Macplant Services Ltd v. Contract Lifting Services (Scotland) Ltd [2008] ScotCS CSOH

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Macplant Services Ltd v. Contract Lifting Services (Scotland) Ltd [2008] ScotCS CSOH_158 (12 November 2008) URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSOH_158.html Cite as: 2009 SC 125, [2008] CSOH 158, [2008] ScotCS CSOH_158, 2008 GWD 38-577

OUTER HOUSE, COURT OF SESSION

[2008] CSOH 158

P802/08

OPINION OF LORD HODGE

in the petition of

MACPLANT SERVICES LIMITED

Petitioner;

To wind up

CONTRACT LIFTING SERVICES (SCOTLAND) LIMITED

Respondent:

________________

Petitioner: Mr D. Sellar QC; Archibald Campbell & Harley WS

Respondent: Mr D Johnston QC; Balfour & Manson LLP

12 November 2008

[1] This is an application by Macplant Services Limited ("Macplant") for an order to wind up Contract Lifting Services (Scotland) Limited ("CLS"). CLS was a bulk lifting contractor. Macplant's principal business is the maintenance of plant and equipment and, for a considerable time before the presentation of the petition for the winding up of CLS, it had provided such services to CLS in relation to plant which CLS leased to other parties. CLS was Macplant's largest customer by turnover.

[2] The proceedings in this petition have a prolonged and tortuous history in the courts since a provisional liquidator was appointed to CLS on 17 November 2006. I set out that history in paragraphs 3 to 5 below. Hindsight suggests that it might have been unwise of Macplant to proceed in the manner it did as it has given rise to prolonged litigation. Be that as it may, the issues which remain to be determined are (1) whether Macplant was and is a creditor of CLS (in particular whether the debts were disputed or in any event Macplant had agreed not to enforce those debts) and (2) whether CLS was at the date of the presentation of the winding up petition and is unable to pay its debts.

The history of the winding up application

[3] Macplant presented an initial writ in Aberdeen Sheriff Court on 17 November 2006 seeking to wind up CLS on the basis that it was unable to pay its debts. Macplant claimed that CLS owed it £336,799.42 and vouched its claim by a statement of account dated 14 November 2006. Macplant applied for the appointment of a provisional liquidator and on 17 November 2006 the sheriff appointed Mr Blair Nimmo CA to perform that role. CLS lodged answers to the application on 8 December 2006 and moved for the recall of the appointment of the provisional liquidator. The sheriff heard that motion on 22 January and 8 February 2007 and on the latter date recalled the appointment, allowed parties further time to adjust their pleadings and allowed a proof in May 2007. Macplant appealed that decision to the sheriff principal who on 6 June 2007 issued a judgment allowing the appeal and appointing Mr Nimmo interim liquidator of CLS.

[4] CLS then appealed the sheriff principal's judgment to the Inner House of the Court of Session and a summar roll hearing was fixed for 25 and 26 October 2007. But on 19 October 2007 CLS enrolled a motion to allow a detailed Minute of Amendment to be received and so caused the discharge of the hearing in the Inner House. After Macplant had answered the Minute of Amendment the Inner House on a consented motion on 4 December 2007 allowed the appeal, recalled the interlocutors on 8 February 2007 and 6 June 2007 (thereby leaving the provisional liquidator in office), and remitted the cause to the sheriff. On 8 February 2008, Lord Glennie remitted the case to the Court of Session under section 120(3)(a)(ii) of the Insolvency Act 1986 ("the 1986 Act"). Thereafter on 17 April 2008 Lord Menzies fixed this hearing.

[5] As a result of these protracted proceedings almost two years have passed since the initial appointment of the provisional liquidator. That is of some significance as both parties produced materials bearing on the merits of the application either shortly before or during the hearing of the application and I had to continue the application, which I had heard on two days in August 2008, to a third day on 10 September 2008, to allow CLS to complete its submissions and to give parties time to produce further material which was relevant to their assertions.

The law which is relevant to this winding up application

[6] The relevant statutory provisions in the 1986 Act are, first, section 124(1) which provides: "...an application to the court for the winding up of a company shall be by petition presented ...by any creditor ..". Macplant asserts that it is a creditor of CLS. Secondly, in section 122(1) it is provided that "a company may be wound up by the court if - ... (f) the company is unable to pay its debts." In this application Macplant asserts that CLS is unable to pay its debts. In order to establish that inability Macplant relies on section 123(1) which provides that "a company is deemed unable to pay its debts - (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due". This is cash flow insolvency. Macplant also relies on balance sheet insolvency; section 123(2) provides:

"A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities".

[7] There are two cumulative requirements which Macplant must meet if it is to succeed in its application to wind up CLS. First, it must establish that it is a creditor of the company in order to have title and interest to pursue the application. Secondly, it must show to the satisfaction of the court that the company is unable to pay its debts in order to obtain the winding up order. See Mann v Goldstein [1968] 1 WLR 1091, Ungoed-Thomas J at p. 1095D-F. Thus if the petitioning creditor cannot establish its status as a creditor of the respondent company but the latter company is insolvent, the court cannot make a winding up order. Equally a creditor cannot obtain the order without establishing the insolvency of the respondent company.

[8] A winding up petition is not the process in which to establish the respondent company's liability to pay a disputed debt. The petitioner will not be creditor for the purposes of section 124, and thus will not have title and interest to seek the winding up, if the respondent company shows that the debt is disputed in good faith and on substantial grounds: Mann v Goldstein, Ungoed-Thomas J at pp. 1098-1099; Re a Company No 006685 of 1996 [1997] BCC 830, Chadwick J at p. 832 F-H and Baker Hughes Limited v CCG Contracting International Limited 2005 SC 65, Lady Smith at paragraph 10. The Court will normally dismiss the petition if it is clear that there is such a dispute. But honest belief on the part of the respondent company is not enough to undermine the petitioner's title. The respondent company must also show that there are substantial grounds for disputing the debt. See Professor Roy Goode, "Principles of Corporate Insolvency Law" (3^rd ed.) para 4-23. The reasons which the courts have given for taking this approach include the disruption and potential damage which the presentation and advertisement of a winding up petition may cause to the business of a respondent company. But for this rule, this potential to damage would enable a petitioner to apply commercial pressure to obtain payment of a disputed debt. At the same time, the court has to be astute to prevent a respondent company from seeking to avoid or at least postpone the winding up by advancing what Oliver LJ has described as "a cloud of objections on affidavits" so as to force the petitioning creditor to establish his claim in other proceedings when there is in fact no bona fide and substantial dispute as to the debt. See Re Claybridge Shipping Company SA [1981] Com LR 107, Oliver LJ at p. 109.

