The English court has (for the first time) given guidance on the long-established practice of substituting a creditor as petitioner in a winding up petition and hearing argument about the creditor’s standing later.

Background

In March 2021, Citibank petitioned to wind up Liberty Commodities (LCL). The petition was supported by two creditors, White Oak and NPS. Citibank settled with LCL and applied to dismiss the petition. The supporters applied to be substituted.

LCL argued that its challenge to the standing of the supporting creditors, on the grounds that the debts were disputed, should be heard before the substitution. 

Decision

• The court disagreed and upheld the practice of 'substitution first, standing later'.
• NPS, whose debt was in part undisputed by LCL, was substituted as petitioning creditor.
• The court confirmed that if White Oak had been the only creditor seeking substitution, it would have made an order for substitution and given directions for evidence and a final hearing.

Key takeaways

The pragmatic approach of substitution first, standing later allows the petition to be prosecuted and the court to decide the issue of standing when it has the necessary evidence and time to hear submissions.

Find out more

We represented White Oak in these proceedings.

To discuss the issues raised in this article in more detail, please contact a member of the Restructuring and Insolvency team.

Liberty Commodities Ltd v Citibank NA London & Ors [2023] EWHC 2020 (Ch)