Neutral Citation Number: [2010] EWHC 37 (Ch)
Case: No 6678 of  2008
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15/01/2010

Before :

MR JUSTICE WARREN

IN THE MATTER OF GBI INVESTMENTS LTD. 
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Between :

	LACONTHA FOUNDATION	Petitioner	
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	GBI INVESTMENTS LTD	Respondent	

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Mr Lloyd Tamlyn (instructed by Messrs Nabarro) for the Petitioner
Mr David Alexander QC and Mr William Willson (instructed by Messrs White & Case) for the Respondent

Hearing dates: 20th and 23rd November 2009
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Judgment
Mr Justice Warren : 
Introduction
1.	This is a petition for the winding-up of GBI Investments Limited (“the Company”).  The petition was presented by Lacontha Foundation (“Lacontha”) on 8 August 2008.  Lacontha was established in Liechtenstein on 2 April 2003.

2.	The individual ultimately interested in Lacontha is a Mr David Beran (“Mr Beran”).  It was on his instructions that Lacontha was established.  Mr Beran is a citizen of the Czech Republic.  He is a businessman and industrialist in the Czech Republic and other Eastern European countries.

3.	The Company was incorporated in England and Wales on 13 December 1995 as Atlas Corporate Secretaries Ltd.  It was dormant until about 24 September 2001, when it changed its name to GBI Investments Ltd.  Between that date and about the autumn of 2007, the ultimate beneficial owners of the Company were two employees of Mr Beran, or of companies ultimately controlled by him, Petr Novotny and Radim Simara.  

4.	There are a number of other companies which I should identify:

i)	RWE Transgas, a.s and CPP Transgas, s.p. (together or separately “Transgas”): this is the state-owned gas undertaking of the Czech Republic.

ii)	GBI Investments CZ a.s. (“GBI CZ”): this is a company incorporated in the Czech Republic on 27 May 1994 under name of DB Invest, a.s.  Prior to 2001, the share capital of GBI CZ was CZK 150 million entirely owned by Mr Beran.  Messrs Novotny and Simara managed GBI CZ.  Mr Novotny was director and Chairman between 1999 and 8 October 2007 (save for a short period), and Mr Simara was a director between June 2001 and December 2006.

iii)	Alincon Ltd (“Alincon”): this is a Jersey company in the ultimate beneficial ownership of Mr Beran,

iv)	Navigata Holding BV (“Navigata”): this is a Dutch company, wholly owned by Alincon. 

v)	Crown Continental Ltd (“CCL”): this is a company incorporated in England on 11 July 2000.

The Transgas Agreements
5.	During the course of 1997, Transgas and GBI CZ entered into a number of agreements concerning the construction, financing, maintenance and operation of an underground gas storage facility at Uhrice.  The first of these (“the Framework Agreement”) was dated 24 October 1997.  It is headed “Agreement Relating to Cooperation and Future Contracts”.

6.	The Framework Agreement provided under Part A as follows:

i)	Transgas and GBI CZ undertake to conclude the following agreements before the following dates:

“- Agreement relating to construction and financing of construction of underground gas storage at Uhrice (hereinafter referred to as the “Financing Agreement”) on or before 15 December 1997;
  - Separate agreement to conclude a future lease contract relating to lease of storage (hereinafter referred to as the “Lease Contract”) provided that the relevant agreement is to be entered into as of the date of certificate of completion on or before 15 December 1997….”  This related to certain works under an earlier agreement.  The Lease Contract would not appear to be the separate agreement itself but rather the lease which is to be granted pursuant to that separate agreement.
 “- Agreement relating to security rights over shares in MND on or before 1997 [not relevant for present purposes]”

ii)	Article I: GBI CZ undertakes to procure construction and financing of construction of the underground gas facility as specified (and called “the Storage”).  In that context, Transgas undertakes to give professional co-operation “for the Storage to comply with all required parameters”.

iii)	Transgas undertakes to assign and transfer to GBI CZ all rights and duties arising out of the contracts that have already been concluded in connection with the construction of the storage and GBI CZ undertakes to accept all such rights provided that the relevant third party consented.  

iv)	Article II: Transgas undertakes to make use of and operate the Storage for a minimum period of 25 years from the date of certificate of completion.  GBI CZ was to lease the Storage to Transgas for that period.  At the end of the period, Transgas is to have the right to purchase the Storage at the price set out.  The annual rent is specified at CZK 210,000,000 (subject to review).  

v)	Article IV: Transgas agrees that, after the signing of the Mandate Agreement and the Lease Contract GBI CZ can “request from Transgas the issuance of a guarantor’s declaration, promissory notes, guarantees or any other guarantor’s obligations as required by the financing institution up to the amount of unpaid receivables arising out of the Lease contract”.  Transgas is obliged to issue the same within 10 days of a request.  In other words, Transgas was to issue promissory notes to GBI CZ in respect of the 25 years’ rent.  

7.	So far as concerns Part B of the Framework Agreement, the only material provision for present purposes is Article III which provides that the Agreement may only be terminated by written agreement of both parties.

8.	The second agreement I need to refer to (“the Mandate Agreement”) is dated 23 December 1997.  Transgas is referred to as “the Mandatory” and GBI CZ is referred to as “the Mandator”.  The Mandate Agreement provides as follows:

i)	Article IV: GBI CZ  agrees that subject to the provisions of the agreement 

“to carry out and arrange for [GBI CZ] on its account and on its behalf construction of the overground part of the underground gas storage…and the access piping”.  

ii)	It is further provided in Article I that acquisition of the ownership or other rights to plots of land necessary for the construction of the storage should be made by Transgas in its own name and on its own account; such rights are to “be assigned to [GBI CZ] to such an extent and for such period (lease) that is necessary for grant of [various permissions and certificates]”.  

iii)	Article II: Transgas undertakes to perform the Mandate Agreement to enable relevant certificates to be issued on or before 30 December 1999.

iv)	Article IV: GBI CZ undertakes to pay a contribution towards the works specified in Article I of CZK35 million divided into three tranches for work leading (i) to planning permission (ii) to building permits and (iii) to a certificate of completion.

v)	Article V: GBI CZ undertakes to grant a written power of attorney to Transgas to carry out all activities pursuant to Article I.  GBI CZ undertakes to obtain funds necessary for the construction of the Storage subject to compliance by Transgas with its obligations under paragraph 3.

vi)	That paragraph 3 provides for Transgas, at GBI CZ’s request, and within 30 days after the date of the written application to issue: 

“a guarantor’s declaration, promissory notes, guarantees or any other guarantor’s obligation as requested by the financing institution and up to the amount of the unpaid receivables arising out of the Agreement Relating to Future Lease Contract with Subsequent Purchase of the Leased Asset….”

9.	This is a reference to the document headed “Agreement on a Future Lease Agreement with Subsequent Purchase of the Leased Item” also dated 23 December 1997 (which I shall refer to as “the Agreement for Future Leasing”).  It is the separate agreement envisaged in the Framework Agreement.  It was entered into according to the preamble “in relation to [the Mandate Agreement]”.  This agreement obliges the parties to enter into the form of agreement set out in Section II (“the Lease Agreement”) (which is the same as the Lease Contract referred to in the Framework Agreement) within 14 days following “the legal force of an occupancy permit or decision on the temporary use of the upper part” of the storage facility.  The subject matter of the intended lease is the above-ground part of the storage.   This property is to be leased by GBI CZ to Transgas for the period 25 years from a handover date ascertained in accordance with something called the Handover Protocol.  Material provisions of the Lease Agreement are as follows:

i)	Transgas is given an option to purchase the property at the date of termination of the lease for a consideration equal to 1% of the actual acquisition cost of the property.  

ii)	A party may withdraw from the Lease Agreement only by a written agreement between the parties.

iii)	If either party rescinds the Lease Agreement, the other party is to provide lump sum compensation for damage incurred, including loss of profits.

iv)	It is stated that the rent under the lease has been determined depending on the amount of the actual acquisition cost of the property.  As to that

“The amount of the annual payment of the rent without VAT in the case of the actual acquisition cost of [the property] in the amount CZK 1,400,000,000 without VAT as of January 1, 1998 (i.e. without a valorization as of the date of commencement of the lease) has been determined in the amount of CZK 210,000,000….”

v)	Transgas undertakes to issue, among other things, promissory notes within 30 days of GBI CZ’s written request up to the amount of the unpaid receivables under the Lease Agreement.  This obligation, of course, arises under the Lease Agreement, but the Lease Agreement itself does not have to be executed until the time indicated above.

Financing Agreements
10.	Financing was dealt with in two related agreements.  The first (“the Navigata Agreement”) is headed “Agreement on the Provision of Financing” and was made between Navigata as lender and GBI CZ as borrower under which Navigata agrees to lend GBI CZ funding for the project.  It was signed on behalf of Navigata on 4 May 1998 and on behalf of GBI CZ on 7 May 1998.  It recites that Navigata is willing to assure funds for the financing of an underground gas tank in Uhrice, that is to say the Storage referred to in the Framework Agreement.  Its provisions include the following:

i)	Article I: Navigata shall lend an agreed amount (in four stages from June 1998 to June 1999) the sum of CZK1,400,000,000 which, it will be noted, was the anticipated acquisition cost of the property to be subject to the Lease Agreement.  The four stage payments are to take place by 15 June 1998, 31 December 1998, 30 March 1999 and 30 June 1999.  On GBI CZ’s demand, the loan can be granted in Deutschmarks in any amount not exceeding 50% of the total loan in Czech Crowns.

ii)	Article II: under section 1, GBI CZ is obliged to repay the loan and interest on 1 February 2000.

“in the form of an off-set against [Navigata’s] commitment which will arise from a contract on the assignment of receivables that will be concluded between GBI CZ and Navigata on the basis of the contract on a future contract on the assignment of receivables the wording of which forms Article VIII of this Agreement.”

iii)	This is comprehensible only by reference to Article VIII: this explains that the parties have decided to conclude “A Contract on a Future Contract on the Assignment of Receivables”.  The Future transferor is GBI CZ and the Future transferee is Navigata.  They undertake to conclude a contract on the assignment of receivables by 30 January 2000 at the latest.  The substance is found in paragraphs 4 and 5 of Article VIII.

iv)	Paragraph 4 provides that, as at 30 January 2000, GBI CZ is obliged to assign and Navigata is obliged to buy the “receivables towards the debtor company Transgas s.p. following from the lease contract….with all accessories and all rights which are connected with the mentioned receivables”.  In other words, Navigata is to buy from GBI CZ the amounts owing to GBI CZ from Transgas in the future under the Lease Contract (yet to be executed but envisaged by the Agreement for Future Leasing) together with associated rights which would include the promissory notes to be issued by Transgas.  Paragraph 5 provides that the assignment of the receivables is for a consideration of CZK1,900,000,000.  Repayment by GBI CZ of the amounts owing under the loan transaction can be effected, pursuant to Article II, by set-off against this purchase price.

v)	The Navigata Agreement is governed by Dutch law.

