the winding-up, deemed to be
the registered office of the company.
...
(5) The circumstances in which an unregistered company may be wound up are as
follows...
(b) if the company is unable to pay its debts...
...
224.
Inability to pay debts: other cases.
(1) An unregistered company is deemed (for purposes of section 221) unable to pay
its debts...
(d) if it is otherwise proved to the satisfaction of the court that the company is
unable to pay its debts as they fall due.
...
426.
Co-operation between courts exercising jurisdiction in relation to insolvency.
(1) An order made by a court in any part of the United Kingdom in the exercise of
jurisdiction in relation to insolvency law shall be enforced in any other part of the
United Kingdom as if it were made by a court exercising the corresponding
jurisdiction in that other part.
..."
Core requirements in relation to the exercise of jurisdiction
[11]
In relation to the first issue, jurisdiction, it will assist to set out at this stage the three
core requirements which senior counsel for each party agreed should be applied in this case.
The relevant legal principles are summarised by Lloyd J in Stocznia Gdanska SA v Latreefers
Inc. (No 2) 2001 BCC 174 (also referred to as Re Latreefers Inc). He quoted (at 179C-D) from
the judgment of Sir Raymond Evershed MR in Banque des Marchands de Moscou
(Koupetschesky) v Kindersley [1951] Ch 112, at
125-126:
"As a matter of general principle, our courts would not assume, and Parliament
should not be taken to have intended to confer, jurisdiction over matters which
6
naturally and properly lie within the competence of the courts of other countries.
There must be assets here to administer and persons subject, or at least submitting, to
the jurisdiction who are concerned or interested in the proper distribution of the
assets. And when these conditions are present, the exercise of the jurisdiction
remains discretionary."
Lloyd J continued (at 179E-F):
'The formulation of these principles has changed over time, and in particular the
presence of assets in the jurisdiction is no longer regarded as essential...As a result of
the decisions of Megarry J in Re Compania Merabello San Nicholas SA [1972] 3 All ER 44.8;
[1973] Ch 75, Nourse J in Re Eloc Electro-Optiek and Communicatie BV [1982]
Ch 43 and Peter Gibson J in Re a Company (No. 00359 of 1987) (1987) 3 BCC 160; [1988] Ch 210
...the statement of the relevant principles has evolved to the point at which
they were summarised, most recently, by Knox J in Real Estate Development Co
[1991] BCLC 210 at p. 217, as consisting of three core requirements, as follows:
(1) There must be a sufficient connection with England and Wales which
may, but does not necessarily have to, consist of assets within the jurisdiction.
(2) There must be a reasonable possibility, if a winding-up order is made, of
benefit to those applying for the winding-up order.
(3) One or more persons interested in the distribution of assets of the
company must be persons over whom the court can exercise a jurisdiction."
In the appeal against Lloyd J's decision, which was refused, the Court of Appeal followed
that approach (at 194A-C).
[12]
These three core requirements were adopted and applied in Scots law by
Submissions for the petitioner
Issue 1: Jurisdiction
[13]
The court has jurisdiction to wind-up the respondent under section 221(3)(a) of the
1986 Act. The respondent's only purpose is to deal with the plots which it owns, as part of
the development site. Its principal place of business was therefore in Scotland and it is
deemed to be registered in Scotland: HSBC Bank plc, Lord Hodge, at [10]. The respondent's
position, that the petitioner is an English registered company with no averred connection
7
with Scotland and is not a person subject to the jurisdiction of this court, was incorrect. This
court could properly exercise jurisdiction over the petitioner: HSBC Bank plc, Lord Hodge
at [13]-[14]. The three core requirements set out by Lord Hodge were met. The first was not
disputed by the respondent. For the second core requirement, the provisional liquidators,
and later the liquidators, will be able to market and sell the plots over which the petitioner
has a standard security, thereby allowing the debt due to the petitioner to be paid. There
was no need to demonstrate that it is of greater benefit to it to seek a winding-up order
rather than enforcing the standard securities. The winding-up order avoids the need for the
petitioner to enforce the standard securities and to enter into possession of the properties.