[9] Where, as here, each side produces many affidavits and voluminous documentary evidence, it appears to me that the court must look at the materials which the parties place before it to see if it can form a view on whether there is a bona fide dispute about the petitioner's claimed debt which is based on substantial grounds. Where the court is persuaded that there is such a dispute, the proper course is to dismiss the winding up petition as the petitioner will not have established its title as creditor. If there is doubt whether there is a bona fide dispute on substantial grounds the court may sist the winding up proceedings to allow the parties to resolve that question in other proceedings: Landauer & Company v W.H. Alexander & Company Limited 1919 SC 492. Where there is affidavit evidence on both sides which prima facie is credible the court may not be able to resolve the factual disputes and may, very exceptionally, have to hear oral evidence in the winding up application. Re a Company No 006685 of 1996 (above) at pp.837F-838B gives some support for this view. Such a course of action might be appropriate if the matters remaining in dispute are limited, most matters having been resolved in the hearing, and it would be wasteful for parties to commence separate proceedings. But before dismissing or sisting the application or allowing oral evidence in what is meant to be a summary procedure, I think that the court should assess the conflicting evidence in the context of its consideration of all of the evidence which is placed before it to see if it is credible and may be relied on to demonstrate the existence of a dispute. The Companies Court in England takes a similar approach, asking whether there is a fair or reasonable probability of the defendant having a defence: Re a Company No 006685 of 1996 (above) at p.838C-F.

[10] It is well established that if a creditor of an undisputed debt seeks a winding up order, he has in a question with the respondent company a right ex debito justiciae to the order: In re Southard & Co [1979] 1 WLR 1198 CA, p. 1202E-G. As occurred in that case, the court may exercise its discretion to refuse to make such an order when other creditors of the company oppose the remedy of winding up on grounds which persuade the court that it is inappropriate. But, absent such issues between creditors, the court will exercise its discretion to grant the petitioning creditor the order which it seeks. A dispute about part of a debt is not a defence to a winding up application if the undisputed part of the debt is sufficient to justify the presentation of the petition: In re Tweeds Garages Limited [1962] Ch 406. The Companies Court in England treats the £750 required for a section 123(1)(a) demand as the minimum debt unless there are special circumstances which make the not inexpensive remedy of winding up appropriate. I am content to follow that approach as a guide to the exercise of the court's discretion in most circumstances having regard to the cost of the winding up process. But where a creditor has an unsatisfied decree or an expired charge against the company for a smaller sum a winding up order may be the appropriate remedy and in some circumstances it may be the only effective remedy; Speirs & Co v Central Building Co Limited 1911 SC 330 is such a case.

The commercial background

[11] Macplant's petition was initially straightforward. It asserted that it was a creditor of CLS, having serviced and repaired its plant, and sought to vouch the claim by reference to a statement of account dated 14 November 2006. CLS's defence to the application relied in large measure on the wider commercial context of the parties' dealings.

[12] CLS leased plant and equipment to several customers including A Ogden & Sons Limited (later renamed ATH Regeneration Limited after takeover by ATH Resources plc), Clydeport Operations Limited and Forth Ports plc. Macplant repaired and serviced the plant and equipment. In December 2005 Business Investment Group Limited ("BIG") acquired the share capital of CLS for £1.2 million. BIG was controlled by Mr John Paul who was its sole shareholder and director. Mr Paul was aware of the close working relationship between CLS and Macplant and aspired to acquire Macplant. He discussed his interest in doing so with Mr Stewart McLean, a director of Macplant, who was a friend of Mr Barrow, the previous owner of the shares in CLS, and who had in 2005 assisted Mr Paul in BIG's acquisition of CLS. In May 2006 CLS signed a non-disclosure agreement with Macplant in order to allow it to examine Macplant's books and records with the intention of making an offer for its shares. It appears that, in his dealings with Macplant, Mr Paul envisaged that BIG would eventually acquire Macplant and made proposals to Macplant's directors to deal with Macplant's claims for payment on that basis. But in the months after May 2006 Mr Paul did not make significant progress in his aspiration to acquire Macplant and did not envisage agreeing even heads of terms until December 2006.

[13] After BIG acquired the share capital of CLS Mr Paul became concerned that some of CLS's contracts were not profitable. He therefore terminated those contracts. CLS also became involved in disputes with two substantial customers, namely Ogdens and Clydeport. Mr Paul was also concerned that CLS might not be able to retain a major coal-handling contract with Forth Ports which was up for renewal in 2006. He appears to have wanted Macplant to enter into parallel negotiations with Forth Ports so that, if CLS did not win the contract, Macplant or a subsidiary might and that once CLS or BIG had acquired Macplant the expanded group would have the benefit of the renewed contract. CLS produced a memorandum or brief on the proposed coal-handling contract and I was informed that Mr Paul sent it to Mr McLean on about 18 November 2006. Among the many issues raised in the affidavits, which were not of central importance to the case, there was a dispute whether Macplant had ever agreed to negotiate with Forth Ports and had so negotiated before the provisional liquidator met Mr Paul on 22 November 2006. Mr Paul asserted that they had. Macplant produced affidavits from Charles Hammond, Group Chief Executive, and Alan Burns, Scottish Ports Director, of Forth Ports who stated that there had been no discussions between Forth Ports and Macplant in relation to the coal-handling contract at any time before the appointment of the provisional liquidator. They affirmed that Macplant took on a short term contract in place of CLS after the provisional liquidator was appointed and won the principal contract by tender in January 2007. I accept the evidence of the Forth Ports personnel and am satisfied that the evidence which CLS has adduced, including the contemporary letter referred to in paragraphs 42 and 43 below, which suggested that Macplant had been negotiating with Forth Ports before then, is unreliable.

[14] I am also not persuaded that Mr Paul had good grounds for the assumption, which appears to have underpinned his approach, that his dealings with Macplant were on a basis, which both parties accepted, that CLS's takeover of Macplant would occur. Mr Paul and his advisers did little to investigate Macplant after the non-disclosure agreement was signed. It was clear from the pleadings that CLS and Mr Paul were not aware who were the shareholders of Macplant. CLS averred that Mr Mclean and Mr Barrow were the shareholders of Macplant whereas in truth Mr McLean owned 25% and his fellow director, Mr Cooper, owned 75% of Macplant's shares. While there were suggestions in the affidavits produced on behalf of CLS that Mr McLean had co-operated with Mr Paul in his plans to take over Macplant, it is important to recall that as a potential vendor of shares and as a director of Macplant, Mr Mclean had interests which were potentially opposed to those of BIG and CLS at least until a satisfactory price and other terms of the share purchase had been agreed. Mr Cooper also had such interests and there was no evidence which suggested that he had agreed in principle to a takeover, other than the alleged agreement which I discuss in paragraphs 28 to 58 below. It appears that Mr Paul had business plans which remained at a conceptual level and which he did not take forward into firm agreements. This may have coloured his understanding of his dealings with Macplant during the autumn of 2006.