11.	There was an amendment to the Navigata Agreement dated 15 October 1998. It is recited that on 3 September 1998, the parties informed each other about “the new facts which would influence the course of the financing of construction of an underground gas tank in Uhrice for the company Transgas, sp……”.    The new facts do not appear on the face of the amendment; but the material change of circumstance was the termination of the Mandate Agreement (see paragraph 21 below).  The amendment provides among other matters that with an effective date of 10 June 1998, the wording of the preamble is amended to add the following:

“After the previous agreement the lender may enable to the debtor to use the drawn funds also for operation purposes……”

12.	There was a further amendment to the Navigata Agreement which is dated 25 May 1999.  Section 1 of Article II is replaced with the following:

“The debtor is obliged to repay the loan including interests calculated according to Article III of this Agreement by the date 15.6.1999”.

13.	As will appear in a moment, by the time of that amendment, only part of the loan (DEM19 million) had been lent.

14.	The second financing agreement (“the First Alincon Agreement”) is headed “Loan Agreement” and states in its heading “This Agreement is made as of 27th April 1998”.  It is made between Alincon as lender and Navigata as borrower.  It was signed on behalf of Alincon on 17 June 1998 and on behalf of Navigata on 8 May 1998.  The purpose of the loan is not identified in the agreement.  It is governed by Dutch law.

15.	Under section 1 of Article I, Alincon agrees to lend an agreed amount of DEM19 million.  It is provided by Article VIII that the agreement is governed by Dutch law and takes effect upon the date of signature by both parties (in the event, 17 June 1998).  It is not clear how this latter provision fits with that part of the heading which I have just quoted.  This agreement makes no provision in relation to the Transgas payment obligations or promissory notes nor does it contain any provision transferring the economic benefit of the financing transactions or the profit of the construction of the storage facility to Alincon.  Repayment is to be made by 5 June 1999.  The agreement appears to be a straightforward loan transaction.

16.	Another agreement was subsequently made between the same parties and was signed on behalf of Alincon on 30 May 2000 and on behalf of Navigata on 7 June 2000 (“the Second Alincon Agreement”).  It appears from the recitals that the Second Alincon Agreement replaces the First Alincon Agreement (incorrectly identified as having been concluded on 27 April 1998) and “comes in force as from 24th March 1999”.  It is, like the First Alincon Agreement, governed by Dutch law.

17.	The amount of the loan is expressed to be CZK1,400,000,000 (far more than the amount of DEM19 million under the First Alincon Agreement) and is payable in 4 tranches.  These provisions precisely match those of the Navigata Agreement.  Again, the 4 stage payments are to take place by 15 June 1998, 31 December 1998, 30 March 1999 and 30 June 1999.  All of these dates are well before the date on which the Second Alincon Agreement was made.

18.	Article II of the Second Alincon Agreement provides that Navigata is to repay the loan (and interest) on 1 March 2000 

“in the form of an off-set against [Alincon’s] commitment which will arise from a contract on the assignment of receivables that will be concluded between Navigata and Alincon on the basis of the contract on a future contract on assignment of receivables the wording of which forms Article VIII of this Agreement.”

19.	This precisely mirrors the wording of the Navigata Agreement.  Likewise, the provisions of Article VIII mirror those of Article VIII of the Navigata Agreement.  Article XIII provides that the agreement is to take effect on the date of its signature by both parties (in the event, 7 June 2000). 

20.	The resulting position can be explained in this way.  Finance for the construction of the Storage was to be provided, ultimately, by Alincon.  Alincon was to lend funds to Navigata which would in turn on-lend to GBI CZ.  The loan would be discharged by an assignment of receivables from Transgas under the Lease Agreement.  Appropriate assignments of the receivables would be made between GBI CZ, Navigata and Alincon.  It is said on behalf of Lacontha that the intention was always that the two loan agreements (Alincon to Navigata; Navigata to GBI CZ) would be back to back and that their terms would mirror each other.  The Second Alincon Agreement was simply to reflect that intention and to correct the mismatch between the First Alincon Agreement and the Navigata Agreement.  According to this intention, Alincon would earn not merely a return on its lending, but receive the entire economic benefit of the Transgas contract.  It will be remembered that both Navigata and Alincon were in Mr Beran’s stable.

Termination of Mandate Agreement
21.	On 25 May 1998, Transgas served a notice on GBI CZ terminating the Mandate Agreement in accordance with section 575 of the Czech Commercial Code.  According to its terms, this notice related only to the Mandate Agreement and not the Framework Agreement or the Lease Agreement.  Transgas has never issued the promissory notes which had been envisaged in the Mandate Agreement.  The date of termination was, it should be noted, before the date of signature by Alincon of the First Alincon Agreement.

22.	As a result of these events, GBI CZ eventually brought proceedings against Transgas for breach of contract, seeking damages of CZK4.256 billion.  Those proceedings continue although I understand that, subject to appeal, the Court has decided that the termination notice was effective to bring an end not only to the Mandate Agreement but also to the Framework Agreement and the Agreement for Future Leasing (so that the Lease Agreement would never be made).

23.	Navigata in turn brought proceedings against GBI CZ for its breach of the Navigata Agreement in failing to assign the receivables under the Lease Agreement and the promissory notes which Transgas had contracted to issue.  On 12 March 2001, Navigata was awarded CZK4.256 billion following arbitration in Vienna.  Alincon had a similar claim against Navigata for breach of the Second Alincon Agreement.

24.	The following appears from the arbitration award, although, save as otherwise indicated, I have no independent evidence about these matters.

i)	On 25 May 1998, GBI CZ requested payment of the first part of the loan finance in Deutschmarks.  There was a draw-down of DEM19 million on 5 June 1998.  It was only after this drawdown (a) that the amendment to the Navigata Agreement was made allowing GBI CZ to use the drawn-down funds also for operation purposes and (b) that the First Alincon Agreement was executed.  It is not clear, but seems likely, that the funds advanced by Navigata to GBI CZ were borrowed, in turn, by Navigata from Alincon.  In June 1999, GBI CZ repaid DEM19 million to Navigata.  Interest was also subsequently paid by GBI CZ in August and September.  It is not apparent whether capital or interest was in turn paid by Navigata to Alincon.

ii)	On 5 August 1998, GBI CZ wrote to Transgas.  The letter, which is in the bundle, referred to the Mandate Agreement based on which the above-ground part of the storage and supply piping were to be built with the participation of Transgas.  It was pointed out to Transgas that GBI CZ was ready to meet its obligations under the Agreement for Future Leasing which agreement, it was asserted, was undoubtedly valid and binding notwithstanding the termination of the Mandate Agreement.  It was explained that GBI CZ had arranged funding to ensure construction of the above-ground part of those works; and that it was negotiating the start of a new contract with a company ready to perform the specialist works needed to ensure the construction of the above-ground part.  Transgas was asked to hand over materials and documents needed to implement the construction, in particular the Building Permit and to assign rights under certain contracts specified in the Mandate Agreement.  

iii)	On 11 February 2000, Navigata sent a letter to GBI CZ referring to Article VIII of the Navigata Agreement asking for “the conclusion of a contract on the assignment of claims from the leasing contract concluded between [GBI CZ] and Transgas”.  In other words, Navigata was seeking an assignment of the future rents which Transgas would be obliged to pay once the Lease Agreement was signed.  The response, on 17 February 2000, was that the Lease Agreement could not be concluded because of the termination by Transgas of the Mandate Agreement; it was not, therefore, possible “to conclude the required contract on the assignment of claims”.  

iv)	On 12 April 2000, Navigata sought damages from GBI CZ for breach of the Navigata Agreement in a sum in excess of CZK5.8 billion.  The basis of this claim was, I believe, that this was the value of the amount which GBI CZ would have received from Transgas if the Lease Agreement were entered into and promissory notes issued.  The point of the various loan agreements was, it is said by Mr Tamlyn, that the profit on the underlying transaction with Transgas should, by the proper operation of those loan agreements, pass up the line to Navigata and then Alincon.  

25.	This claim was submitted to arbitration.  The arbitration agreement itself was entered into on 2 October 2000.  The arbitrator considered the competing arguments from GBI CZ and Navigata and by an award dated 12 March 2001, awarded Navigata CZK4,255,958,100 plus interest.  This represents the loss of profit on the Transgas contract assuming completion of the gas storage facility and payment of rent by Transgas for the whole 25 year period.  The arbitration does not seem to have been particularly hostile.  It was only after pressure from the arbitrator that GBI CZ filed a response at all.  And at the hearing both sides were represented, it appears, by lawyers from the same firm.  

26.	In the meantime, Alincon intimated, in a letter dated 11 October 2000, a claim against Navigata based on the Second Alincon Agreement.  Complaint was made that the claims against Transgas had not been assigned to Alincon and damages of CZK5.8 billion were sought.

27.	The position at this stage was therefore perceived to be as follows.  GBI CZ had a claim for damages against Transgas, said to be for possibly over CZK5 billion.  Navigata had the benefit of the arbitration award against GBI CZ for nearly CZK4.3 billion and Alincon asserted that it had a similar claim against Navigata.   However, that perception can now be seen to be incomplete.  

i)	First, it is not clear that GBI CZ has any claim, or at least any valuable claim, against Transgas at all since the termination of the Mandate Agreement may well have brought an end to all the interlinked contractual arrangements between GBI CZ and Transgas and, on that footing, there may be no claim for breach of contract.  

ii)	Secondly, the First Alincon Agreement was simply a loan agreement for DEM19 million and nothing more.  There is nothing to suggest that any amount remains owing under that agreement.  

iii)	Thirdly, the Second Alincon Agreement was made after the Mandate Agreement had been terminated and thus at a time when it was already known that the promissory notes would not be issued by Transgas.  Further, it was known that the loan envisaged had not been made (save to the extent that Alincon had in fact advanced funds previously); and that such sums as had been lent had been repaid – indeed, the Second Alincon Agreement itself provided for repayment on 1 March 2000, a date prior to the date of the Agreement.  These facts are said by the Company to cast doubt on the effectiveness of Article VIII.

Issue of the Bearer Shares and Lacontha’s claim to ownership
28.	Be that as it may, according to Mr Nemec, a partner in the Czech law firm Prochazka Randl Kubr who has give evidence in support of the Petition and the appointment of provisional liquidators, GBI CZ could not pay the amount of the arbitration award and was thus insolvent.  Mr Novotny and Mr Simara suggested to Mr Beran that they would find a company which would purchase the claim against GBI CZ and which would be willing to postpone the maturity date of the claim until GBI CZ itself recovered funds from Transgas by way of damages.  The claim against GBI CZ was to be secured by its shares.  According to Mr Nemec, Mr Novotny and Mr Simara told Mr Beran that they controlled an English company which would provide this service.

29.	This plan was implemented.  The English company which became involved was the Company.  On 1 June 2001, GBI CZ resolved to increase its share capital by CZK4.3 billion by the creation of 43 bearer shares with a nominal value of CZK100,000,000 per share (“the Bearer Shares”).  They represent some 96.62% of the entire issued capital of GBI CZ.  The Bearer Shares were eventually issued on 6 May 2002.  They were issued to the Company.  I need to explain how this came about.

30.	The Company had, up to the time of its involvement, been a dormant company.   On the same day as the change of the Company’s name (see paragraph 3 above), Alan Martin and Ilana Martin were appointed as directors of the Company, Company Law Consultants Ltd (a company owned and controlled by the Martins) was appointed company secretary.  It is common ground that from this time Mr Novotny and Mr Simara were beneficial owners of the Company until Mr Jakeš and Mr Nestarec became owners.