[14]
As to the third core requirement, it was accepted that the petitioner does not have a
business presence in Scotland. Nevertheless, the petitioner was not merely presenting this
petition, but also submitted to the jurisdiction of this court. In any event, the petitioner is an
English company. Section 426(1) of the 1986 Act made clear that insolvency orders in one
part of the UK are to be reciprocally enforced in other parts of the UK. Any order made by
this court would therefore be capable of being enforced in England, where the petitioner is
registered. Further, the petitioner holds heritable securities over the company's property in
Scotland and any dispute in respect of those would be governed by the Scottish courts. For
these reasons, jurisdiction was established.
Issue 2: The merits
[15]
The respondent was unable to pay its debts. The total amount due is £7,117,434.92.
Interest has continued to accrue on that sum since 28 April 2022. Even if there were to be
merit in the respondent's arguments regarding the sum due, it remained the case that there
is a very substantial undisputed sum due. It was acknowledged by the respondent that it
8
would have to sell the plots or refinance in order to be able to repay the sum due. There was
no imminent sale or refinance in the offing.
[16]
The respondent contends that the rate of interest is exorbitant and is an
unenforceable penalty. But the interest is a matter of agreement, between the petitioner and
the respondent as commercial entities, on an arms-length basis. The agreed rate is not
payable only on breach of contract and accordingly it is enforceable: see EFT Commercial
Ltd v Security Change Ltd (No.1) 1992 SC 414 and Makdessi v Cavendish Square Holdings
BV [2016] AC 1172. The respondent contends that certain professional fees are not due, but
that was again covered by the agreement. The respondent had no basis for raising a
substantial dispute on bona fide grounds about the sums due by it to the petitioner: see Angel
Group Ltd v British Gas Trading Ltd [2013] BCC 265, at [22]; Re Swan Campden Hill Ltd
[17]
The information contained in the two affidavits lodged on behalf of the respondent
did not disclose any relevant basis upon which the court should refuse the orders sought by
the petitioner. Even if it were correct that the pandemic affected previous ability to pay, it
had no effect after February 2022. The suggestion that liquidation will make it more difficult
to obtain a sale or refinancing of the plots than if they were to be included as part of a sale or
refinance of the overall development site affords no basis for the court to refuse the orders
sought. The respondent is unable to pay its debts, against a background of having
attempted to refinance or sell on a number of occasions and having failed to do so.
9
Submissions for the respondent
Issue 1: Jurisdiction
[18]
The three core requirements set out by Lord Hodge in HSBC Bank plc concern the aim
to discover a sufficient connection with this jurisdiction. That is as true in relation to the
potential beneficiaries as it is in relation to the company which it is sought to wind-up:
Re Real Estate Development Co, at 217H. The second and third core requirements were not
satisfied. There was no reasonable possibility of benefit to the petitioner if a winding-up
order is made. The petitioner is a creditor with first ranking standard securities over all of
the respondent's assets. The petitioner may exercise its rights as secured creditor to enforce
those securities and to realise those assets without the need for a winding-up order to be
granted. Indeed, the petitioner had already taken steps to do so, with calling-up notices
served on 18 March 2021. The reasons given by the petitioner in its pleadings were not
properly explained or vouched.
[19]
The proposition that the petitioner does not require to show that a winding-up order
will generate a greater benefit for the petitioner than a sale in exercise of its rights under the
standard securities was wrong as a matter of both recognised principle and authority. It is a
fundamental principle that the court will not wind-up a company if there is no likelihood
that any advantage will be achieved by the petitioner by the grant of a winding-up order.
The benefit to the petitioner must flow naturally from the winding-up. It must arise if, but
only if, a winding-up order is made. If it does not, the court may say that the petitioner is
seeking a collateral personal advantage. That is contrary to the very essence of liquidation
law, which is a collective process not designed to benefit only one creditor: Re Eloc
Electro-Optieck, 47C-D; Prof AR Keay, McPherson & Keay's Law of Company Liquidation (5th ed,
2021), paragraph 2-048, fn 383, citing Re Compania Merabello San Nicholas SA.