[15] The directors of CLS also expressed concern that CLS had been the victim of a conspiracy by the directors of Macplant as a subsidiary of Macplant, namely Mac Bulk Services Limited, purchased or otherwise obtained some of CLS's plant and equipment from Lombard North Central plc on the termination of CLS's finance leases and subsequently won the coal-handling contract from Forth Ports plc. I am not able to reach any view on whether the directors of Macplant had aspirations to win that contract when they decided to apply for a winding up order against CLS. I accept the affidavits of the officials of Forth Ports plc to which I referred that there were no negotiations between Macplant and Forth Ports in relation to the coal-handling contract before the winding up petition was presented. If the directors of Macplant saw commercial advantage from the winding up in addition to the recovery of their debt, that would not invalidate their application: Bryanston Finance Ltd v De Vries (No2) [1976] 1 Ch 63, Buckley LJ at p75 D-F. The questions remain: (a) was and is Macplant a creditor of CLS? and (b) was and is CLS unable to pay its debts?

Was Macplant a creditor of CLS?

[16] CLS did not dispute that Macplant serviced and repaired the equipment which it leased to other parties. But in support of the assertion that there was a bona fide dispute on substantial grounds CLS challenged Macplant's claim on three grounds. First, in its written pleadings it averred that there had been overcharging, that certain sums had been paid and that CLS had given Macplant assets to sell to set off against its claim. This ground related to the quantification of Macplant's claim and not to the existence of a claim. Secondly, CLS asserted that it was not liable to pay the sums sought by Macplant as Macplant had erroneously charged CLS for work which it should have charged to CLS's customers. And, thirdly, against that background, CLS asserted that in August 2006 Macplant's directors had entered into an agreement with it which prevented Macplant from enforcing the debt. I consider each assertion in turn.

(1) Payments and overcharging

[17] Macplant averred that it was due £336,799.42. That was the sum shown on the statement of account dated 14 November 2006 which Macplant submitted with its winding up petition. In reduction of that sum CLS averred that Macplant held plant which belonged to CLS which had a value of about £80,000. I was informed that this plant was surplus to CLS's requirements after it terminated its loss-making contracts and that CLS authorised Macplant to sell the plant and set off the proceeds of sale against its claim. But Macplant asserted that the plant was subject to finance leases and that over £103,000 was due in terms of those leases. CLS did not dispute this. Thus it appears to me that there is no basis for reducing Macplant's claim by reference to its possession of the plant as it would have had to come to terms with Lombard North Central plc if it sought to keep or sell those items. Secondly, CLS averred that about £50,000 of Macplant's claim had been identified as overcharging but did not vouch that sum. Macplant disputed this assertion and Mr Sellar QC submitted that, in any event, this made no difference to the validity of Macplant's application as a very substantial debt remained even if this sum were deducted. Thirdly, CLS averred that a related company had paid Macplant £9,448.66 in November 2006 to meet Macplant's claim for October 2006. Macplant accepted that that sum fell to be deducted from its claim but Mr Sellar made the same point, namely that a debt of several hundreds of thousands of pounds remained. Accordingly the second and third deductions by themselves do not form a basis of opposing the application: Re Tweeds Garages Limited. CLS also claimed that it disputed a batch of invoices amounting to £100,000 from before December 2005 on the basis that Mr Barrow, the seller of the shares in CLS, had warranted at that time that there were no sums outstanding to Macplant. It was not made clear to me how Mr Barrow's warranty gave CLS a basis for disputing those sums.

(2) The alleged dispute as to liability

[18] In its second ground of challenge CLS asserted that the petition debt was disputed because Macplant had without authorisation from CLS carried out numerous repairs on CLS's plant and equipment which were the responsibility of the hirer and not of CLS. CLS averred that, under its standard terms, it was responsible only for routine maintenance and service costs and the hirer was responsible for any damage to the plant or damage caused by the plant or its operator. Macplant, it averred, should have invoiced CLS only for maintenance and service and should have invoiced CLS's customers for all other costs. CLS quantified the claims which it disputed on this basis as being £147,817 in relation to Clydeport and £93,018 in relation to Ogdens. Macplant averred that those sums were the total sums due to it from work done for CLS in relation to its Clydeport and Ogdens contracts.

[19] While at the outset of the hearing Mr Johnston QC founded on this dispute as one of the major grounds for asserting that there was a bona fide dispute on substantial grounds, it became clear in discussion that this ground was without substance. He accepted that CLS had had a course of dealing with Macplant for about two years before December 2005 when BIG purchased CLS's shares and that thereafter CLS transacted with Macplant on the same basis as before without a renegotiation of the contract terms.

[20] The most that could be said for CLS was that it tightened up on the procedures by which it authorised Macplant to carry out work. The Construction Plant Hire Association's model conditions, which, as CLS explained, governed the relationship between the owner and hirer, did not permit the hirer to carry out repairs to the plant without the consent of the owner. Macplant required to receive instructions from CLS and the Macplant's spreadsheets which contained CLS's order numbers suggested that it had done so, at least in the majority of the work which it carried out.

[21] CLS produced for the hearing on 10 September 2008 several e-mails which Mr Paul had sent to Macplant in March 2006. They included an e-mail dated 6 March 2006 which purported to record the results of a meeting which he had had with Macplant's directors shortly before. In that e-mail he recorded among many other things his instruction that CLS would authorise work on its own account, and Macplant should send invoices to customers for all other work. But it was not until April 2006 that he involved Mr Alan Stewart, the general manager of Propshaft Services Limited, in organising CLS's administration of the hire contracts. Mr Stewart in an affidavit recorded that there had been a lack of management by CLS of the repairs and servicing work until Mr Paul involved him in April 2006. It was not until September 2006 that CLS appointed a Plant/Operations Manager to put the operation of its hire contracts onto what it saw as a proper basis.

[22] Mr Stewart in his affidavit made general references to instances of alleged overcharging and allegedly inefficient practices, such as having a man on call 24 hours a day, but I note in paragraph 24 below that in relation to one of CLS's contracts the hirer asserted that it had contracted for such cover. It is noteworthy that in the period between November 2006 and the continued hearing in September 2008 CLS did not produce any independent report or proper analysis of Macplant's claimed debt. Mr Paul produced on 28 August 2008 a report which he had prepared in which he asserted that every invoice by Macplant was challenged on the basis that there was "no proof of service provision, timesheet, customer authority and vehicle service record". In the report he asserted that Macplant's claim was disputed in full and on that basis sought to demonstrate that CLS was solvent and had a claim for £206,000 against Macplant. I was not able to give any weight to this document.