31.	On 26 October 2001, three agreements were made between Navigata and the Company.

32.	The first agreement is governed by Czech law.  It is headed “Agreement on the Assignment of Receivable”.  I shall refer to it as the “AAR”.  Under the AAR, Navigata assigns to the Company “its existing receivables on company [GBI CZ”] under the Navigata Agreement: this is the amount said to be due under the arbitration award; it would no doubt also cover repayment of any other monies payable under or by reason of the Navigata Agreement.  The consideration for this assignment is CZK4.3 billion payable within 14 days.  The payment of that consideration may be set off against Navigata’s obligation under the other two agreements made on that date namely the Payable Taking over Agreement (“the PTOA”) and the Mutual Claims and Obligations Set Off Agreement (“the MCOSOA”).    

33.	The second agreement is the PTOA; it is governed by Dutch law.  The parties agree that the Company “hereby takes over” from Navigata any and all duties arising from Alincon’s claim against Navigata under the Second Alincon Agreement.  In other words, the Company is to become liable in respect of the damages claim which Alincon has asserted against Navigata.  Although the figure of CZK4.3 billion is mentioned as the amount claimed, it should be noted that that figure has never been admitted or established as the correct measure of Alincon’s claim against Navigata.  Indeed, it might be argued that Navigata had no liability to Alincon at all apart from an obligation to repay any loan made to it (as to which it is not suggested that there is any currently outstanding amount).  

34.	In consideration of taking over this liability, the Company is to receive “Remuneration” of CZK4.3 billion, payable within 14 days from the date of the agreement.  It is agreed that this Remuneration may be set off against the receivables of Navigata arising from the “Receivable Assignment Agreement”  (ie the AAR) between the parties made on the same day.  Navigata undertakes to obtain Alincon’s approval to the Company’s taking over the obligations mentioned.  

35.	The third agreement is the MCOSOA; it is governed by Dutch law.  It provides, as its name suggests, for mutual set-off of claims and obligations namely:

i)	Receivables of Navigata from the Company under the AAR in the sum of CZK4.3 billion, that is to say the consideration payable by the Company under the RAA in respect of the assignment to the Company of Navigata’s claim against GBI CZ under the Navigata Agreement.

ii)	Obligations of Navigata to the Company under the PTOA in the sum of CZK4.3 billion in respect of the taking over by the Company of liability for Navigata’s liability to Alincon.   

36.	On 25 October 2001, Alincon consented to the Company taking over Navigata’s obligations.  More exactly, it consented to the taking over of a payable of Navigata to Alincon “in the amount of CZK 4,300,000,000, including accessories, arising from [the Second Alincon Agreement]”.  That figure, as I have already remarked, has never been established as the correct liability as between Navigata and Alincon.

37.	On 31 October 2001 (and thus after the arbitration award had quantified the amount owing by GBI CZ to Navigata), GBI CZ and the Company entered into a “Contract for Subscription to Shares” (“the Share Subscription Agreement).  The effect of this agreement would be, upon issue of the Bearer Shares, to discharge the arbitration award (the benefit of which had passed to the Company under the AAR).  This is reflected by the terms of a set-off agreement dated 2 November 2001 made between GBI CZ and the Company (“the Set-Off Agreement”).

38.	The Set-Off Agreement provides relevantly as follows:

i)	At Article 1, it is stated that the Company has a due and enforceable receivable from GBI CZ in the amount of CZK4.3 billion.  That appears to be a clear acknowledgement by the Company of the validity of the arbitration award.  Further, the receivable could only be due to and enforceable by the Company if the AAR was valid.  It is also stated that GBI CZ has a due and receivable from the Company of the same amount on account of the shares for which the Company agreed to subscribe under the Share Subscription Agreement.

ii)	At Article 2 it is stated that the purpose of the agreement is to make it possible for the parties to set-off their mutual receivables in order to repay the subscription price of the shares subscribed under the [Share Subscription Agreement]”.  The parties have agreed on the mutual set-off of their receivables.  By the set-off, the Company has complied with its obligation to pay the subscription price.

39.	Later in November 2001, the Company entered into an agreement with Alincon called the “Payable Payment Agreement” (“the PPA”): this was signed on behalf of the Company on 20 November and on behalf of Alincon on 15 November.  The PPA is governed by Manx law.  Under clause 1 of the PPA, it is provided that, based on the PTOA, Alincon is “the owner of the receivable against [the Company] in the amount of CZK 4,300,000,000 including accessories (hereinafter referred to as the “Payable”)”.  This is not quite accurate.  The effect of the PTOA is that the Company undertook, in place of Navigata, the liability of Navigata to Alincon under the Second Alincon Agreement.   It is that liability, rather than the specified figure, which is the Payable.  That may or may not be an obligation to pay CZK4.3 billion.  Mr Alexander says, correctly I consider, that all Alincon had was a right to claim damages for an alleged breach of contract.  He identifies that claim as relating to Navigata’s failure to deliver the promissory notes which Transgas should have, but never did, issue.  I do not think that Alincon’s claims against Navigata are limited to the promissory notes.  The claims would include any claims for damages for breach of contract.  

40.	Under clause 2, the Company and Alincon agree that instead of cash payment, the Company, at its sole discretion, is entitled to repay the Payable to Alincon by a transfer of the Bearer Shares.  Under clause 3, they also agree that instead of cash payment, Alincon, at its sole discretion, is entitled to ask for repayment of the Payable by the transfer of the Bearer Shares.  Each party agrees to accept this method of payment.  

41.	Under clause 4, notwithstanding anything to the contrary in the PPA, the amount which Alincon is entitled to recover from the Company is limited to the lesser of CZK4.3 billion and an amount equal to the net asset value of the Company.  This would not, in my view, prevent the operation of clauses 2 and 3.  If the value of the Bearer Shares was in fact much less than CZK4.3 billion (for instance because its major asset, the claim against Transgas, transpired to be valueless), clauses 2 and 3 could still operate because a recovery of the Bearer Shares could still be well within the cap represented by the net asset value of the Company.

42.	The result of these agreements (which look complex) is actually quite simple.  The Company has the benefit of the arbitration award (and probably all, if any, other rights arising under the Navigata Agreement).  Alincon’s damages claims (but no other claims) against Navigata under the Second Alincon Agreement are replaced by identical rights against the Company.  Navigata drops out of the picture so far as concerns damages claims against it under the Second Alincon Agreement.  The Company will never need to find CZK4.3 billion: it can always discharge its obligations by handing over the Bearer Shares.  Conversely, Alincon can ensure that it retains the economic value of GBI CZ’s damages claim against Transgas by insisting that the Company hand over the Bearer Shares rather than discharge its obligations by a payment of CZK4.3 billion.

43.	The right of Alincon to call for the Bearer Shares is of the greatest importance.  GBI CZ, it must be remembered was a company with assets which had nothing to do with the Transgas contracts.  The owner of the Bearer Shares held 96.62% of the equity in the company.  It was clearly never the intention of the previous owners of GBI CZ – that is to say, directly or indirectly, Mr Beran – to make a gift of the value of GBI CZ to Mr Novotny and Mr Simara.  The PPA ensured that value did not pass gratuitously to the Company.  It was always open to Alincon (a Beran company) to obtain the Bearer Shares in satisfaction of the Payable and thus to recover the entire value of GBI CZ.  

44.	The Bearer Shares were, as I have mentioned, issued on 6 May 2002.  They were held physically by the Martins in England.

45.	On about 11 May 2003, the whole of the issued share capital in Alincon, then beneficially owned by Mr Beran, was sold to Lacontha for the nominal sum of £2.  Mr Beran was, or was intended to be, the principal beneficiary of Lacontha.  

46.	On 22 May 2003, Lacontha and Alincon entered into an agreement headed “Purchase Agreement” (“the Purchase Agreement”).  It provides materially as follows:

“Article 1: Object.   The following assets and liabilities of the seller – which are based on the balance [sheet] of [Alincon] of 31 March 2003 – are to be sold to [Lacontha]”.  

47.	The listed assets include loans of just over CZK6 billion.  There can be no doubt that this figure includes as a loan the amount claimed by Alincon against the Company by way of damages for breach of the Second Alincon Agreement (which liability the Company had assumed in place of Navigata under the PTOA as recognised by the PPA).  This is clear from the annex to the German version of the agreement which shows a break-down of the CZK6 billion and included the sum of CZK4.3 billion against “GBI Investments (CZ)” in typescript.  Someone has crossed out “CZ” and substituted in manuscript “Ltd” on the document a photocopy of which is included in the trial bundle.  It is quite clear to my mind from the history which I have related that it is the Company which might owe this sum to Alincon and not GBI CZ whose liability is to the Company, not to Alincon.  I do not consider that there is any real doubt about this.  However, the Purchase Agreement is governed by the law of Liechtenstein.  The Dutch lawyers were cautious, therefore, in expressing a view saying that it was a matter of Liechtenstein law whether a claim can be transferred to a third party without informing the debtor and whether the change of name was effective without even initialling by the parties.  The opinion of the Liechtenstein lawyer is that the Purchase Agreement is valid.  He does not, unfortunately, deal with the change from “CZ” to “Ltd” although it might be seen as implicit in his opinion that the document is effective in relation to “Ltd”.  Having no expert evidence of local law on that point, I proceed on the basis that there is no material difference from English law and conclude that the Purchase Agreement, as a matter of construction, includes in the assets transferred any amount owing to Alincon by the Company.

48.	Accordingly, Lacontha now claims that it is owed CZK4.3 billion by the Company.  It also claims that it is entitled to the transfer of the Bearer Shares pursuant to Clause 3 of the PPA.  It will be apparent from the analysis above that Alincon’s claim may not be for the full amount of CZK4.3 million.  Navigata may have a smaller obligation, or possibly no obligation at all, under the Second Alincon Agreement; indeed, it may even be argued that the Second Alincon Agreement is invalid.  

49.	However, if the Second Alincon Agreement is invalid, then the AAR, the PTOA and the MCOSOA will all have been effected under a serious misapprehension of the starting point.  I deal with the consequences of this possibility later.

Events after May 2003
50.	On 11 November 2003, GBI CZ issued its proceedings against Transgas in the Czech Republic claming CZK4.76 billion.  

51.	On 5 March 2004, a company called Burns Gordon Chase Ltd (BGCL”) was incorporated.  It has a part to play which appears later in this judgment.

52.	It appears that, during the course of 2007, relations between Mr Beran on the one hand and Mr Novotny and Mr Simara on the other hand, deteriorated and by the summer had broken down.  From that time, it seems that Mr Novotny and Mr Simara have behaved as if they owned not just the Company but also GBI CZ.  This is where Mr Jakeš and Mr Nestarec begin to feature.  The details are not known to me.  But according to Mr Jakeš, he and Mr Nestarec lent money to Mr Novotny and Mr Simara which had not been repaid.  In order to meet their obligations, they offered Mr Jakeš and Mr Nestarec, in August 2007, “the holding structure of the GBI group of companies with a view to paying us back for this personal loan”.  It was explained that the Company was English registered and that its sole asset was its stake (over 96%) in GBI CZ.  Through previous dealings, Mr Jakeš and Mr Nestarec knew that GBI CZ had various assets including freehold, receivables, and a printing business in Belgium.  They knew about its claim against Transgas but were told by Mr Novotny and Mr Simara that the claim was not likely to succeed.  Mr Jakeš and Mr Nestarec said they were not interested in running the businesses and that “if we took GBI CZ over we would seek to put it into voluntary liquidation in order to realise the assets”.