10
[20]
In any event, there were no persons interested in the distribution of the company's
assets over whom the court can exercise jurisdiction. The presentation of a winding-up
petition is not a sufficient qualification for submitting to jurisdiction. If it was sufficient, the
third core requirement would be satisfied in every case. It would not be a requirement at all:
Re Real Estate Development Co, 217H-I; Re Latreefers Inc, 182B-C. The fact that the petitioner is
incorporated in England and Wales was not sufficient. The fact that the petitioner has real
rights in property situated in Scotland under the standard securities which render the
petitioner subject to the jurisdiction of the court in terms of the Civil Jurisdiction and
Judgments Act 1982, schedule 8, paragraph 5(1)(a) in respect of proceedings relating to those
standard securities was also irrelevant. That did not give the petitioner any presence or
other substantial connection to Scotland. The effect of schedule 8, paragraph 5(1)(a) in the
1982 Act is an in rem and not in personam jurisdiction. The provision renders certain types of
proceedings subject to the jurisdiction of the Scottish courts. It does not render the
petitioner subject to the jurisdiction of the Scottish courts. In any event, no such proceedings
have been raised.
[21]
Even if those core requirements were satisfied, the court must consider whether any
other jurisdiction is more appropriate for the winding-up of the company. In that analysis,
the starting point is whether there is any compelling reason why jurisdiction in respect of
the winding-up of a company incorporated in Jersey does not actually and properly lie
within the competence of the courts of Jersey: Re a Company (No 00359 of 1987)) sub nom
International Westminster Bank plc v Okeanos Maritime Corp 1988 Ch. 210, 226H; Re a
company (No 003102 of 1991) ex p Nyckeln Finance Co Ltd [1991] BCLC 539, 541D; Re
Buccament Bay Ltd [2015] 1 BCLC 646, 654 at [20]-[21]. There was no suggestion that there is
not a perfectly satisfactory winding-up process available in the Jersey courts. There are well-
11
recognised means by which the Scottish courts can lend assistance in foreign insolvencies:
e.g. Insolvency Act 1986, s426. It was more appropriate for any winding-up of the
respondent to be carried out in Jersey.
Issue 2: The merits
[22]
The court is never bound to grant a winding-up order upon proof of a ground for
winding-up and retains an unfettered discretion: Re Southard & Co Ltd [1979] 1 WLR 1198,
1203. The amount of the debt founded upon by the petitioner is disputed in good faith and
on substantial grounds. Firstly, the respondent disputes liability for the various professional
fees detailed in the fourth column of the redemption statement. Secondly, the petitioner is
not entitled to interest at the rates claimed. A contractual provision that seeks to charge
interest at a floating rate designed to produce a fixed sum is not a provision for payment of
interest at all. In the circumstances, the interest claimed is either an unenforceable penalty
or, at least, the rate of interest applied would fall to be modified by the court: Debt Securities
Act 1856, s 5; Wirral Borough Council v Currys Group plc 1998 SLT 463; Cavendish Square
Holding BV v Makdessi, at [252].
[23]
The effect of these disputes was that the respondent has been unable to progress
steps to refinance the various plots it owns on the development site in order to satisfy any
amount that is properly due to the petitioner. Any refinancing is necessarily conditional
upon the petitioner discharging the first ranking standard securities it presently holds over
the respondent's plots in order that first ranking securities can be granted in favour of the
new funder. The amount of any new funds to be advanced will be dependent upon the
sums required to repay the debt which is properly due to the petitioner and thus obtain the
discharge of the petitioner's securities. The respondent's efforts to refinance were well
12
advanced, but they have been thwarted by the petitioner's insistence on payment of sums
which are not properly due to it and the presentation of this petition. In the exercise of its
discretion, the court should refuse to grant a winding-up order. That was particularly so in
circumstances where the petitioner will retain sufficient security for the alleged debt
pending the determination of the amounts which are in fact properly due. The residual
development value of the plots owned by the respondent and over which the petitioner
holds standard securities is reasonably estimated at £14,098,280 and, thus substantially in
excess of the debt founded upon by the petitioner.
Decision and reasons
Issue 1: Jurisdiction
[24]
As noted, the three core requirements set out above were adopted by Lord Hodge in
HSBC Bank plc. Lord Hodge also took the approach, with which I respectfully concur, that
these requirements concern discretion in relation to the exercise of jurisdiction rather than
being a pre-condition for the existence of jurisdiction itself.