[23] Mr Johnston also accepted, as Macplant averred, that on a large majority of CLS's contracts, including those with Clydeport, CLS provided its operators with the plant and the requests to Macplant to carry out repairs came from CLS's employees who telephoned instructions to Macplant. This not unimportant point was not disclosed in any of the affidavits initially produced on behalf of CLS. In his third affidavit Mr Paul explained his position by asserting that when a driver was hired with a vehicle he became the employee of the hirer. That position was not developed in the discussion before the court. In relation to contracts with Ogdens, it was not disputed that, as Macplant averred, some instructions came to Macplant from employees of the defenders and some from Ogdens. Macplant averred that in each case it prepared a spreadsheet for CLS of all work which it did and CLS attached order numbers to the items in the spreadsheet confirming that the work was authorised. Thereafter Macplant invoiced CLS. Although this averment is covered by a general denial by CLS, Macplant lodged in process examples of such spreadsheets which contained order numbers provided by CLS in relation to the overwhelming majority of entries from March 2006 onwards. The spreadsheets gave considerable support to Macplant's averments.

[24] Macplant averred that it was in about April 2006 that Mr Paul first requested it to distinguish between general maintenance charges and repairs to damaged plant on its spreadsheets in order that CLS could pursue the hirers for repair charges. Mac Plant averred that it did so. It was only by Minute of Amendment in October 2007 when the case was before the Inner House that CLS first suggested in its pleadings that the hirers and not CLS were responsible for part of the invoices. Macplant's position was that it had no contracts with CLS's customers which entitled it to charge them for the work which it carried out on CLS's plant. Macplant produced a letter dated 8 November 2007 from Clyde port in which it confirmed that it had no contract with Macplant and that CLS was responsible for all repairs on hired plant. Macplant also produced a letter dated 29 October 2007 from ATH Regeneration Limited to similar effect. ATH asserted that CLS had agreed to provide twenty-four hour repair and maintenance cover and had advised them to report breakdowns and defects to Macplant.

[25] In his written submissions Mr Johnston referred to passages in the affidavits of Mr Paul, Mr Michael Smith, a director of CLS, and Mr Alan Stewart, in which they spoke of an issue of liability between CLS and Macplant and to proposed legal proceedings to recover from the hirers the sums due to Macplant. He referred to the two companies working together to resolve the question of liability. In discussion, however, Mr Johnston accepted that Macplant did not have any legal basis to claim payment from CLS's customers and that the legal action which CLS had proposed could only have been at its instance for unjustified enrichment, CLS having paid sums to Macplant which the customers should have paid. No such action was ever raised.

[26] The outcome of this discussion in the hearing was that Mr Johnston did not dispute Mr Seller's submission that CLS had no legal basis in its contracts with Macplant for disputing at least the bulk of the debt incurred to Macplant for its services in relation to plant provided under CLS's Clyde port and Ogdens contracts. I conclude therefore that Macplant provided services under its contracts with CLS in accordance with an established course of dealing and had invoiced CLS for those services for sums in excess of £200,000. CLS has put forward no substantial contractual basis for contesting that debt as its contractual arrangements with its customers, which allocated ultimate responsibility for the servicing and repair work which CLS instructed, were res inter alios acta in relation to Macplant.

[27] For completeness, I should also state that CLS has not disclosed any tenable legal basis for disputing the £100,000 of invoices to which I referred in paragraph 17 above. Accordingly, other than the unspecific assertion of overcharging of £50,000 and the admitted payment of £9,448.66, the only basis for asserting that Macplant's debt was disputed in good faith and on substantial grounds is the alleged agreement which CLS averred that it entered into with Macplant in about August 2006.

(3) The alleged agreement of August 2006

[28] There is some uncertainty as to the precise nature of the agreement. In its written pleadings CLS described it thus (Record pp.21D-22A):

"In particular, in August 2006 they [Mr McLean and Mr Paul] agreed that the disputed invoices (totalling about £350,000) would be put to one side and that from that time onwards [CLS] would make monthly payments to [Macplant] to cover work done by [Macplant] in the previous thirty-day period."

In the other formulation in the written pleadings (which appears to have been the original formulation) CLS averred (Record p.25A-B):

"[Macplant] and [CLS] agreed further that the existing debts due by [CLS] to [Macplant] would be maintained at their present levels but that the debt would not require to be repaid in full".

CLS averred that subsequent payments to Macplant were confined to the invoices raised in the preceding month.

[29] In support of the existence of an agreement Mr Paul, Mr Smith, Mr Stewart and CLS's solicitor, Mr Rennie, swore affidavits. Mr Paul and Mr Smith were present at the meeting. But Mr Paul gave no details of where or when the meeting took place, how matters came to be agreed or how the discussions were recorded at the time. In his first affidavit all he said was that, because of the dispute over Macplant's invoices, he agreed with Mr McLean and Mr Cooper in August 2006 that the disputed invoices would be set aside and that from then on Macplant would be paid monthly for the previous month's work. From September onwards CLS paid Macplant on that basis. He did not give further specification of the meeting or the deal in his later affidavits. Mr Smith in his first affidavit affirmed that the freezing of the disputed invoices had been agreed at a meeting in August or September 2006 with Mr McLean and Mr Cooper. He said that it was agreed that Macplant would be paid for its future work on a month to month basis and that its historic debt would be paid, when and if agreed, from the disposal of plant, the settlement of the commercial disputes with the hirers or from warranty negotiations with Mr Barrow.

[30] Mr Stewart and Mr Rennie recorded what Mr Paul or Mr Smith reported to them after the meeting. Mr Stewart said that he was made aware of the agreement by letter dated 4 September 2006 from Mr Paul, a copy of which he attached to his affidavit. He also affirmed that both Mr Paul and Mr Smith had told him orally of the agreement. The copy letter dated 4 September 2006 contained a description of the terms of the agreement which was substantially the same as that contained in the enumerated paragraphs of the copy letter set out in paragraph 33 below. Mr Rennie affirmed that he had been informed in the course of September 2006 that Macplant had agreed at a meeting in late August 2006 to have invoices totalling over £300,000 set aside because the focus at that point was on obtaining the renewal of the coal-handling contract with Forth Ports. He understood that Macplant accepted that the sums were disputed.

[31] Macplant denied that there was any such agreement. In the discussion during the hearing on 26 and 27 August 2008 Mr Sellar stated that there had been a meeting in August 2006 and that Mr McLean and Mr Cooper had listened to CLS's proposals but had not agreed to them. But Mr McLean did not discuss this matter in his first affidavit dated 18 January 2007. Mr Cooper in his first affidavit of the same date commented on CLS's averments (which are the second statement in paragraph 28 above), stating that Macplant did not enter into that arrangement, which would have made no commercial sense to it.

[32] While extensive documentary material was produced in relation to this application I was struck by the sparsity of contemporary documentation to support parties' contentions as to what occurred at the meeting and what each party was doing in the period between the end of August 2006 and the appointment of the provisional liquidator on 17 November 2006 which might have cast light on the outcome of the meeting. Macplant averred that it had repeatedly demanded payment of the sums which it claimed were due but produced no letters or e-mails vouching such demands either before or after August 2006. CLS averred that there was the agreement in relation to disputed invoices and that no such demands were made. But it was not until 20 August 2008 that CLS produced a copy of a letter dated 4 September 2006 on BIG letterhead from Mr Paul to the directors of Macplant which referred to an agreement.