53.	Mr Jakeš goes on to say that he knew there were risks.  In particular, he and Mr Nestarec were aware that “there was a receivable against [the Company] in favour of Alincon”.  But Mr Novotny and Mr Simara gave assurances that the receivable was statute barred since it arose out of Dutch law and was more than 5 years old.  Mr Jakeš and Mr Nestarec took some advice from Dutch lawyers to reassure themselves.  

54.	From a Dutch law perspective, the PPA started the 5 year time limit running again.  The limitation period can be considered complete on 15 November 2006 if no “act of interruption” occurred after the PPA.  Mr Jakeš quotes the relevant passage in his second affidavit dated 18 November 2008.  However, he does not refer to the reservations expressed.  It is expressly noted that no assessment had been made in relation to international limitation periods.  Nor had any research been conducted in relation to Manx law and its effect on the limitation issue.

55.	Manx law is, of course, relevant too since the PPA is governed by that law.  Mr Jakeš says that he had been told by a third party (unidentified) that under Manx law the limitation period of 6 years and the “receivable was similarly unenforceable”.  No Manx law advice was in fact taken.  

56.	It is therefore surprising to read Mr Jakeš stating in his affidavit that, having read the Dutch law opinion, “Mr Nestarec and I agreed to make a final acceptance of the Novotny/Simara offer at the end of 2007”, as if a clearance on Dutch law was the end of the enquiry he needed to undertake.

57.	Mr Jakeš says that there was another risk.  He says that he and Mr Nestarec knew Mr Beran and of his reputation for threatening behaviour.  He relates that Mr Novotny and Mr Simara had said that they had been threatened because Mr Beran wanted them to hand over ownership of the Company.  They accordingly decided to keep their mutual dealings secret.  That is his story.

58.	At this time (about August 2007), the Company had a single issued share which was vested in a nominee corporation called Company Law Nominees Ltd, whose directors were Alan and Ilana Martin.  Mr Jakeš and Mr Nestarec wanted to see the Martins and their companies replaced. A change was negotiated through a company called Fincona a.s., a Bratislava-based company.  The individual involved in Fincona was Mr Stefanik (the chairman).  Mr Stefanik contacted a Mr Yogen Bacha, of Bacha & Bacha, a firm of chartered accountants in London.  Mr Bacha recommended the appointment of Stella Directors (UK) Ltd and Stella Secretaries (UK) Ltd as director and company secretary respectively.  The Stella companies acted through a Mr Jackaria.  They are, I understand, companies registered in Mauritius.  These changes were duly effected at the end of September 2007.  The single share in the Company was transferred to another nominee company, Carlaw Holdings Ltd, a Delaware-registered company.  Apparently, Mrs Martin handed the Bearer Shares to Mr Novotny.  Thus far, there is nothing to cast any doubt on the proposition that the beneficial ownership of the Bearer Shares remained with the Company; why they were handed to Mr Novotny rather than to the Company I do not know.

59.	On 8 October 2007, an EGM of GBI CZ took place in Prague.  According to Mr Nemec, Mr Beran was tricked into not attending this meeting.  He had thought that his nominee would be appointed as liquidator.  Instead, it appears that shortly before the meeting, Mr Novotny handed the Bearer Shares to a Mr Roman Straka, a Czech lawyer.  Mr Straka voted the Bearer Shares in favour of a resolution placing GBI CZ into voluntary liquidation.  Mr Straka was appointed liquidator of GBI CZ and he and Mr Jan Zak were appointed as directors of the Company.  Mr Jakeš implies that the liquidation was a solvent liquidation.   They must therefore have taken the view that the issue of the Bearer Shares and the discharge of the arbitration award obligation were fully valid and effective.

60.	It seems to be common ground that, as of 8 October 2007, GBI CZ had surplus assets of over £6 million.  Assuming the validity of all of the documents which I have referred to, GBI CZ was left with no liability in respect of the Navigata Agreement since its liability had been wiped out by capitalisation of the arbitration award.  It is therefore not a surprise to find that there was a surplus of assets over liabilities.

61.	In the trial bundle there are two documents bearing the date 7 January 2008.  It seems that these were not signed on behalf of the Company.  The first is a Securities Purchase Agreement under which the Company agrees to sell the Bearer Shares to BGCL.  It is governed by Czech law.  The agreement bears the name of Mr Jackaria as intended signatory on behalf of the Company.  It bears the signature of a Mr David Ogiamien on behalf of BGCL.  The agreement does not appear to include a consideration for the sale.  However, the second agreement of that date discloses that the consideration was agreed at £3.5 million.  

62.	That second agreement bears the title “Payment and Claim Assignment Agreement” and is made between the same parties.  The wording of clause 1.1 has clearly gone awry, but the effect is that BGCL agrees to assign to the Company the receivable from Transgas, namely Transgas’s liability to GBI CZ.  The assignment is to take effect when BGCL becomes the owner of the receivable.  The parties must have envisaged GBI CZ’s assets (including the claim against Transgas) passing to BGCL as owner of the Bearer Shares in the course of the liquidation.  The consideration for this assignment is stated to be £5.2 million.  Provision is made for set-off pro tanto with the balance owing (£1.7 million) to BGCL being paid upon the written request of BGCL. 

63.	It does not appear that Mr Jackaria actually signed either of these documents.  It seems that they never took effect as agreements.

64.	On 24 January 2008, two things happened.  The first was that Mr Jakeš and Mr Nestarec took control of and became beneficial owners of the Company.  Mr Jakeš says that as a condition of the purchase, he and Mr Nestarec had agreed with Mr Novotny and Mr Simara that the shares in GBI CZ would be transferred to BGCL and out of the ownership of the Company in order that “they could be protected from Mr Beran”.  The details for effecting this were left to Fincona.  That no doubt accounts for the two draft agreements of 7 January 2008 which I have just mentioned.

65.	The second event was that Mr Novotny and Mr Simara handed over the Bearer Shares to Mr Jakeš.  Mr Jakeš’ evidence is that the shares have at all times been kept in his safe except for an EGM and an aborted EGM of GBI CZ.  That may be so, but the Bearer Shares have featured further.  On 1 February 2008, they were subject to a purported Share Purchase Contract between BGCL as seller and Alex Brown LLC as purchaser.  The sale price is stated to be Euros 3.5 million.  BGCL confirms that it is the owner of the Bearer Shares.  The parties confirm that the Bearer Shares have been handed over to Alex Brown LLC.  On the same day, a document headed “Certificate of Acceptance” was signed on behalf of BGCL and Alex Brown LLC under which the latter confirmed receipt of the Bearer Shares.  

66.	Mr Jakeš describes these transactions as being “to protect the bearer shares from Mr Beran, and to distance them from [the Company]”.  BGCL and Alex Brown LLC are entities within the Fincona group.  It seems highly improbable that either of these companies was ever intended to hold the Bearer Shares other than as nominee although whether for the Company or for Mr Jakeš and Mr Nestarec is not entirely clear.  Indeed, in relation to the purported purchase by Alex Brown LLC, Mr Jakeš confirms that no money ever changed hands.  I believe that it is common ground that BGCL also did not actually make payment for the Bearer Shares.

67.	Matters were not left undisturbed in relation to GBI CZ’s claim against Transgas.  On 4 March 2008, GBI CZ entered into a sale agreement with CCL under which CCL took an assignment of “the Claim”.  The Claim is GBI CZ’s claim against Transgas for CZK4,764,358,100 as compensation of damage plus interest.  The consideration for the assignment is CZK400 million, a modest fraction of the nominal amount of the Claim; this is just over £14 million at the exchange rates then current.  Following a report on the valuation of the Transgas claim (attributing a zero value: see paragraph 73 below), the price was varied to CZK476,438 (about £14,000).  If CCL proved to be successful in its claim, the profit would be split 50/50 between CCL and GBI CZ.  CCL has now been substituted as the claimant in the claim against Transgas.

68.	On 6 March 2008, Lacontha granted a power of attorney to Mr Nemec “to perform any and all legal and procedural actions and declarations in connection with enforcing our receivable against [the Company] amount to CZK4,300,000,000, arising among others from the [PPA] and the [Purchase Agreement], and all actions and declarations related”.  The point is made that there is in fact no such receivable of that amount; all that Lacontha has is the right (if any and as successor to Alincon) against the Company (in place of Navigata) to claim damages for breach of the Second Alincon Agreement.  The point is a valid one; but I have no doubt that the power of attorney is adequate to allow Mr Nemec to assert that claim as attorney of Lacontha.  Because of doubts about the continuing validity of that power of attorney, an identical power of attorney was granted to Mr Nemec on 28 July 2008.

69.	On the same day as the grant of the original power of attorney, 6 March 2008, Mr Nemec wrote to the Company referring to the PPA and the Purchase Agreement, stating that Lacontha was a creditor of the receivable against the Company amounting to CZK4.3 billion.  Pursuant to Article III of the PPA, the Company was requested to transfer the Bearer Shares to Lacontha.  This request was repeated on 16 April 2009.  The Bearer Shares were not transferred.

70.	Instead, on 13 March 2008, an EGM of GBI CZ was held at Mr Straka’s offices.  Mr Jakeš says that he handed the Bearer Shares to Mr Straka who proceeded to pass a resolution for a reduction of capital in order to facilitate the distribution to members of that company with the result that over 96% would go to the holders of the Bearer Shares.  Mr Beran was no doubt justified in feeling that this money might not find its way to the Company even though it is the Company which, at first sight, would appear to be beneficially entitled to the Bearer Shares.

71.	Accordingly, Mr Beran filed a petition with the Czech Court on 13 March 2008 seeking injunctive relief to prevent the resolution taking effect.  This was not granted but it was indicated that the reduction could not take place while the company was in liquidation.  On 5 June 2008, Lacontha applied in the Czech Court for an injunction against Mr Straka, Mr Novotny, Mr Simara, GBI CZ and the Company to restrain disposal of the Bearer Shares or voting at an intended EGM set for 13 June.  An order was sought that the Bearer Shares be deposited with the Court.  An injunction was granted on 6 June.  Appeals were filed by various parties between 24 June and 1 July, but no disclosure was made of the whereabouts of the Bearer Shares.

72.	At some stage, Lacontha instructed English solicitors, Nabarro LLP.  On 24 July 2008, they wrote to the Company referring to the earlier letters requesting a transfer of the Bearer Shares.  Demand for delivery was repeated.  In addition, an alternative demand for CZK4.3 billion was made pursuant to Article I of the PTOA.  For reasons already given, that figure may well not be the amount actually owing under the PTOA.