[25]
It is undisputed by the respondent that the first core requirement is satisfied here,
which is undoubtedly correct given that the only substantive assets of the respondent are
situated in Scotland. The only commercial acts of the respondent concern financing,
developing and selling plots on the development site at Granton, and are thus in respect of
heritable property that is subject to the law of Scotland. According to an affidavit lodged by
the respondent, the respondent's agents, who act on behalf of the respondent in dealing with
asset management services and supervising the development proposals, had an office at
Granton. There is no evidence of any business or trading having taken place in another
jurisdiction. The respondent's principal place of business is in Scotland.
13
[26]
As to the second core requirement, in my view it is clear that winding-up is not a last
resort for a secured creditor. The petitioner is not required to demonstrate that winding-up
will be of greater benefit than enforcement of the standard securities. The short point is that
the test is whether there is a reasonable possibility of benefit to the petitioner by
winding-up, rather than it having no real purpose (for example, granting of the order being
in vain or for some collateral purpose). I am satisfied that there is a reasonable possibility of
benefit, simply because the winding-up procedure can give rise to satisfaction of the
petitioner's claim (insofar as that is not disputed by the liquidator). Winding-up therefore
serves a purpose.
[27]
But even if a comparison is made between the right to seek winding-up and the right
to enforce the standard security, further benefits from winding-up accrue to the petitioner
beyond those arising from serving the calling-up notice. These include that the petitioner
need not take the steps required to sell the property that is subject to the standard securities
and that matters will instead be handled by an independent insolvency practitioner who
will be subject to statutory duties. I do not accept the submission for the respondent that in
HSBC Bank plc Lord Hodge applied the comparative approach. Lord Hodge concluded
(at [14]) that the petitioners, who held a security over the development site, were likely to
benefit from the grant of a winding-up order if the provisional liquidators and later the
liquidators were able to complete the developments and thereby obtain a better price for the
assets than otherwise could be obtained. While that identified the benefit, Lord Hodge at no
time suggested that winding-up was a last resort and required to be of greater benefit to the
petitioner than enforcing the security. That is not the position in cases purely involving
domestic parties and there is no reason to conclude that it should apply where the
respondent is foreign. It is also the case that granting a winding-up order in this jurisdiction
14
will give a greater benefit than it being granted in Jersey, when all of the assets are located
here.
[28]
Turning to the third core requirement, it is that "one or more persons interested in
the distribution of assets of the company must be persons over whom the court can exercise
a jurisdiction" (emphasis added). That will occur where the person is subject to the
jurisdiction or has submitted to it. In this case, it is only the petitioner as an interested
person who is claimed to fall into that category. In Re Latreefers Inc, Lloyd J made the
following useful observations (182B-C):
"The third requirement is in some ways puzzling, not as regards the principle, but in
practice. The petitioning creditor will always have invoked the jurisdiction and
therefore be subject to it in some sense. The fact that the petitioning creditor is
foreign, and non-resident, is not a sufficient bar, but the fact that he has presented a
petition cannot be a sufficient qualification in itself. It seems to me, in the present
case, that the petitioning creditor, albeit foreign and having no business presence in
England, should be regarded as having submitted to the court's jurisdiction and thus
as being a person over whom the court can exercise jurisdiction. The creditor has the
benefit of an English judgment debt, which involved submission to the jurisdiction,
and it is still the plaintiff in the ongoing Commercial Court proceedings, so the
submission to the jurisdiction is continuing."
[29]
Accordingly, the fact that this court's jurisdiction over the petitioner is invoked by
the petition having been brought does not of itself suffice. Lloyd J's point that the third
requirement is "puzzling" in practice is well-made, because it is not clear precisely why the
jurisdiction of the court is needed when the petitioner is already subject to it. It was
suggested to me that the purpose of the third core requirement may be that the court has a
means, or perhaps a further means, of control over the petitioner in respect of these
proceedings. However, control arises in any event from the petitioner having invoked the
jurisdiction of this court by bringing the petition. It is also unclear how, in Latreefers Inc,
being the plaintiff in other court actions would have allowed such control in respect of the
petition procedure. Moreover, from the language of the third core requirement it is clear
15
that if there is jurisdiction over other creditors, rather the petitioner, that can suffice. What
seems to be the more plausible interpretation of the principle behind the third core
requirement is that there should be a connection between the petitioner, or other persons
having an interest in the distribution of assets, and this jurisdiction. So, if the court can
exercise "a jurisdiction" over a person interested in the distribution of the assets that will
suffice.
