LEGAL PRINCIPLE: COMPANY LAW — Winding-Up — Inability to Pay Debts — Effect of Bona Fide Dispute of Debt on Winding-Up Petition
PRINCIPLE STATEMENT
Where the debt is bona fide disputed, the creditor must seek remedy in an action for recovery of the debt. Until the issue of the company's liability is resolved, it cannot be said that the company is indebted to the petitioner.
RATIO DECIDENDI (SOURCE)
Per Uwais, CJN, in Air Via Ltd. v. Oriental Airlines Ltd. (2004) NLC-132000(SC) at p. 22; Paras A–B.
"It follows from the foregoing that it is possible for a respondent to a petition for winding-up to dispute the petition by bona fide challenging the debt or its being due or on the ground that it is capable of paying the debt. Where the debt is disputed bona fide the petitioner/creditor must seek his remedy in an action for the recovery of the debt, because until the issue of the company's liability is resolved, it cannot be said for certain that the company is indebted to the petitioner."
EXPLANATION / SCOPE
A bona fide disputed debt cannot ground winding-up. The principle applies to company law. The creditor must first establish liability. The rule prevents abuse of winding-up proceedings. The court will dismiss the petition. The principle is well-established.