73.	As to the value of the Transgas claim, Mr Straka commissioned expert advice on this.  The claim was valued at zero by the firm of Czech lawyers instructed by him.  This was not on the basis that Transgas had not been in breach of contract or that GBI CZ had not suffered any loss of profit.  Rather, it was on the basis (which I confess to not beginning to understand) that, as a result of the set-off as a result of the capitalisation of GBI CZ’s liability under the arbitration award, Transgas’s liability was at an end.

74.	On 11 August 2008, Lacontha filed its claim in the Czech Court.  It raises the same or similar issues as the Petition before me.  It was filed, as will be seen, 3 days after the Petition before me and one day before the first hearing of the application for the appointment of provisional liquidators of the Company.  This was followed quite quickly by the resignation of the Stella companies as director and company secretary of the Company on 2 September 2008.  On the same day, Mr Jakeš swore an affidavit in which he stated that he and Mr Nestarec owned the Company and that it was a term of their acquisition that the Bearer Shares would be transferred to BGCL.  The Bearer Shares were then transferred to Alex Brown LLC; according to Mr Jakeš this was “since we needed at that time to get back some money, but we have agreed an option to purchase the stated shares back to us”.  This suggests strongly that Mr Jakeš saw beneficial ownership of the Bearer Shares as resting with him and Mr Nestarec.  Indeed, that is a position confirmed by Mr Alexander in answer to questions from me during the hearing about what his client was and was not prepared to accept to which I will come later.
75.	One thing is absolutely clear from that evidence and from everything else which I have so far related.  It is that Mr Jakeš and Mr Nestarec obtained the Bearer Shares only because of their acquisition of the Company and because, prior to the handing over of the Bearer Shares to them, the shares were held on behalf of the Company.  They did not obtain the Bearer Shares from Mr Novotny and Mr Simara selling as beneficial owners.  It follows that Mr Jakeš and Mr Nestarec could not possibly assert any claim to the shares unless the Company had acquired them; and the Company could only have acquired them if the Share Subscription Agreement was valid and effective.

76.	Moving forward, on 29 April 2009, the Czech Court approved a capital reduction of GBI CZ.  The Bearer Shares were surrendered pursuant to this Czech law and exchanged for a combination of a distribution of CZK107 million and amended bearer shares (“the New Bearer Shares”) with a reduced nominal value.

77.	Then, on 8 September 2009, the Municipal Court in Prague decided that when the Mandate Agreement was terminated, the other related – or as the court put it, mutually interconnected – agreements were terminated as well.  That is not to say that Transgas was thereby freed from any financial responsibility for the consequences of the termination.  That, as I understand it, remains to be decided.

English proceedings
78.	On 8 August 2008, this Petition was presented.  On the same day, an application was issued  for the appointment of provisional liquidators. 

The Law
79.	The Court may make a winding-up order on the Petition if:
i)	Lacontha is a creditor of the Company within the meaning of section 124(1) Insolvency Act 1986; and

ii)	the Company is unable to pay its debts within the meaning of section 122(1)(f) of the 1986 Act.  For present purposes, it is necessary to consider only section 123(1)(e) and section 123(2).  Under the former, a company is deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due; and under the latter, a company is deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities, a test which can loosely be referred to as “balance sheet insolvent”.

80.	So far as disputed debts are concerned, the practice of the court is not to allow the insolvency regime to be used as a method of debt collection where there is a bona fide and substantial dispute as to the debt.  Where there is such a dispute, the ordinary course is for the petition to be struck out; the Companies Court will not ordinarily resolve the dispute or make a winding-up order in the absence of resolution of the dispute.  I reviewed the authorities in my decision in Hammonds (a firm) v Pro-Fit USA Ltd [2007] EWHC 1998, [2008] 2 BCLC 159 at paragraphs 27ff.  
81.	The decisions in Re Claybridge Shipping Co SA [1997] 1 BCLC 572 (CA) and Alipour v Ary [1997] 1 WLR 534 show that it is only a rule of practice and not one of law for the Companies Court to refuse to determine a dispute about a  petitioner’s locus standi on the petition itself.  It is therefore open to the Companies Court in some circumstances to resolve the dispute and not to make the parties go off to another court to determine whether or not the alleged debt is in fact due.   But the authorities go further.  They establish that in limited circumstances, the court can make an actual winding-up order even in the case of a disputed debt.  

82.	This was done in Re Russian and English Bank [1932] 1 Ch 663 where Bennett J held that, notwithstanding the general rule, in the case of a foreign company the alleged creditors of which would be without a remedy unless they could proceed by way of winding up petition, the Companies Court could wind up the company on the footing that it would be the duty of the liquidator to consider the claims of the petitioning creditors.  More recently, in Brinds Ltd v Offshore Oil NL [1986] 2 BCC 98,916, Lord Brightman, delivering the decision of the Privy Council, said this at 98,921 col 2:

“It is a matter for the discretion of the judge whether a winding-up order should be made on a disputed debt, and it is also a matter of discretion whether he decides the substantive question of debt or no debt.”
83.	As Lord Hoffmann put it in Parmalat Capital Finance Ltd v Food Holdings Ltd [2008] UKPC 23 [2009] BCLC 274 at paragraph 9

“….If a petitioner’s debt is bona fide disputed on substantial grounds, the normal practice is for the court to dismiss the petition and leave the creditor first to establish his claim in an action.  The main reason for this practice is the danger of abuse of the winding-up procedure.  A party to a dispute should not be allowed to use the threat of a winding-up petition as a means of forcing the company to pay a bona fide disputed debt.  This is a result of practice rather than law and there is no doubt that the court retains a discretion to make a winding-up order even though there is a dispute: see, for example, [Brinds].  But the board does not find it necessary to examine the limits of the discretion because they consider that there is no substantial dispute.”

84.	The law today, which I regard as clear, is that there is no absolute jurisdictional bar to a petition being allowed to proceed, or indeed the making of winding-up order, where the debt on which the petition is founded is bona fide disputed on substantial grounds.

85.	However, before the Companies Court will make a winding-up order or even allow a petition to proceed where the debt is bona fide disputed on substantial grounds, there have to be exceptional circumstances.  The Privy Council in Parmalat declined to give any guidance on the limits of the discretion.  But some guidance can be obtained from two other authorities.

86.	The first is Claybridge, where a departure from the usual rule was said to be justified where the company was a foreign company and the petitioner would otherwise be without a remedy or otherwise injustice would result or for some other sufficient reason the petition should proceed.  Lord Denning compared the position (see at p575e) with a Mareva injunction.  A similar approach may sometimes be applicable even in the case of an English company.  As Oliver LJ put it at p 579f:

“The court must, I think, reserve to itself the right to determine disputes – even perhaps in some cases substantial disputes – where this can be done without undue inconvenience and where the position of he company, whether it be an English company or a foreign company, is such that the likely result in effect of striking out the petition would be that the creditor if he established his debt, would lose his remedy altogether”.

87.	That was said in the context of the striking out of a petition at an early stage; the court really had in mind whether the Companies Court (rather than some other court) should resolve the dispute concerning the petition debt.  

88.	The second authority is Alipour v Ary (supra).  In that case, the company was a foreign company.  The petitioner originally claimed to be the registered holder of 10 shares in a foreign company and subsequently wished to claim instead to be the original allottee of the shares having accepted that his claim to be a registered shareholder could not be maintained.   The court summarised the position in this way:

“The position as we see it, in the light of the authorities as affected by the current procedures of the Companies Court, is this. (1) A creditor's petition based on a disputed debt will normally be dismissed. (2) It will not be dismissed if the petitioning creditor has a good arguable case that he is a creditor and the effect of dismissal would be to deprive the petitioner of a remedy or otherwise injustice would result or for some other sufficient reason the petition should proceed. (3) On a contributory's petition where the locus standi of the petitioner is disputed, the court will consider all the circumstances, including the likelihood of damage to the company if the petition is not dismissed, in determining whether to require the petitioner to seek the determination of the dispute outside the petition.”

89.	This, like Claybridge, was a case about whether the dispute should be resolved outside the petition or whether it could be resolved by the Companies Court when hearing the petition.  But given that the court retains a discretion to make an actual winding-up order on the basis of a disputed debt (leaving the dispute to be resolved between the petitioner and the liquidator), similar principles to those explained in Claybridge and Alipour v Ary must surely apply to the making of such an order.

90.	Alipour v Ary is also of relevance to another point which arises in the present case.  In that case, the petition was presented on the just and equitable ground. In allowing the appeal, it was held that, on a contributory's petition where the locus standi of the petitioner was disputed, the court would consider all the circumstances, including the likelihood of damage to the company if the petition was not dismissed.   Detriment – or rather the absence of detriment because the company was dormant and any detriment could not be substantial – was a factor to be taken into account in deciding whether to dismiss the petition and to force the petitioner to have the dispute resolved outside the petition. 

Authority to bring the Petition
91.	The Petition and the application for the appointment of provisional liquidators have been presented and made on the instructions of Mr Nemec.  The Company takes the point that Mr Nemec had no authority to act on behalf of Lacontha to bring or continue the proceedings.  I should deal with that aspect at this stage.

92.	I have mentioned the power of attorney dated 28 July 2008 which, in my view, was sufficient to authorise Mr Nemec to authorise the Petition and the application.  However, in his 5th witness statement dated 10 November 2009, Mr Jakeš says that the authorised representatives of Lacontha have said that they do not want Lacontha to remain a party to the proceedings.  He refers to a letter to his Slovak lawyer, Mr Gajan, from the Board of Lacontha dated 22 June 2009 suggesting that Mr Nemec had authority only to give a witness statement and not to continue the litigation.  But Mr Hales of Nabarro LLP exhibits to his second witness statement dated 17 November 2009 a power of attorney dated 3 June 2009 which he says has not been revoked.  That document grants a power of attorney (expressed to be given in accordance with the directive of the Liechtenstein Court) to Mr Nemec and Mr Hales to represent Lacontha in the case no 6678/2008 in this Court, that is to say the Petition before me (and, by implication, all applications within the scope of the Petition).  Further, by a letter dated 11 September 2009 from Lacontha to Mr Gajan, Lacontha recognised that the power of attorney had had to be granted pursuant to the direction of the Liechtenstein Court so that Mr Jakeš’ 5th witness statement did not show the complete picture.  There is nothing to establish that the power of attorney granted in June has been terminated.  In any event, out of an abundance of caution, the injunction requiring a power of attorney to be granted was renewed on 15 October 2009.  In my judgment, Mr Nemec and Mr Hales have authority to conduct these proceedings on behalf of Lacontha.

The Petition
93.	Lacontha claims to be a creditor of the Company.  Two debts are relied on in the Petition, pleaded in the alternative.  The first is a debt of CZK4.3 billion which, according to Mr Tamlyn, the Company acknowledged in clause 1 of the PPA.  The Company’s only possible liability under the transactions I have considered earlier in this judgment is the obligation which it took over from Navigata under the PTOA, that is to say a claim for damages under the Second Alincon Agreement.  It is only that claim which I consider is acknowledged by clause 1.  Although the PPA states that the Payable is CZK4.3 billion, that is not, as I have explained, accurate: see paragraph 39 above.  Nor I consider can that statement in the PPA prevent the Company from contesting that amount of the Payable unless Manx law, the governing law of the agreement, produces a different result, a proposition which I do not think can possibly be correct.   The Second Alincon Agreement is governed by Dutch law.  Even though the PPA set time running again, it seems that the limitation period for recovery of this debt under Dutch law would be 5 years from the date of the PPA giving an expiry date for the limitation period of 15 November 2006.  Even if Manx law applies to give a 6 year limitation period, that period would have expired by November 2007.

