Insolvency Law-a summary of Re Global and Tours Travel Ltd case

Insolvency defined:
Osborne’s Concise Law Dictionary defines insolvency as the inability to pay debts. Black’s Law Dictionary on the other hand goes further to state that once the company is unable to pay its debts, then technically it is deemed to be insolvent. It also says that this so even where a demand has been for payment of the owed sum and the company has failed to comply and satisfy the debt.

In Re Global and Tours Travel Ltd, at p,196, Ringera. J., defined insolvency as the inability of the company to pay its debts. He said that this constitutes one of the grounds upon which a company can be wound up.


Re Global and Tours Travel Ltd
Five continents Travels Limited filed a petition for winding-up against Global Tours and Travels Ltd on the ground that it was indebted to it in the sum of KShs 1 099 399 and had failed to comply with a 21-day statutory demand. Global Tours and Travel Ltd applied to have the petition dismissed on grounds, inter alia, that it was an abuse of the process of the court; that the winding-up process was being used for collecting a disputed debt; that Five Continents Travel Ltd had no locus standi to present the petition; that the presentation of the petition was actuated by malice, and that it had not been proved that Global Tours and Travel Ltd was unable to pay its debts.

Issue; whether the alleged debt was disputed on a substantial ground.

Held-where an alleged debt is disputed on substantial grounds, or bona fide, a claimant is not a creditor and does not have the locus standi to present a winding-up petition. A substantial dispute is not merely to be inferred from the affirmation of one party that there is a dispute and an affirmation to the contrary by the other party.
That in the instant case, the respondent’s argument that it could not pay the petitioner’s debt because the petitioner owed its sister company much money and that there was an agreement to set off the indebtedness was a misconceived ground which is frivolous in law and therefore not a substantial dispute. The Court found that the petitioner was therefore a creditor within the meaning of section 220(a) of the Companies Act ( ours s.223(a)) and dismissed the respondent’s application.



Mann & Anor v. Goldstein and Anor [1968] 2 All ER 769, at p.773
Ungoed-Thomas J after observing that the requirements of one being a creditor is a precondition for presenting a petition whereas the requirement of insolvency is a precondition for the winding-up order, remarked at 773:
“When it is clearly established that there is no debt, seems to me to follow that there is no creditor, that the person claiming to be such has no locus standi and that his petition is bound to fail. Once that becomes clear, the pursuit of the petition would be an abuse of the process of court…When the debt is disputed by the company on some substantial ground (and not just on some ground which is frivolous or without substance and which the court should, therefore, ignore[1]) and the company is solvent, the court will restrain the prosecution of a petition to wind up the company”.

Re Lympne Investments Ltd [1972] All ER 385, 389 observed:
“ Mann v. Goldstein cited with approval in the New Zealand Court of Appeal in Betaman television Ltd v. Coleridge Finance Co. Ltd provides authority for saying that when a petition is based on a debt which is disputed on substantial grounds, the petitioner is not a creditor within the meaning of section 224(1) of the English Companies Act, 1948[2] (our s.224 Companies Act cap.110) who has the locus standi requisite for the presentation of the petition, even if the company is in fact solvent. Again the existence of a dispute on substantial grounds as to the existence of any debt defeats the contention that ( a company) has within the meaning of section 223(a) (ours s.223(a) )neglected to pay the sum required by the statutory notice”.







[1] In Halsbury’s Laws of England (4 ed) Vol.7(3) clearly states that a winding-up order may not make on a debt which is(disputed in good faith by the company; the court must see that the dispute is based on a substantial ground… If there is a genuine dispute, the petition may be dismissed or stayed”. That it is insufficient for a ‘defense’ to be honestly put forward if on fact there is no substance in it.
[2] This statute is in pari material with our Companies Act and therefore persuasive.