Background
Developstate Limited carried out and managed redevelopment works for Alexander Luxury (Yorkshire) Limited under an unwritten construction contract based on an elemental breakdown of the works. After 30 invoices had been paid, Developstate issued four further invoices totalling £27,341.80. Alexander Luxury did not pay, and Developstate served a corrected statutory demand before presenting a winding-up petition.
Alexander Luxury applied under rule 7.24 of the Insolvency (England and Wales) Rules 2016 to restrain advertisement of the petition and strike it out. It argued that the invoices included unauthorised or incomplete work, that payment depended on inspection, and that it had set-off or cross-claims exceeding the petition debt, including a claim for defective work. The court refused permission to rely on a late witness statement and two surveyors’ reports.
The Court’s Holding
His Honour Judge Richard Carter dismissed the company’s application. Because the Housing Grants, Construction and Regeneration Act 1996 applied and Alexander Luxury had not served a Pay Less Notice, it could not establish a substantial dispute over the sums claimed in the invoices by alleging that work was unauthorised, incomplete, or incorrectly valued.
The court also rejected the alleged defective-work cross-claim as insufficiently genuine and substantial to defeat the petition. The supporting material included work outside the contract, conflicted with contemporaneous inspection evidence, and was not supported by timely complaints or properly filed expert evidence. A prior consent order recording the parties’ agreement that there was a genuine dispute was relevant but not binding and carried limited weight. Accordingly, the court refused both to restrain advertisement and to strike out the petition.
Key Takeaways
- A party subject to the statutory construction-payment regime generally cannot dispute a notified sum in winding-up proceedings when it failed to serve a required Pay Less Notice.
- A cross-claim must be genuine, serious, and large enough to exceed the petition debt; unsupported assertions or evidence contradicted by contemporaneous records will not suffice.
- A consent order reciting that a genuine dispute exists does not necessarily compromise the petition or prevent the creditor from later challenging the asserted dispute.
Why It Matters
The decision underscores the insolvency consequences of failing to use the Construction Act’s payment-notice machinery. A payer cannot ordinarily avoid an unpaid notified sum by raising valuation or authorization objections only after a winding-up petition has been presented.
It also shows that, although the threshold for demonstrating a substantial dispute or cross-claim is low, the court will scrutinize whether the asserted case is sustainable, properly evidenced, and consistent with contemporaneous documents.