Winding up petitions: What constitutes an abuse of process?

Winding up petitions: What constitutes an abuse of process?

About Tim MoltonTim Molton

Tim Molton has a broad practice as an Associate in the Dispute Resolution Team. He advises commercial clients and high net worth individuals on a wide range of matters, having particular experience in the fields of contentious trusts, fraud and asset-tracing, cross-border enforcement, insolvency, financial regulation and employment law matters.

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In a recent judgment handed down by the Supreme Court of Bermuda, the Court re-affirmed the position with respect to abuse of process in winding up proceedings.

In In the Matter of Full Apex (Holdings) Limited (Provisional Liquidators Appointed) [2019] SC (Bda) 87 Com (13 December 2019) the Supreme Court of Bermuda was tasked with considering, inter alia, whether a winding up petition issued by Standard Chartered Bank (Hong Kong) Limited (the Petitioner) was an abuse of process, disentitling it to an award for costs.


The facts of the case are summarised as follows:

  1. Full Apex (Holdings) Limited (the Company) was a guarantor of a loan facility (the Loan) provided by the petitioning lenders to a subsidiary of the Company.


  1. Upon the failure by the subsidiary to make payment of the Loan, the Petitioner called on the guarantee and subsequently served a statutory demand. The Company failed to pay the demand.


  1. The Petition was therefore presented on 8 February 2018 along with an ex parte summons seeking the appointment of provisional liquidators. The Petition returned to Court on 9 March 2019 when it was adjourned. The Petition was then adjourned repeatedly.


  1. On 15 June 2018, the Petitioner entered into a loan transfer agreement (LTA) pursuant to which, upon completion, the Loan was to be assigned to Skyblue Global International Limited (Skyblue), the Petition was to be withdrawn, and the costs of the Petition were to be paid by the Chairman of the Company, Guan Lianxiang.


  1. On 15 May 2019 the “Completion Date” as defined in the LTA occurred. On 16 May 2019, the Petitioner filed a summons seeking leave to withdraw the Petition conditional upon meeting his obligations under the LTA (the Contingent Withdrawal Application). On 17 May 2019 directions were given for the hearing of the Contingent Withdrawal Application.


  1. On 13 June 2019, the Company applied for the dismissal of the Petition. At the hearing of the Petition on 21 June 2019, the Petitioner abandoned its Contingent Withdrawal Application, and sought unconditional withdrawal. That application was granted, and the issue of the costs of the Petition was adjourned.


Pursuant to the terms of the LTA, the Petitioner was entitled to claim its costs in respect of the Petition. However, the Petitioner sought an order for indemnity costs against the Company, such that the Court was required to determine whether it could make an award for costs over and above what was provided for in the LTA.

In opposition, the Company contended, inter alia, that the Petitioner should be completely disentitled to an award for costs on the basis that its winding up Petition was an abuse of process.

One of the key arguments put forward by the Company in support of its position was that the Petitioner was using the proceedings as leverage to force payment by a third party (Skyblue) with the constant threat of winding up against the Company. The Company claimed that this was evidenced by the Petitioner’s refusal to consent to an adjournment in excess of one or two weeks at a time, even after the LTA had been executed. The Supreme Court therefore had to consider the law on abuse of process in respect of winding up petitions.

Abuse of process
The law

It is well established that a winding up petition should not be presented for the purpose of putting pressure on the company (Re a Company[1]). The court may therefore dismiss a petition if it considers the proceedings to be an abuse of process, or if they are bound to fail.

The leading authority on abuse of process in winding up petitions is the Privy Council’s decision in Ebbvale Ltd v. Hosking (Bahamas)[2] which was referred to by the Supreme Court of Bermuda in Emerging Markets Special Solutions 3 Ltd v Laep Investments Ltd[3].  In the latter case, Justice Kawaley (as he was then) stated that there were two broad categories of improper purpose:

i. where there is no genuine intention of obtaining winding-up order at all; and

ii. where the petitioner is not acting in the interests of the class of creditors he purportedly represents.

As to the first category, Justice Kawaley said that:

“it is necessary to appreciate that the range of legitimate purposes for winding-up proceedings in Bermuda is today broader than it was in England in the 1980’s. It is now well settled under Bermudian insolvency law that a company or a creditor may present a winding-up petition where the primary goal is to restructure a company’s debts and not to wind-up the company at all (emphasis added).”

Citing to his own judgment in the case of Re Z-OBEE Holdings Limited[4], he stated that:

“…Even if a petition is presented by the company with the specific purpose of pursuing a restructuring which if successful will result in the petition being dismissed, it will rarely if ever be the case that there is no possibility at all that the plan will fail and that a winding-up order will still result. In such circumstances, the winding-up jurisdiction is still being used to fulfil the primary purpose of the winding-up jurisdiction: protecting the best interests of the general body of unsecured creditors.

Justice Kawaley expressed the view that, in either category of improper purpose case, the Court should be reluctant to investigate the commercial motivations of the petitioner with an undisputed debt, except where it is clear and obvious that there is no legitimate reason for the petition.

The Court’s determination

Having considered the aforementioned authorities in respect of abuse of process, Assistant Justice Duncan found that there was no evidence to support the Company’s argument that the conduct of the Petitioner amounted to an abuse of process.

The Company’s allegation of improper purpose was said to fall into the first of the two categories of improper purpose identified above in Emerging Markets[5], namely that there was no genuine intention of obtaining a winding-up order at all.  However, in reference to the decision of the Court in Emerging Markets Assistant Justice Duncan acknowledged that where a debt is undisputed (as it was in the present case), there is almost a presumption that the Petitioner’s reasons for invoking the winding-up jurisdiction are at least partially legitimate.

He therefore did not accept that there was sufficient evidence to find that the winding-up Petition was presented with, or for, a collateral purpose, but rather found that it was presented and prosecuted to secure payment of the outstanding debt that was owed.


[1] [1894] 2 Ch 349
[2] [2013] UKPC 1
[3] [2017] SC Bda 78
[4] [2017] Bda LR 19
[5] whereby Justice Kawaley referred to the decision of the court in Ross v Stonewood Securities Limited [2000] BPIR 636