[33] That letter was in the following terms:

"CLS\MacPlant Agreed Strategic Direction
Further to our recent meeting at your registered office last week. I have set out the details of our agreement on the way forward for both trading companies to ensure mutual commercial success.

Please read over these carefully and advise by return in writing any points that require any further clarification, explanation or indeed alteration as appropriate. In the absence of any such advice or notification I will assume we have comprehensive agreement on all points herein as intimated at the meeting.

Agreement
We have collectively agreed to proceed with legal recovery through CLS & Peterkins of the claimed charges on Mac Plants behalf, this is likely to be an extremely lengthy and complicated matter that will required careful management and commercial prudence throughout.

Mac Plant/A Ogden/Clydeport Disputed Charges
We have agreed a methodology for dealing with the disputed charges to allow both companies to proceed as one, up until the takeover and thereafter.

1. The entire CLS/Mac Plant account balance as 31^st August, some £300K is to be set aside as "disputed" pending resolutions with the customers which CLS has agreed to undertake with the assistance and guidance of Peterkins, our commercial lawyers and of course Mac Plant.

2. We "CLS" have agreed to give commercial assistance, help and support to Mac Plant wherever required to ensure overall commercial success for us both and to cover any additional costs incurred by the respective trading entities as a result of this position caused by a complete lack of professional control in the past.

3. We "CLS" will work in tandem with Mac Plant to secure the revised contract with the appropriate terms in either of the new trading entities we each set up for this purpose. A trust deed arrangement will effectively ensure that the holding company effectively controls the entire share capital of the Mac Plant fronted new company bid, Peterkins will be instructed to complete this arrangement between the selected parties.

4. We "CLS" will provide the spare completely overhauled D65 to Mac Plant for exclusive use at Avondale ....

5. Stewart is to conclude settlement negotiations with Brian Barrow/BIG on the SPA at £350K if settlement is completed by the end of our (CLS) financial year, 31^stOctober 2006.

6. As a final fall back position for both trading companies, it has been agreed that any uncollected disputed sums be allocated on a 50/50 write off basis between Mac Plant and CLS. CLS will then pay in full within 30 days of such a conclusion, the full agreed Mac Plant account balance holding back only agreed disputed amounts pending resolution and immediate payment thereafter to Mac Plant. BIG Ltd has in effect agreed to underwrite the entire loss to each respective party conditional on completion of the takeover.

7. We "BIG & the Mac Plant holding company are to agree a valuation methodology and then financially binding commercial heads of terms on the agreed takeover limiting their exposure to the loss should they not succeed.

8. As far as the valuation of Mac Plant is concerned we have agreed to treat any loss they experience from this situation as an exceptional item so as to protect shareholders from any potential loss of value and ensure completion."

[34] There was no evidence in Mr Paul's affidavits or otherwise as to how this letter was delivered to the directors of Macplant and Macplant denied that it had received this letter.

[35] There was no evidence that CLS took any other steps to refine the terms of or formalise what would have been a very important agreement from its perspective. The descriptions of the agreement, which Mr Paul, Mr Smith and Mr Rennie gave, differed markedly in relation to the identity and source of the funds by which Macplant's claim would eventually be paid off. No satisfactory explanation was forthcoming as to why the two copy letters dated 4 September 2006 were produced only in the late summer of 2008 when the winding up application had been in court since November 2006 and there had been contested hearings before both the sheriff and the sheriff principal. Mr Sellar invited me to approach with caution the assertion that they were in fact contemporary documents. When on 27 August 2008 I continued the hearing until 10 September 2008 I invited parties to look for and produce further vouching of their discussions in August 2006 and of their actings thereafter in the hope that further specification of the alleged agreement and contemporary documents would assist the court to reach a firm view on parties' contentions.

[36] In response to that request Macplant produced supplementary affidavits by Mr Cooper and Mr McLean. They affirmed that they made repeated demands for payment to Mr Paul, both face to face and on the phone. Mr Paul worked in premises of Propshaft Services Limited which were across the road from Macplant's premises and he visited Macplant's offices several times a week. They also demanded payment by e-mail. They were unable to provide copies of their e-mails as their computers had been stolen in May 2007 and British Telecommunications plc, their e-mail provider, did not provide a back up service. I am satisfied from independent evidence from the police and from Macplant's loss adjusters that the burglary and loss of the computers occurred as Mr McLean and Mr Cooper stated. Mr Paul affirmed that he had instructed research into Macplant's IT systems in the context of the proposed take-over and that any e-mails should have been stored on a server and on a back up tape device. But no evidence of any e-mails was produced. Thus the only extant documents which provide evidence of Macplant's making demands for payment are the copy statements to which I refer in paragraph 38 below.

[37] Mr McLean and Mr Cooper also affirmed that they had arranged a meeting in August 2006 at Mr McLean's home with Mr Paul and Mr Smith to discuss CLS's indebtedness. They affirmed that they had asked Mr Paul to produce a repayment schedule by the end of September 2006 as Macplant's bank was concerned about the level of its overdraft. They did not agree to any setting aside of CLS's debt. Mr Cooper set out his recollection of what was discussed at that meeting. That did not include any arrangement to set aside Macplant's existing claims. Mr Cooper stated that at no point in the meeting did he or Mr McLean agree that the debt would be set aside and would not be repaid in full. Mr McLean gave a similar account of what was discussed and stated that neither Mr Paul nor Mr Smith suggested that the debt owed to Macplant should be set aside. Both stated that from Macplant's perspective the whole purpose of the meeting had been to obtain early payment by CLS. They stated that they had also discussed CLS's contract with Forth Ports, which Mr Paul had said was not profitable and his proposals to move CLS's assets into a new company to obtain better terms in that contract. They affirmed that they had also discussed a proposal that Macplant should incorporate a subsidiary to obtain ad hoc work from Forth Ports which they no longer gave to CLS, a proposal that Macplant should use CLS's surplus plant and operators and a proposal that Macplant should sell some of CLS's surplus equipment and set the proceeds off against its debt. The equipment had been surplus as CLS's disputes with Ogdens and Clydeport had resulted in a downturn in work.

[38] Macplant produced an affidavit by Claire Jack, who was and is Macplant's office manager and credit controller. In his private life Mr McLean was and is her partner. Ms Jack affirmed that Macplant had been concerned in 2006 about CLS's indebtedness and that Macplant's directors had spoken to Mr Paul about it on the many occasions on which he had visited Macplant's premises. She stated that Macplant's directors had regularly instructed her to produce statements of account to give to Mr Paul to press him for payment and that Mr Cooper, Mr McLean or she had given them to him. By August Macplant's directors had become very concerned about CLS's outstanding debt and its effect on the company's cash flow. She affirmed that if there had been any agreement to set aside the debt she would have been aware of it. There had been no such agreement. She affirmed, as did Macplant's directors, that CLS's debt remained in MacPlant's management accounts. Copies of the statements of account were lodged in process. Four such statements were produced in August, one in September, three in October and four in November 2006.