94.	No doubt recognising those difficulties, Lacontha relies, and relies only, on the second debt which is a claim for damages.  Under the PPA, Lacontha is entitled to call for the transfer of the Bearer Shares and has done so.  In breach of contract, the Company has failed to transfer the Bearer Shares or any of them.  If that claim is a good claim, then a comparison needs to be made between (a) Lacontha’s actual position and (b) its position if the PPA had been performed:

i)	Its actual position is that it does not have the Bearer Shares (or the New Bearer Shares and the capital cash distribution made on the occasion of the capital reduction in respect of the Bearer Shares).  It does have the benefit of Alincon’s claim against Navigata under the Second Alincon Agreement (now a claim by Lacontha against the Company as a result of the AAR and the PTOA), a claim of, say, £X.

ii)	If the PPA had been performed, Lacontha would have the Bearer Shares but it would not have the benefit of the debt of £X which would have been discharged.  It is reasonable, and in my view would be correct, to proceed on the basis that the value of the Bearer Shares equates to the value of the New Bearer Shares and the cash distributed in respect of them, CZK107 million (in the region of £3.7 million).

95.	Accordingly, if Lacontha has suffered damages at all, those damages are equal to the value of the Bearer Shares (represented by the value of the New Bearer Shares plus the capital repayment) less the value of its claim against the Company, namely £X.  Lacontha’s overall position vis a vis the Company is that it is a net creditor to the value of the Bearer Shares (or New Bearer Shares plus cash) since the £X debt owed to it by the Company precisely matches the amount by which its damages are less than the value of the Bearer Shares.  This is subject to the effect of clause 4 of the PPA providing for a cap on the Company’s liability.

96.	On the other side, the Company retains the New Bearer Shares and the cash.  It has a liability in damages equal to the value of the New Bearer Shares and the cash less £X but has a liability of £X as a result of the PTOA to Lacontha.  Its net financial position vis a vis Lacontha therefore is that it owes an amount equal to the value of the New Bearer Shares plus the cash.  

97.	On any view, the New Bearer Shares have a significant value even if the claim against Transgas has zero value.  Otherwise it would not have been possible to make the substantial capital distribution which was in fact made on the capital reduction.  Moreover, the fact of that capital distribution itself demonstrates that Lacontha’s damages claim, if it has a claim at all, is substantial.

98.	The Company disputes that it is liable to Lacontha as claimed in the Petition.  It has a number of defences which it asserts.  The first is a limitation defence.

Limitation
99.	The Company submits that not only is Lacontha’s debt claim referred to in clause 1 of the PPA defeated by a limitation defence, so too is its damages claim under clause 3.  There is obviously considerable force in the limitation argument so far as concerns the debt claim.  The debt arises, if at all, under the Second Alincon Agreement which is governed by Dutch law.  The Dutch limitation period probably began to run again on 15 November 2001 but has expired.  I do not need to make any decision about this because, on any footing, the debt is subject to a genuine and substantial dispute based on the limitation defence.

100.	The PPA does not itself create the debt which, as I have said, is created by the Second Alincon Agreement.  It does, however, acknowledge some debt albeit not perhaps the full amount of CZK4.3 billion.  But that is not the end of the PPA since it is a new agreement separate from the Second Alincon Agreement and the PTOA and creates new rights and obligations in relation to the debt.  In particular, instead of a cash payment, Alincon (and now Lacontha) “at its sole discretion, is entitled to ask for the Payable repayment via transfer of [the Bearer Shares]”, transfer being deemed to be a full repayment.  

101.	The Company’s argument is that the right to exercise the option under clause 3 of the PPA is contingent on the CZK4.3 billion debt being due and the right to exercise the option can only be exercised so long as the claim is enforceable.  Since the claim to the debt is statute barred, the option cannot be exercised.

102.	Lacontha submits that this argument is plainly wrong.  It is submitted that Lacontha has two separate causes of action under the PPA.  I do not think that is quite right since, if there are two causes of action, one arises under the PTOA and the other under the PPA.  But Lacontha’s point is that there are two separate causes of action, the second of which is the right created by clause 3 of the PPA.  Mr Tamlyn describes this as a “call option”.  That description if accurate suggests the conclusion that there is a separate cause of action, once the option has been exercised, to enforce the resulting contract by way of specific performance or damages.  

103.	The central question therefore is whether the exercise by Lacontha of its rights under clause 3 gives rise to a separate cause of action.  If there is no separate cause of action then two consequences follow.  Firstly, if clause 3 were to be invoked by Lacontha during the limitation period relevant to the debt, an action for specific performance or damages would itself have to be brought within that limitation period.  Secondly, once that limitation period had expired, it would be impossible to invoke clause 3 at all.  It can be argued that there is only one cause of action.  Consider, by analogy, this example.  Suppose clause 3 had introduced a right for Lacontha to insist on payment of the Payable in US dollars at an exchange rate current at the time of the exercise of the clause 3 rights.  Could it be said that a new cause of action then arose, namely a right to sue for a sum in US dollars rather than in Czech crowns?  I think not.  The claim would still be to enforce the debt, albeit that it was to be paid in a different currency.

104.	But that example is miles away from the present case.  Here we find a right for Lacontha to insist on the debt being discharged by the transfer of specific identified assets, the Bearer Shares which may be worth far more than the amount of the debt.  (If they are worth less, the Company has a similar power under clause 2 to satisfy its debt by transferring the Bearer Shares).   The PPA is in substance a new agreement under which Lacontha has the option to acquire the Bearer Shares in consideration of the discharge of the debt owing to it.  A request by Lacontha to receive the Bearer Shares is in substance the exercise of that option.  It gives rise to a new right in Lacontha, namely an entitlement to the Bearer Shares in consideration of the discharge of the debt.  This new right would, in my judgment, give rise to a new cause of action were English law the governing law.  There is nothing before me to suggest that Manx law is any different from English law when it comes to the identification of causes of action for limitation purposes.    Accordingly, I consider that the making of a request under clause 3 of the PPA gives rise to a new cause of action vested in Lacontha for the purposes of the governing law, Manx law, of the PPA.  

105.	This result is, I think, consonant with the express provisions of the PPA (governed, it will be remembered, by Manx law to which the same principles of construction I will assume apply as in relation to English law).   There is no time limit expressed within the PPA for the exercise of the election under clause 3.  There is an argument, I accept, that if the Payable has been extinguished there would then be no “cash payment” due at all, so that the Bearer Shares could not be given “instead” of that cash payment.  But Dutch law, like English law and Manx law, does not, according to the evidence of Dutch law which I have, result in the underlying debt being extinguished at the end of the limitation period.  The debt therefore remains but cannot be enforced by action.  There is nothing in principle which prevents Lacontha making a request under clause 3 which, for the first time, then results in an obligation on the Company to transfer the Bearer Shares.  There is an analogy with guarantees to be drawn here.  If under the terms of a guarantee, a guarantor is liable only after a demand has been made for payment, the cause of action against the guarantor arises only once demand has been made; he remains liable even if the underlying debt has become statute-barred.  Similarly, the right to receive the Bearer Shares arises only once a request has been made: it should not matter that the debt itself is statute-barred provided that it has not been extinguished.  

106.	Accordingly, I reject the Company’s defence to the damages claim under clause 3 of the PPA based on limitation.  

Other alleged defences to Lacontha’s damages claim
107.	Defences have been raised to Lacontha’s claim on the basis that the Purchase Agreement did not transfer the debt to it (ie Alincon’s claim for damages against Navigata/the Company for breach of the Second Alincon Agreement) and on the basis that the Petition has been brought and is being taken forward without the authority of Lacontha.  I have already dealt with those issues and held that the debt (assuming it existed at all) was transferred to Lacontha and that the proceedings are being conducted with the authority of Lacontha.

Abuse of process
108.	Next, it is said that the Petition is being used by Mr Beran (through Lacontha) for a collateral purpose, namely to take back control of GBI CZ whose liquidators are assisting in criminal proceedings against Mr Beran in the Czech Republic.  It is said that Mr Beran is attempting to stifle the Czech proceedings.  I do not consider that there is anything in this attack.  Lacontha, whether or not at the instigation of Mr Beran, is perfectly entitled to take appropriate steps to protect its own financial interests.  Standing back, it is obvious, I would have thought, that Mr Beran never had any intention that he or the companies controlled by him should give without any adequate consideration to the Company – an entity owned and controlled not by him but by two employees – the substantial value of GBI CZ represented by GBI CZ’s assets and businesses unconnected with the Transgas transaction.  It comes nowhere near an abuse of process for Lacontha now to seek to establish its rights even if some collateral advantage may accrue to Mr Beran.  In any event, it seems that the criminal charges are no longer being proceeded with so that the collateral purpose no longer subsists if ever it did.  In any case, if a winding up order is made against the Company, the liquidation will be conducted by an officer of the court and will not be under the direction and control of Mr Beran.

Clause 4 of the PPA
109.	There is also an issue under clause 4 of the PPA.  Mr Jakeš contends that since the claim of Lacontha against the Company is limited to the net asset value of the Company, Lacontha should not be able to petition on the basis of  alleged insolvency.  This is not an attractive proposition if, as he has sometimes contended, the Bearer Shares belonged not to the Company but to himself and Mr Nestarec (or to BGCL or Allen Brown LLC).  The proposition comes to this: by disposing of its assets at undervalue and thus almost certainly improperly, the Company thereby reduced its net assets so that Lacontha’s claim must be correspondingly reduced and, once reduced, the Company is no longer insolvent.

110.	Not only is the contention unattractive, it is, I consider, wrong.  Clause 4 of the PPA is focusing principally on the debt (stated to be CZK4.3.billion – although in error this is stated as “million” rather than “billion” at the end of clause 4).  It does not suggest that the full amount of the debt is not what is properly due; what it does is to restrict Lacontha’s recovery to the net asset value.  This restriction is in any case not well drafted.  The net asset value is, one might think, the amount of the assets after taking account of the liabilities; but clearly that makes no sense at all if the debt itself is treated as one of the liabilities.  Further light is thrown on the meaning of net asset value when it is seen that liability is limited to the net amount received from a sale of all the assets after payment by the Company of liabilities incurred in the ordinary course of business.  Exceptional items, not incurred in the ordinary course of business, would not therefore seem to be taken account of in assessing the net asset value.  

111.	The final sentence of clause 4 also throws light on the effect of clause 4 as a whole.  That sentence prohibits Alincon from seeking redress against the directors if the full amount of the debt is not recovered; Alincon is not to approach the directors “to obtain settlement of any amount outstanding”.  This appears to recognise that the full amount of the debt is an obligation unless and until discharged in full.  The real intent and purpose of clause 4 is to restrict Lacontha’s recovery in order that other ordinary creditors are paid in full.  In other words, clause 4 is in effect a simple agreement which purports to subordinate Lacontha’s debt to the debts of ordinary creditors.  If, apart from clause 4, the Company would be unable to pay its debts for the purposes of section 122(1)(f) Insolvency Act 1986, I do not consider that the cap on Lacontha’s recovery alters that result.

