Statutory Demand, Disputed Debt and Winding-Up Petition
Delta Fabricators Ltd supplies steel structures. It owes Meridian Steel Ltd ₦45 million under a 2023 supply contract. Delta admits ₦30 million but disputes ₦15 million, alleging the steel was defective and caused ₦12 million in downtime. It has withheld the disputed portion and offered to pay ₦30 million. Meridian serves a statutory demand for the full ₦45 million at Delta's registered office. Delta's solicitor writes within 10 days disputing the debt and asserting a counterclaim. Meridian does not withdraw; after 21 days it presents a winding-up petition. Delta's bank has frozen its overdraft and a key client is threatening to terminate. Delta's directors want to oppose the petition and sue Meridian for malicious presentation. The petition is returnable in the Federal High Court.
1. Is Delta deemed unable to pay its debts? Explain the statutory demand and the effect of the dispute.
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A company is deemed unable to pay its debts if a creditor serves a statutory demand for a debt exceeding the prescribed threshold and the company fails to pay, secure, or compound it within 21 days, or if execution is returned unsatisfied. Meridian has served a demand for ₦45 million and 21 days have passed. But the demand is not conclusive. If the debt is genuinely disputed on substantial grounds, the court will usually dismiss or stay the petition; winding-up is not a debt-collection mechanism. Delta admits ₦30 million and disputes ₦15 million on defective steel, with a ₦12 million counterclaim. The admitted ₦30 million may support a petition if unpaid, but Meridian demanded the full amount. The counterclaim may also give a set-off. Delta should show a bona fide dispute with evidence: inspection reports, correspondence, expert evidence, and the offer to pay ₦30 million. The bank's freeze and client threat are commercial consequences, not proof of insolvency.
2. How should Delta oppose the petition and prevent advertisement?
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Delta should file an application to restrain advertisement of the petition and, if necessary, to strike it out or stay it. It should act before the return date and before advertisement, because advertisement can damage reputation and banking relationships. The application should be supported by an affidavit showing: the debt is disputed in good faith; the nature of the defect; the counterclaim; the offer to pay the admitted sum; and the balance-sheet position. Delta should pay or secure the admitted ₦30 million, or pay it into court, to avoid the appearance of avoiding a clear debt. It should also check whether the statutory demand was properly served at the registered office and whether the threshold was met. If the petition is advertised, Delta can apply to dismiss it, but the court may order security for costs. The court may also order the parties to arbitration or mediation if the supply contract has a dispute clause.
3. What are the risks of Delta's proposed action against Meridian for malicious presentation?
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A malicious winding-up petition can found an action for damages, but the threshold is high. Delta must prove that Meridian presented the petition without reasonable or probable cause, with malice, and that the petition failed. Meridian's position is stronger because Delta admits ₦30 million and the demand was for the full sum; even so, if Meridian knew the ₦15 million was genuinely disputed and pressed the full amount to pressure Delta, that may support the claim. Delta must show actual damage: lost contracts, bank facilities, reputational harm. The action is separate from the winding-up proceedings and should not be used as a tactical threat. Delta should first defeat the petition and preserve evidence of Meridian's knowledge and motive. It should also consider a claim for abuse of process. Costs may be awarded in the winding-up proceedings, but damages require a substantive suit.