[39] In response to my request for further information (paragraph 35 above), CLS lodged further affidavits from Mr Paul and Mr Rennie, which did not address the circumstances of the meeting at which the agreement was said to be reached. It also lodged the e-mails from CLS to Macplant in March 2006 referred to in paragraph 21 above, and a copy of CLS's earlier Answers to the winding up application. In those Answers CLS in describing an agreement reached "in or around August 2006" stated that Macplant and CLS

"agreed further that the existing debts due by the Defenders to the Pursuers would be maintained at their present levels but that the debt would not require to be repaid in full".

They also averred that at no time before the presentation of the winding up petition had Macplant called on CLS to pay the debt.

[40] I cannot reconcile contradictory statements in the affidavits, in particular on what was said at the August meeting, without having that evidence tested by cross-examination. Without that, I am not prepared to make findings in fact on what was said at the meeting. I remain very uneasy about the late production of the two letters of 4 September 2006 from BIG. But for the purposes of reaching a decision in this application I am prepared to assume, contrary to Mr McLean's and Mr Cooper's recollection, that at a meeting in late August 2006 with them, Mr Paul and Mr Smith on behalf of CLS proposed that the invoices which they disputed should be set aside. I am prepared to accept that Mr Paul, Mr Smith, Mr Stewart and Mr Rennie were surprised by the liquidation application. Nonetheless, I am not satisfied that CLS has a reasonable basis for asserting that the parties entered into a legally enforceable agreement at that meeting which barred Macplant from seeking to recover the sums due to it. In reaching this view I have relied in particular on (i) the evidence of the contemporary actings of those involved in CLS, (ii) the evidence of such actings by those involved in Macplant, (iii) the failure of CLS to give further specification of the terms of the agreement or produce further vouching of it after being invited to do so and (iv) the lack of commercial rationale and the resulting improbability of Macplant entering such an agreement. I discuss each in turn.

The actings of CLS and Mr Paul after August 2006

[41] Mr Sellar founded on a letter which CLS had e-mailed to Macplant on 15 November 2006 as an acknowledgement of the debt being due and payable. The letter was written under a CLS letterhead, dated 14 November 2006 and signed by Mr Paul. It was entitled "MacPlant Account Settlement Proposal" and stated the account balance to be £350,000. It then set out a table of twenty monthly instalments of £17,500 from November 2006 until the debt would be paid off in June 2008. The letter continued:

"The above repayment schedule (£17.5K) will be met from normal trading contracts. Any additional cashflow from new contracts will be added to allow faster repayment as and when available. We currently have two large legal disputes which if settled in our favour would again facilitate faster repayment."

[42] CLS admitted that Mr Paul had given this repayment schedule to Macplant. But it asserted that the document should not be taken as an admission of liability as Macplant, which had cashflow problems, had requested it solely for the purpose of reassuring its bank that it would receive payment from the debtors shown in its accounts. Mr McLean and Mr Cooper accepted that on about 13 November 2006 Mr Cooper had requested Mr Paul to make written proposals for settling the account as Macplant's bankers had asked for cash flow forecasts. Parties thus agreed to that extent on the circumstances in which the document was produced. But the difficulty for CLS and Mr Paul is that if there had been a binding legal agreement that the debt of £350,000 would be put to one side and would not be paid in full, Mr Paul in producing this repayment schedule would have been a party to an attempt to deceive Macplant's bankers. In support of its contention, CLS produced a copy of a covering letter to Macplant dated 14 November 2006 which Mr Paul in a supplementary affidavit said that he had given to Mr McLean with the repayment schedule in the same envelope when Mr McLean uplifted them from his house. Macplant denied receipt of that letter.

[43] In that letter Mr Paul referred to an urgent telephone call from Mr Cooper requesting immediate assistance by providing documentation to assist Macplant to extend their banking facilities. He enclosed the final version of the repayment schedule as requested and invited Mr Cooper to advise him of the outcome of his meeting with the bank. In the letter Mr Paul went on to give details of other business matters which concerned CLS and Macplant and referred to the payment of "agreed CLS October jobs (£9,000 approx)" which would be paid on the following week "as per the Set aside agreement of the beginning of September". That is consistent with his having a belief that there was such an agreement; but it cannot be reconciled with the repayment schedule being an honest representation. If Mr Paul at that time believed that he had negotiated a binding arrangement along the lines set out in the document quoted in paragraph 33 above, I do not see how he could honestly have made the representations in the repayment schedule.

[44] More significant is the fact that on learning of the winding up petition on 22 November 2006 and for some time thereafter Mr Paul accepted that the debt due to Macplant was not disputed. If there had been a binding agreement to set aside all or almost all of the £337,849.10 claimed by Macplant at the end of August 2006, it is astonishing that Mr Paul did not refer to that arrangement when he was questioned by the provisional liquidator's staff.

[45] Macplant lodged affidavits by James Thornton and Craig Allison, respectively the case manager and case administrator appointed by Mr Nimmo, the provisional liquidator, to administer the company during the provisional liquidation. Mr Thornton affirmed that on the morning of 22 November 2006 he had telephoned Mr Paul, advised him of the appointment of the provisional liquidator and arranged to meet him in the afternoon. He explained that at about 3pm he and Mr Allison had met Mr Paul at KPMG's offices in Glasgow and advised him that the petition stated that CLS was indebted to Macplant in the sum of £336,799.42. He had asked Mr Paul if CLS disputed the debt. Mr Paul had replied that it did not and that the sum was due to Macplant. He had also asked whether CLS was in a position to pay the debt and Mr Paul had replied that there was no prospect of it being able to do so. When he asked if there was an alternative to winding up CLS Mr Paul had said there was not. Mr Allison corroborated Mr Thornton's account.

[46] In a supplementary affidavit Mr Thornton affirmed that in questioning Mr Paul he had followed the terms of a KPMG protocol which involved asking whether the debt was disputed and also whether the petitioner's debt could be paid by third party cleared funds. He stated that Mr Paul had said that there were no such funds available and that there was no alternative to winding up CLS.

[47] Mr Thornton also affirmed that on the morning of 22 November after he had spoken to Mr Paul on the phone, he had received a phone call from Mr Rennie, CLS's solicitor, who had not disputed Macplant's debt but had stated that he would advise Mr Paul to meet and co-operate with the provisional liquidator. While I do not question Mr Thornton's recollection on this matter I cannot infer much from Mr Rennie's silence as he in a supplementary affidavit affirmed that he had spoken with Mr Thornton, that he had not been asked if the petitioner's debt was disputed and that if he had been asked that he would have said that there was a dispute.