[30]
In HSBC Bank plc Lord Hodge concluded that as the petitioners had offices in
Scotland, the test was met. Thus, a petitioner does not need to have invoked the jurisdiction
in some other proceedings before the court, or be a defender in such proceedings. This
illustrates that the test is met when the court will be able to exercise a jurisdiction in the
event that any litigation is brought against the petitioner or a court order is to be enforced
against the petitioner. Re Latreefers Inc illustrates a different means of having submitted to
the court's jurisdiction, which was the applicant's involvement in prior court proceedings
for the debt and continuing engagement in extant court proceedings. This is an example of
the court being able to exercise a jurisdiction when proceedings, other than the winding-up,
have actually been raised or successfully completed by the person, invoking the court's
jurisdiction. Those specific examples do not apply here. However, they show means by
which the third core requirement can be met.
[31]
In the present case, the petitioners have no branch or office in Scotland. No other
court proceedings (apart from the petitioners having previously, in September 2021, brought
a winding-up petition) have taken place or are continuing. There is also no submission to
jurisdiction in the form of prorogating the jurisdiction of the Scottish courts by contract.
Indeed, the restated or supplementary agreements give exclusive jurisdiction to the courts in
England, although the clause is stated to be only for the benefit of the petitioner and the
16
petitioner is also allowed to sue in any other court with jurisdiction. So, the points founded
upon by the petitioner for the court being able to exercise a jurisdiction over it differ from
the examples in the previous authorities. The points are the existence of the standard
securities and the application of section 426(1) of the Insolvency Act 1986.
[32]
Dealing firstly with the standard securities point, as noted, the fact that the
respondent's assets are in Scotland satisfies the first core requirement of a sufficient
connection. The petitioner's standard securities in respect of those assets means that the
petitioner has a right in rem in respect of the property covered by them (Conveyancing and
Feudal Reform (Scotland) Act 1970, section 11(1)). The respondent continues to have the real
right of ownership, but the petitioner has what might be described as a subordinate real
right. In any proceedings which have as their object rights in rem in immovable property
this court has exclusive jurisdiction (paragraph 5 (1)(a) of Schedule 8 of the Civil Jurisdiction
and Judgments Act 1982). As noted by Lord Rodger in Burnett's Trustee v Grainger 2004 SC
(HL) 19, 2004 SLT 513, (at [87]), quoting from a textbook on Roman Law, an action in rem
asserts a relationship between a person and a thing and an action in personam is about a
relationship between persons, but "there cannot be a dispute between a person and a thing,
and therefore even in an action in rem there must be a defendant".
[33]
This right in rem is a right on the part of the petitioner and it is covered by a range of
statutory provisions that could result in the petitioner bringing or defending an action in
relation to the standard securities. Part II of the Conveyancing and Feudal Reform
(Scotland) Act 1970 sets out a number of rights and duties on the part of the creditor and the
debtor or proprietor of the property. The petitioner has not invoked the jurisdiction of this
court in relation to the standard securities. However, by holding such security the petitioner
remains open to being a defender in an action raised in this court. I conclude that the
17
petitioner made itself subject to, or submitted to, the jurisdiction of the court on matters
concerning the standard securities. Of itself, that would satisfy the third core requirement.
[34]
There is, however, a stronger basis for it being satisfied. I accept the submission on
behalf of the petitioner that the requirement is met as a result of the terms of section 426(1)
of the 1986 Act. While it might be argued that the section in effect mirrors, and adds little, to
the point that the petitioner has invoked the court's jurisdiction on winding-up, in fact it
allows this court to exercise its jurisdiction over the petitioner "in relation to insolvency law"
and hence has a wider remit. The test for the third core requirement, on my interpretation of
it, is met. In any event, even if the third core requirement is restricted to having control, or
greater control, over the petitioner in the petition proceedings, this section has that effect. It
is true that, if section 426(1) results in the third core requirement being met, the consequence
is that persons domiciled in other parts of the UK who bring a petition for winding-up in
Scotland will always be able to satisfy that requirement. But that is the import of its terms:
an order made by this court in the exercise of jurisdiction in relation to insolvency law must
be enforced in England as if it were made by a court exercising the corresponding
jurisdiction there. Such persons are therefore, in effect, subject to the jurisdiction of this
court in relation to insolvency law.