Arbitration
112.	The next point concerns arbitration.  The PTOA and the PPA both contain arbitration clauses.  Mr Alexander says that the Company has in fact commenced arbitration at the International Arbitration Centre of the Austrian Federal Economic Chamber.  Mr Alexander does not seek a stay of the Petition under the Arbitration Act 1996 – a winding up petition is probably not, in any case, covered by the arbitration clauses in the present case: see Best Beat Ltd v Rossall [2006] EWHC 1494 (Com) - but submits that the court should, in its discretion, dismiss the Petition on the basis that matters should be dealt with in Vienna.

113.	The arbitration referred to was commenced by notice of arbitration on 5 November 2009.  This was, so far as I can see, invalid since only the provisional liquidator could have taken the necessary steps to commence arbitration.  Given that no arbitration is in fact validly on foot, I would not dismiss the Petition in the exercise of my discretion on the basis for which Mr Alexander contends.

Sham/illegality
114.	The Company also criticises the arbitration leading to the award of nearly CZK4.3 billion.  It is said to have been highly artificial.  Further, the Second Alincon Agreement is attacked as being a sham or as being illegal, purporting, as it does, to create obligations which all the parties must have known at the time when the agreement was entered into could not be discharged.  

115.	The Company accordingly contends that the Second Alincon Agreement was a sham and/or that it was illegal, reliance being placed on Snook v London and West Riding Investments [1967] 2 QB 786 and Hitch v Stone (HMIT) [2001] EWCA Civ 63.  Mr Alexander submits that the Second Alincon Agreement was not binding and that all agreements based on it (including the PPA) must fall (and may themselves be shams or illegal).  He says, no doubt correctly, that a person with an unenforceable debt is not entitled to petition as a creditor. 

116.	He adds that it is not possible to understand the rights and obligations created by the loan agreements without full disclosure and cross examination and a proper understanding of the full factual matrix.  This requires an enquiry which is not appropriate to conduct in the hearing of the Petition – indeed the fact that cross-examination is necessary demonstrates, he suggests, that there is a substantial dispute referring to Re Janeash Ltd [1990] BCC 250 in support.

117.	It has been suggested on behalf of Lacontha that the Second Alincon Agreement does no more than reflect what was always intended namely that the loan arrangements between Navigata and Alincon should precisely mirror those between GBI CZ and Navigata: in other words, the Second Alincon Agreement  should really be viewed, in English law terms, as an out of court rectification of the First Alincon Agreement.  I cannot, on the evidence before me, conclude that that is so.  But what can be said is that the Second Alincon Agreement is intended to put the parties into the same position as they would have been in if the Second Alincon Agreement had been made at an earlier time.  There is, I think, nothing in the Second Alincon Agreement which is a sham in the sense that it attempts to mislead a third party or that the parties intend their arrangements to be other than as set out in the agreement.  It may be that, as a matter of law, it was impossible for the parties to agree in the terms which they did given the facts as they existed at the time of the agreement.  But it seems to me that the agreement is exactly the reverse of a sham.  In a case of sham, the parties enter into an agreement which is intended by them to give the appearance of creating legal rights and obligations different from the actual legal relations (if any) which the parties in fact intend to create.  In the present case, I am sure that the parties intended to create the legal relations which the Second Alincon Agreement appears to create: the only question is the effect of the agreement they have in fact created in the light of the actual facts as they existed at the time of the agreement.  I do not see any issue of sham arising.  Nor for that matter do I understand how any issue of illegality arises.  

118.	Although the Mandate Agreement was terminated as long ago as 25 May 1998, it was GBI CZ’s position at the time (and remained so certainly up to the date of the Second Alincon Agreement) that it was only the Mandate Agreement which was terminated, leaving the Agreement for Future Leasing on foot.  GBI CZ itself was looking for an alternative partner to continue with the construction of the Storage so that financing would still be needed.  It is only comparatively recently that the Czech court has ruled that the Agreement for Future Leasing automatically came to an end as a result of the termination of the Mandate Agreement; and even today I do not understand there to be any ruling of the Czech court that the result of the termination of all of the agreements is that GBI CZ has no claim for monetary compensation.  Further, at the time of the Second Alincon Agreement, Navigata clearly considered that it had a claim against GBI CZ; Navigata quite probably felt vindicated in that view as a result of the subsequent arbitration award.  

119.	At the time of the Navigata Agreement, Navigata was a wholly owned subsidiary of Alincon.  The agreement can be seen as a method of extracting value from Navigata to its parent, Alincon.  Subject to any (Jersey) company law issues which might render the Second Alincon Agreement void or voidable at the instance of a liquidator of Navigata as a contract at an undervalue, I see no objection to the Second Alincon Agreement having retrospective effect as between the parties.  In essence, the Second Alincon Agreement is to have the same effect between the parties as if it had been made at the date from which it is expressed to take effect.  The provisions within the Second Alincon Agreement for the purchase of the receivables (ie the claim against Transgas) for CZK1.9 billion are, it seems to me, perfectly valid contractual provisions subject to being set aside by a liquidator of Navigata.  Since the receivables could not, in fact, be transferred, Alincon asserted a claim for damages for breach of contract matching Navigata’s own claim against GBI CZ, in the sum of CZK4.3 billion.

120.	The possibility of such a challenge by a liquidator has, however, disappeared.  As a result of the PTOA and its acceptance by Alincon, Navigata’s liability under the Second Alincon Agreement was transferred to the Company.  Although Navigata agreed a consideration of the same amount (CZK4.3 billion) for that transfer, Navigata was entitled, under the AAR, to meet its payment obligation by off-setting it against the Company’s own obligation to pay the same amount to Navigata for an assignment of Navigata’s claim against GBI CZ (as quantified by the arbitration award).  

121.	Accordingly, I reject Mr Alexander’s submission that the Second Alincon Agreement is invalid, at least insofar as it creates an obligation on Navigata to assign the receivables from Transgas to Alincon.

122.	I should add this.  In order for the Company (or indeed Mr Jakeš and Mr Nestarec) to establish beneficial ownership of the Bearer Shares, it (or they) would have to rely on the validity of the Share Sale Agreement.  For reasons which appear below, the Share Sale Agreement can be valid only if the Second Alincon Agreement is valid.  Accordingly, if it really is part of the Company’s case that the Second Alincon Agreement is invalid, it has to accept that it does not own the Bearer Shares beneficially (and similarly, Mr Jakeš and Mr Nestarec have to accept that they do not own them either).  I do not consider that it is open to the Company both to claim that it owns the Bearer Shares and thus has a valuable asset to be brought into account in assessing its solvency and at the same time assert that the Second Alincon Agreement is invalid.  Accordingly, the assertion that the Second Alincon Agreement is indeed invalid has, as will be seen, a direct impact on the solvency of the Company.  

123.	Having rejected all of the attacks made against Lacontha, it follows, in my judgment, that Lacontha is a creditor of the Company for the purposes of section 124 Insolvency Act 1986 by virtue of the second debt claimed in the Petition, namely a claim for damages for breach of Clause 3 of the PPA.
The solvency of the Company
124.	Lacontha claims that the Company is unable to pay its debts for the purposes of section 122(1)(f) Insolvency Act 1986.  Although the current value of the New Bearer Shares is not clear, they almost certainly have a significant value, possibly of some  millions of £’s.  But whether that is right or not, the original Bearer Shares have already produced a capital payment of CZK107 million (say £3.7 million).  Accordingly, if Lacontha has a claim for damages at all, it is a claim for in excess of £3.7 million and quite possibly, on the evidence which I have seen, in the region of £6 million.  This is so even if the Transgas claim truly has a zero value.

125.	Mr Tamlyn says that if the Company is liable in that way, it is clearly insolvent on both a cash-flow and a balance sheet basis.  He says that Mr Jakeš’ current stance – that the Bearer Shares (and the property now representing them) are likely to be held on behalf of the Company – does not affect this conclusion.  He says that unless and until the New Bearer shares and the proceeds of the capital distribution are placed into safe keeping, and while they remain in Mr Jakeš’ hands, they are not in any proper sense an asset of the Company.  I will return to that submission in due course; but for the moment, I wish to consider the question of the Company’s solvency on the footing that the New Bearer Shares and the CZK107 million belong to the Company. 

126.	The last audited accounts of the Company are for the year ending 31 December 2006, signed by Mr Martin on 27 September 2007.  The principal activity of the Company is shown as “that of an investment holding company”.  Aside from cash at bank of £20,815 and a £1 debtor, the sole asset is “Investments” of £98,850,454.  Note 5 to the accounts states that the investment comprises a holding of 96.62% of the issued share capital of GBI CZ (ie the Bearer Shares).  Note 5 also states that no consolidated accounts have been prepared (ie with GBI CZ) as the directors consider that “as the shareholding is held subject to a put and call option with a third party, control of [GBI CZ] is significantly impaired”.  The reference to the put and call option must be a reference to clauses 2 and 3 of the PPA providing for satisfaction of Lacontha’s right to the Payable by the transfer of the Bearer Shares.  

127.	Creditors where amounts fall due within one year are shown at £98,869,274.  Note 7 to the accounts breaks this down into three amounts, the first of which is a debt of £98,850,921.  That can only be the Payable under the PPA on the assumption that its amount is CZK4.3 billion.

128.	Note 1 to the accounts records that the Company is dependent on the continued support of its shareholder to enable it to continue operating and to meet its liabilities as they fall due.  It also records that the shareholder has agreed to continue to provide financial support.  It was on that basis that the directors had prepared the accounts on the going concern basis.  The implication, of course, is that absent that support, the Company would not be able to continue operating.

129.	Since the date of those accounts, the Bearer Shares have been cancelled and replaced by the New Bearer Shares and the sum of CZK107 million.  There is nothing to suggest that the Company has any significant assets today other than the New Bearer Shares and the CZK107 million.  On the liabilities side, the £98,848,274 may need adjustment to reflect changes in exchange rates.  The figure should, perhaps, not be based on the CZK4.3 billion figure since that is not, or may not be, the amount due as damages for breach of the Second Alincon Agreement.

130.	However, whatever the balance sheet might show in terms of the attribution of values to the Bearer Shares and the debt, the real economic position of the Company must take account of all of the provisions of the PPA.  In particular, assuming Lacontha’s damages claim discussed above to be a good claim, the solvency position of the Company is revealed by ignoring altogether the New Bearer Shares and the CZK107 million as assets and ignoring the Payable under the PPA as a liability.  