[48] Mr Thornton also affirmed that on 24 November 2006 he had received a telephone call from Michael Smith who had accepted what had happened and had not disputed Macplant's debt. Mr Smith had given his contact details so that he could co-operate with the provisional liquidator. Finally, Mr Thornton affirmed that it had not been until he received intimation copy Answers to the winding up petition from CLS's solicitors on 8 December 2006 that he had become aware that Macplant's debt was disputed. I accept Mr Thornton's and Mr Allison's evidence on all of these matters.

[49] Mr Paul did not seek to deny that he had made the statements to Mr Thornton and Mr Allison. He explained that he had been shocked at the time and had been resigned to the winding up of CLS as the provisional liquidator had terminated CLS's contract with its principal customer, Forth Ports, on the termination of its finance leases for its plant. He affirmed that he had co-operated fully with the provisional liquidator. He produced another affidavit by Mr Thornton, which confirmed that co-operation. Mr Thornton stated that Mr Paul had told him in later discussions of his shock at the time of the meeting because the winding up application had come out of the blue and that he had thought that it had been pointless to try to do anything to avoid the winding up. Be that as it may, Mr Paul's surprise at the appointment of the provisional liquidator does not explain why he accepted that Macplant was entitled to be paid the sum which Mr Thornton said was stated in the winding up petition. If Mr Paul knew or believed at the time that there was a legally enforceable agreement in terms of which arrears of about £350,000 had been set aside and only the subsequent months' work was to be paid for and had been paid, I do not think that he would have answered Mr Thornton's questions in the way which he did.

[50] That Mr Paul believed at the time that CLS was due to pay Macplant a substantial sum is confirmed by his revisals to the statement of affairs which the provisional liquidator's staff prepared in about December 2006. The statement, once Mr Paul had revised it, showed that of the £353,000 claimed by Macplant, CLS disputed £233,000 in relation to debtor balances discounted in relation to Ogdens, Clydeport and Forth Ports, £50,000 which were listed as disputed purchase-ledger invoices and £10,000 (a reference to £9,448.66 paid by Propshaft) which had been paid. That left £60,000 of Macplant's claim undisputed and unpaid. While in CLS's favour the revisals can be seen as pointing to an early assertion by Mr Paul of an agreement to set aside disputed claims, the figure of £233,000 does not match the figure of £300,000 referred to in the letter of 4 September 2006 quoted in paragraph 33 above. This calls into question the certainty and thus the enforceability of any arrangement discussed or agreement reached at the end of August 2006 and supports the inference that Mr Paul knew at that time that the arrangement which he had attempted to put in place to park Macplant's claim pending CLS's intended take-over was not agreed or in any event was not sufficiently clear to be enforceable.

[51] In any event, and significantly, the revised statement of affairs acknowledged that not all of Macplant's claim was disputed. That supports the view that Macplant was a creditor for the purposes of section 124 of the 1986 Act: Re Tweeds Garages Limited. To avoid this conclusion Mr Johnston submitted that Mr Paul's revised statement of affairs did not take account of other offsets which were referred to in the pleadings, namely (a) the £80,000 which CLS attributed to the plant which CLS gave Macplant to sell and (b) a payment by contra invoice in relation to a PC 130-6 machine dated 13 November 2006 in the sum of £20,562.50. But in relation to (a) there appears to have been no net value in the plant which was subject to a finance lease on which over £100,000 remained due and it remained in the ownership of the finance company. In relation to (b) Macplant denied the contra invoice in its pleadings and in any event its deduction would still leave an undisputed debt of about £40,000.

[52] It appears also that CLS's management accounts in periods after August 2006 continued to show that CLS was due to pay Macplant almost all of the sums which it claimed. In particular as at 30 October 2006 CLS's management accounts showed the Macplant debt to amount to £352,817.49, of which £192,229.35 had been due for more than three months. While it is appropriate for a company to provide for contingent and prospective liabilities in its management accounts, it appears to me that if it had been agreed (as appears from the copy letter set out in paragraph 33 above) that Macplant were to be paid not by CLS but out of recoveries from CLS's customers and only fifty percent of any eventual shortfall of that recovery would be paid by CLS, there would have been no basis for including the whole of Macplant's debt in the management accounts.

[53] If there had been an agreement to freeze Macplant's claims until CLS had recovered sums from Ogdens and Clydeport, there would have been some urgency in resolving CLS's claims against those companies. Yet no legal proceedings were commenced against Ogdens and Clydeport in the ten weeks following the alleged agreement and I was given no information to suggest that CLS or its solicitors, Peterkins, took any significant steps to prepare for litigation in that period. At the same time there was no evidence that BIG had made any progress towards the agreement of heads of terms for its proposed take-over of Macplant.

Macplant's actings after August 2006

[54] If there had been an agreement to set aside the £350,000 of debt at the end of August 2006, there would have been no purpose in Macplant producing and giving Mr Paul the periodic statements of account referred to in paragraph 38 above. Yet it appears from the evidence of the Macplant directors and Ms Jack and from the copy statements of account which were produced that that is what happened.

[55] It is also clear that whatever Mr Paul thought he had agreed with Macplant's directors about a two-pronged approach to winning a renewal of the contract with Forth Ports, neither Mr McLean nor Mr Cooper had any dealings with Forth Ports before the provisional liquidator was appointed to CLS. It appears that on about 18 November 2006 CLS sent Macplant materials which could have assisted a bid by Macplant for the Forth Ports contract but by then Macplant's directors had abandoned their attempts to persuade CLS to pay its account, had presented the winding up application and had obtained the appointment of the provisional liquidator.

CLS's failure to specify and vouch the agreement

[56] As I have mentioned in paragraphs 30 and 32 above, the copies of letters which appeared to have been written shortly after the alleged agreement emerged only in the summer of 2008. When I gave both parties the opportunity to shed more light on the circumstances of the alleged agreement CLS provided a supplementary affidavit by Mr Paul which set out among other things his understanding of the relationship between CLS and Macplant but did not disclose any details of the meeting at which the agreement was said to have been reached or the precise terms of the agreement. Nor did CLS produce any other documents which directly supported the existence of the agreement. See paragraph 39 above. The terms of the agreement, including the sources from which and the extent to which Macplant's claim was to be paid off, remained unclear.

The commercial improbability of the alleged agreement

[57] Mr Sellar in inviting me to hold that no such agreement was reached submitted that the alleged agreement made no sense commercially to Macplant. He submitted that against a background in which Macplant's cash flow was threatened by CLS's failure to pay its invoices, it was not credible that Macplant would agree to an arrangement which set no time limit on the identification of which invoices were in fact disputed, which provided no security for the debt or interest on the balance found to be due and where there was no agreed timetable within which CLS would pursue claims against its customers or within which BIG would bid to acquire Macplant. It was implausible that Macplant would agree to make the payment of its claims depend upon the success of CLS's claims against its customers. There was uncertainty as to the source of the funds by which Macplant's claim was to be paid. There had been no agreement even in principle on the basic terms of an offer for Macplant's shares. In this context an agreement to set aside the large debt would have materially weakened the bargaining position of Macplant's shareholders.