[35]
Accordingly, I conclude that by having standard securities over heritable property in
Scotland and separately as a consequence of section 426(1) of the 1986 Act the petitioner is
subject to, or has submitted to, the exercise of a jurisdiction by this court.
[36]
This court must, of course, also consider whether any other jurisdiction is more
appropriate for the winding-up of the company. As explained, all of the principal and
substantive assets of the respondent are in Scotland and the key feature of any liquidation
process is to take over those assets. The respondent's development of the property has been
18
in Scotland and the standard securities are here. There is therefore an advantage in the
winding-up proceedings being here and no advantage in simply leaving the process to the
courts in Jersey. Those courts could of course request the Scottish courts to assist in that
regard and that appears to be a highly likely outcome if the winding-up process went ahead
in Jersey. But in the whole circumstances, including that the three core requirements are
satisfied, I do not see it as more appropriate for that route to be followed.
[37]
In summary, the three core requirements are met and I see no substantial difference
between this case and HSBC Bank plc. Lord Hodge correctly observed that in the interests of
comity and having regard to practicality, the courts must exercise restraint before granting
orders for the winding-up of foreign companies. But in that case, as here, the only
substantial business assets were in Scotland. Lord Hodge also held that as the company's
only business was to develop property in Scotland, its principal place of business was in
Scotland. That applies also in the present case, as the respondent's business activities take
place in Scotland. Lord Hodge also held that as the petitioners had offices within this
jurisdiction the court could exercise a jurisdiction over them. In the present case, the
petitioner has no seat in Scotland, but this court can in my opinion exercise a jurisdiction
over the petitioner as a result of the standard securities and, separately and in any event,
section 426(1) of the 1986 Act. This court entirely respects the jurisdiction of the courts in
Jersey and will not exercise an exorbitant jurisdiction contrary to international comity, but I
am satisfied that in the circumstances this court has jurisdiction to wind-up the respondent
and that it would be more appropriate to do so in this jurisdiction.
19
Issue 2: The merits
[38]
Turning to deal with the merits, there is, on any view, a significant unpaid debt
(some £3.87m) due by the respondent to the petitioner, which has subsisted for some time.
The respondent agreed to the terms of the various restatements or supplementary contracts
that extended the period for payment and the sums which would fall due in those
circumstances. It is clear that in order for a sum to be a penalty, it must fall due as a result of
a breach of contract: EFT Commercial Ltd v Security Change Ltd (No. 1). Senior counsel for the
respondent argued that the additional sums, described as interest, were included in the
varied contracts as a consequence of the respondent's previous breach of contract. There is a
clear difference between a sum agreed to be payable under the varied contracts, as interest
on the loan, and a sum payable for breach of contract. The sums in this case were not a
penalty for a breach. In fact, these were simply the agreed terms upon which the loan
would proceed further and the sums now claimed built up wholly as a result of the
respondent not being able to repay or find a buyer or other financier. If there is a proper
basis for disputing the sums claimed by the petitioner (over and above the substantial
undisputed sums) then the liquidator will be fully able to do so. So far as the professional
fees are concerned, these are also covered by the varied contracts. In any event, they do not
amount to a substantial element of the debt claimed to be due. Again, the liquidator can
dispute them, if so advised.
[39]
Affidavits were lodged on behalf of the parties and I have considered their contents.
However, I find nothing of any material substance within them which could cause me to
reach different conclusions on either jurisdiction or the merits. In the respondent's
affidavits, there is reference to the Covid-19 pandemic having for some time affected the
ability of the respondent to obtain refinancing, but things have of course moved on and
20
senior counsel for the respondent placed no real reliance on that matter. In one affidavit it is
said that the inability of the respondent to have an undisputed ascertained amount to repay,
combined with the presentation of the winding-up petition, have made refinancing of the
respondent's sites impossible. That is not explained in any proper detail, but in any event
the petitioner has the right to claim for repayment based upon the restatement or
supplemental agreements and to present this winding-up petition.
[40]
In the whole circumstances, I am satisfied that this court has jurisdiction, the
respondent is unable to pay its debt to the petitioner and that in the exercise of my discretion
winding-up should be granted.
Conclusion and disposal
[41]
For the reasons given, the winding-up order is made.
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