[58] I consider that there is force in those submissions. I recognise that CLS was Macplant's largest customer and that the businesses of the two companies were interdependent. It is likely therefore that Macplant's directors would have felt the need to go some way to accommodate Mr Paul and that they were placed in a difficult position by his stance on who was or should have been responsible for repairs of plant. Nonetheless for the reasons advanced by Mr Sellar I am persuaded that it is highly improbable that Macplant would have agreed to the arrangement for which Mr Paul contends.

Conclusion on whether Macplant was and is a creditor

[59] I am satisfied that there was no legally binding agreement between CLS and Macplant that Macplant's claims for payment, whether of £300,000, £350,000 or £233,000, were to be treated as disputed and set aside pending CLS's attempts to recover from its customers sums which CLS asserted that those customers should have paid. I reach this view (a) having held that there was no substantial basis for CLS disputing the debts, which arose in a course of dealing which originated before BIG's takeover of CLS and which had not been innovated upon contractually since then, (b) having regard to the response of CLS's directors to the appointment of the provisional liquidator and in particular Mr Paul's responses to Mr Thornton's questions, (c) taking into account CLS's and Macplant's actings at the time and the contemporary accounting documents of both CLS and Macplant, (d) giving weight to the uncertainty as to the terms of the alleged agreement and the sums covered by it and (e) considering that it is inherently unlikely that Macplant would have consented to such an agreement.

[60] I am therefore satisfied that Macplant has demonstrated that it was at the date of the presentation of the winding up petition and remains a creditor of CLS and that the material adduced on behalf of CLS does not support any reasonable degree of likelihood that the debt was or is disputed bona fide and on substantial grounds.

[61] I turn therefore to the second question: whether CLS was at the date of the presentation of the winding up application and is unable to pay its debts.

Whether CLS was and is unable to pay its debts

[62] Before considering the two bases on which Macplant asserts that CLS is unable to pay its debts, namely the cash flow insolvency and balance sheet insolvency to which I referred in paragraph 6 above, it is necessary to determine the date at which such insolvency is to be assessed.

[63] Section 122(1)(f) empowers the court to wind up a company if it "is unable to pay its debts". The use of the present tense in the provision points towards an assessment at the date of the hearing of the application. In support of his primary position that the court should assess insolvency at the date of the hearing Mr Sellar referred to Re Fildes Brothers Limited [1970] 1 WLR 592. That case involved an application for winding up on the just and equitable ground (now section 122(1)(g) of the 1986 Act). Megarry J emphasised that the section used the present tense ("the court is of the opinion that it is just and equitable that the company should be wound up") and held that the question whether the court was of that opinion should be determined on the facts existing at the date of the hearing. As in that case the circumstances which earlier might have justified a winding up order on that ground had been remedied, he dismissed the petition.

[64] I accept that in most cases in which the court determines the application for a winding up order within a short time after the presentation of the petition, it is sufficient in practice to look at the circumstances which exist at the date of the hearing if there is no suggestion of a material change of circumstances since the petition was presented. While a petitioner to be in good faith must be able to support its contention that the respondent company is unable to pay its debts at the date on which it lodges its application, the Act directs the court's attention principally to circumstances at the date of the hearing. But if circumstances have changed between the date of presentation of the application and the hearing, it is not sufficient for the court to look only at the circumstances as they exist at the date of the hearing. For example, where a provisional liquidator has been appointed or a significant time has elapsed between the presentation of the petition and the hearing, the circumstances of the respondent company may have altered materially to its disadvantage. In that context I consider that the court should also look at the circumstances as they existed when the petition was presented in order to assess whether at that time the company was unable to pay its debts: Syd. Mannix Pty. Ltd v Leserv Constructions Pty Ltd [1971] 1N.S.W.L.R. 788. See also French, Applications to Wind Up Companies (2^nd ed) para 2.2.2.2 and MacPherson's Law of Company Liquidation, para 3.19. Otherwise a petitioner could rely on the change of circumstances which it had brought about by raising the winding up proceedings.

Insolvency at the date of the hearing

[65] In this case the appointment of the provisional liquidator resulted in the collapse of CLS's business. Its plant was in large measure the subject of finance leases which came to an end on his appointment. The provisional liquidator promptly terminated CLS's last major contract, namely the interim contract with Forth Ports. Sums which were payable over time would become immediately payable on the Court pronouncing the winding up order. The provisional liquidator prepared his statement on that basis and estimated that there was a deficiency of funds to pay creditors of about £493,000 as at 24 July 2008. It was not disputed that at the date of the hearing CLS was unable to pay its debts. The remaining question therefore is whether CLS was unable to pay its debts at about the time of the presentation of the winding up petition.

Cash flow insolvency

[66] In support of the contention that CLS was cash flow insolvent at that time Mr Sellar invited the Court to have regard to a number of factors from which, he submitted, it should infer such insolvency. CLS's failure to pay the petition debt was only one of several factors which supported the conclusion that it was insolvent.

[67] Parties did not disagree materially on the law which may be summarised shortly. In assessing cash flow insolvency the court looks at what the company was actually doing at the relevant time and adopts a commercial view of insolvency. The test is not whether a company can pay all its due debts immediately on a particular day. I accept as an accurate summary Professor Goode's statement in "Principles of Corporate Insolvency Law" (3^rd ed) para 4.16:

"The essential question is whether the company's financial position is such that it can continue in business and still pay its way. The Court therefore has to consider whether any liquidity problem the company may have is purely temporary and can be cured in the reasonably near future".

Section 123(1)(e) speaks of inability to pay debts as they fall due. This involves, in the present context, a consideration of the company's debts which were due at the date of presentation of the winding up application and in the near future thereafter: Lewis v Doran [2005] N.S.W.C.A. 243 at paragraph 103, Re Cheyne Finance Plc [2008] BCC 182, Professor Goode, at paragraphs 4.18 - 4.20.

[68] Whether the Court should infer cash flow insolvency from the non-payment of an undisputed debt depends on the circumstances of the case. A company's failure to pay when a creditor has demanded payment of an undisputed debt may justify the inference: Re Imperial Motors Limited [1990] BCLC 29; Taylor's Industrial Flooring Ltd v M and H Plant Hire (Manchester) Ltd [1990] BCLC 216 CA. But it is much less straightforward to draw the inference when the creditor has not made such a demand: Re a Company No 006798 of 1995 [1996] 2 BCLC 48. In this case the periodic statements of account which Macplant gave to CLS point towards a conclusion that Macplant was pressing for payment. But having regard to the unresolved contradiction in the affidavits whether Macplant had demanded payment before presenting the winding up application it is appropriate, in fairness to CLS in the absence of cross-examination, to proceed in this exercise on an assumption that it did not.