131.	The current financial position of the Company is then as follows.  

i)	The only asset is cash at the bank of about £77,000 according to the information obtained from the provisional liquidator (and which has not been challenged by the Company).

ii)	Lacontha’s position before me – it will be remembered that Mr Nemec and Mr Hales act for Lacontha in these proceedings and may not have as much information from the board of Lacontha as they would like – is that £74,000 remains unpaid in relation to an interim costs order made by Kitchin J on 3 September 2008.  That formed part of a wider costs order relating to other applications (the Discharge Application and Strike Out Application filed by the Company referred to later and the application by Lacontha to appoint provisional liquidators). 

iii)	As to the interim order, Lacontha wrote to the Company on 2 October 2009, stating that this costs order “has been settled and discharged by [the Company] in the manner agreed with [Lacontha]”.  Mr Jakeš refers to this letter to demonstrate that the £74,000 has been discharged.  However, Mr Jakeš claims that “the circumstances in which that money was paid are privileged” and enquiries made of Lacontha by Nabarro on this issue remain unanswered.  It is apparent that any such payment as has been made was in the context of settlement negotiations which have not yet resulted in any agreement.  It may well be that any payment has been made conditionally.  The evidence is very unsatisfactory.  In any case, Lacontha’s solicitors claim the sum of £186,803.97 for these costs.  If one deducts the £74,000, the outstanding costs claimed against the Company are £112,803.97.  Even allowing for any reduction on assessment, Mr Tamlyn submits that this is likely to exceed the Company’s sole asset of £77,000.  That, it seems to me, is quite likely to be true.

iv)	Bacha & Bacha and Stirling Corporate Management Ltd, the person who provided the services of Stella Directors (UK) Ltd and Stella Secretaries (UK) Ltd claim substantial unpaid fees.  The amounts claimed (albeit not yet accepted by the Company or the provisional liquidators as justified) are just under £218,000 and £106,000 respectively.

v)	The provisional liquidators will no doubt have incurred significant costs which, prima facie, will be payable out of the assets of the Company under rule 4.30(3) of the Insolvency Rules.  Although the court has power to make a different order if the petition is dismissed, ordering Lacontha to pay the costs.  Mr Tamlyn submits with some justification I think that such an order is unlikely to be made.  

vi)	The Company, through White & Case, have informed Lacontha that their costs of opposing the petition are likely to be between £410,000 and £470,000.  

vii)	On 28 September 2009, the Company made an application for security for costs against Lacontha on the basis that the Company was liable for those costs.  Mr Jakeš has told the court that the Company has withdrawn its application for security.  One would therefore expect the Company to be liable for Lacontha’s costs of that application.

132.	Although I do not have precise figures under ii), iii), iv), v), or vii), I am satisfied that the Company is insolvent by virtue of section 123(2) Insolvency Act 1986 (liabilities exceed assets).  It seems to me that even making generous allowance to the Company in respect of the balance of costs under iii) and the claims under iv), the overwhelming probability is that the total of those amounts will exceed £77,000.  The position is a fortiori given the likelihood that Lacontha will recover costs in respect of the application for security for costs.  Whether the Company is unable to pay its debts as they fall due within section 123(1)(e) is less clear.  

133.	This makes it unnecessary, strictly, to consider Mr Tamlyn’s submission that the Bearer Shares (and now the New Bearer Shares together with the cash of CZK107 million) should not be shown as assets of the Company unless and until Mr Jakeš returns them to the Company.  However, it can be argued that Mr Jakeš cannot have it both ways.  He cannot both say, as he now does, that the Bearer Shares may well belong to the Company but refuse to hand them over to the provisional liquidator and at the same time say that they should appear in the balance sheet of the Company when it comes to assessing solvency.  I think that that there is considerable force in that argument.  But that does not mean the Bearer Shares should not be reflected at all in assessing solvency since the Company has a claim that the shares should be handed over.  Nonetheless, it would not be right to include the New Bearer shares and the cash sum at full value; the balance sheet of the Company has to be seen as weaker than it would be if the property had been handed over.  

134.	There is another consequence of the retention by Mr Jakeš of the New Bearer Shares and the cash.  Those assets cannot, so long as he retains them, be used to meet the liabilities of the Company.  It must cast serious doubt on whether the Company is able to meet its debts as they fall due.

135.	I am satisfied that Lacontha is a creditor of the Company by virtue of the second debt on which the Petition is based (the damages claim under the PPA) and that the Company is unable to pay its debts for the purposes of section 122 Insolvency Act 1986.  In my judgment, this is a case where I should make a winding-up order.

Alternative ground for relief
136.	Mr Tamlyn submits that even if the debt is bona fide disputed on substantial grounds (for instance, if I had declined to determine the effect of the Second Alincon Agreement or the limitation issue and had decided that the points were subject to bona fide dispute on substantial grounds), I should nonetheless make a winding-up order.  The authorities which I have mentioned when dealing with the law indicate that the court would have jurisdiction to make an order in the present case since, on any view, Lacontha has a well-arguable case that it is a creditor by virtue of its damages claim.  I should add that it is also clearly a creditor by virtue of the outstanding amount which, when assessed, will be due under the cost orders of Kitchin J.  The issue is whether the facts of this case fall within the exceptional circumstances which need to be found if a winding-up order is to be made on the basis of a disputed debt.  In order to deal with that submission, I need to say a bit more about the evidence.

137.	There has been a large amount of evidence produced by way of affidavit and witness statement in these proceedings, both in relation to the Petition and in relation to the application for the appointment of provisional liquidators.  I do not propose to review the evidence generally, but there are some observations I must make.  The first is that some of the evidence filed on behalf of the Company is misleading at best and dishonest at worst.  Mr Jakeš and Mr Nestarec have sought to distance themselves from what has been said by others and which they say they believed to be true when the evidence was produced.  They themselves may well be telling the truth and I make no suggestion that their own evidence is deliberately misleading or dishonest.

138.	Let me give one important example, in relation to which it is necessary to relate some of the history of these proceedings.  

139.	On 12 August 2008, Lacontha applied to Mann J. for the appointment of provisional liquidators.  He ordered their appointment, but suspended the appointment until 1 pm on 15 August 2008 to allow the Company to apply to discharge if it thought fit.

140.	On 15 August 2008, the Company, acting by Miller Rosenfalck LLP, issued an application to discharge the appointment or further suspend its effect (“the Discharge Application”).  The Company applied to Mann J. by counsel to further suspend the appointment.  Under questioning from the Judge, counsel for the Company disclosed that the Company no longer had the Bearer Shares, but he had no instructions as to what had become of them.  This was the first time that Lacontha had been told that the Company no longer held the Bearer Shares.

141.	Mann J. further suspended the appointment until 22 August at 4.30 pm, adjourned the Discharge Application to the same day, and gave directions for evidence.

142.	Mr Stuart Miller, of Miller Rosenfalck LLP, made a witness statement dated 19 August 2008 but this contained no information as to the Bearer Shares.  It sought further time for evidence.

143.	On 22 August 2008, the Discharge Application came before Peter Smith J.  The Company, by Leading Counsel, applied for further time to put in evidence, and the further suspension of the appointment of the provisional liquidators in the meantime.  The Judge adjourned the Discharge Application to 3 September 2009, to be heard along with any application the Company might make to strike out the petition.  He suspended the effect of the appointment of provisional liquidators to that day, and gave directions for evidence.

144.	The Judge also ordered the Company to file an Affidavit to be sworn by a proper person authorised by the Company, who has first made a proper enquiry of all relevant persons, setting out to the best of the deponent’s knowledge and belief when the Company disposed of the Bearer Shares, and what had become of the Bearer Shares, and exhibiting all documents in the Company’s possession, custody or control relating to these matters.  

145.	On 28 August 2008, an Affidavit of a Jan Gajan was served on Lacontha in purported compliance with the Judge’s Order for an Affidavit of disclosure.  Mr Gajan stated that he was a duly qualified lawyer and partner in the Slovak firm of HMG & Partners, instructed to advise and assist the Company in the proceedings. The Affidavit was said to have been made on instructions from and having made specific enquiries with Stella Directors (UK) Limited acting through its representative, Mr Hishan Jackaria, as well as Messrs Straka and Zak.

146.	The Affidavit referred in various cases to Mr Gajan’s “clients”.  He claimed that he could not disclose their names by reason of obligations of professional secrecy.  It is now known that the clients were Mr Jakeš and Mr Nestarec.  Mr Gajan stated that he had been informed by Mr Jackaria that the Company had disposed of the Bearer Shares by way of two written agreements (which I have already referred to) each dated 7 January 2008 to BGCL.  These documents were not exhibited.  Mr Gajan stated that the documents could be provided “...as soon as the director returns to his office since according to my information he is outside the UK now.  I believe he is returning next week.”  Mr Gajan stated that Mr Jackaria had confirmed to him that Mr Jackaria negotiated the sale documentation, and that his negotiating partner was a Mr David Ogiamien of BGCL.  Mr Jackaria had handed over the Bearer Shares “on the date of signature”.  Mr Jackaria had told Mr Gajan that he had not had the Bearer Shares in his possession, custody or control since 7 January 2008, that he was unaware of their whereabouts since that date, and did not know who has had possession, custody or control of the Bearer Shares at any time since 7 January 2008.

147.	On 28 August 2008, the Company issued and served an application to strike out the petition (“the Strike Out Application”).

148.	Dissatisfied with Mr Gajan’s Affidavit, Lacontha applied to Peter Smith J. on 29 August 2008 for further disclosure.   The Company defended the application by Leading Counsel.  His skeleton argument gave evidence as to the non-disclosure of the 7 January agreements.  It stated that “...Mr Jackaria, the representative of the Company’s sole director, is travelling at the moment and he will return to his office next week, when the documents can be produced”.  The Judge made an Unless Order for the Company provided certain information to Lacontha by 4 pm on Saturday 30 August 2008 by an Affidavit sworn by Mr Jackaria, failing which the Discharge Application and the Strike Out Application were to be struck out and the suspension of the appointment of provisional liquidators lifted.  The information to be provided was the identity of the current beneficial owner of the Bearer Shares, the share sale agreement (including the consideration and how much had been paid) and the identity of the ultimate beneficial owners of the Company.  All relevant documentation was to be disclosed.  A costs order was made against the Company on the indemnity basis in relation to Lacontha’s application to lift the suspension of the appointment of provisional liquidators and on the standard basis in relation to Lacontha’s application for further disclosure.

149.	On Saturday 30 August 2008 Nabarro received a fax from Addleshaw Goddard who had been instructed by Mr Jackaria.  The fax enclosed a signed but unsworn Affidavit of Mr Jackaria.  This made clear that the information in Mr Gajan’s Affidavit concerning the Bearer Shares was very substantially fabricated.  Mr Jackaria had no personal knowledge of any share transfer.  He had not transferred any share certificates to anyone.  He had never had any contact with Mr Ogiamien.  He had been taking instructions from a Mr Martin Stefanik.  Mr Stefanik had told Mr Jackaria’s colleague, Mr Yogen Bacha, on 18 August 2008 that the “ultimate beneficial owners” of the Company wanted to do a share transfer.  Mr Bacha and Mr Jackaria should travel to Vienna to execute the paperwork.  That journey never took place.  Mr Jackaria had not been outside the UK.  He had been in the UK working from his usual office and was contactable.  The ultimate beneficial owners of the Company were, Mr Jackaria revealed, Messrs Jakeš and Nestarec.

150.	The exhibits to the draft Affidavit included incomplete fax copies of a “Securities Purchase Agreement” and a “Payment and Claim Assignment Agreement” each bearing the date 7 January 2008.   These are the two documents in the trial bundle which I have referred to.  They had been faxed to Mr Jackaria’s office in the evening of 29 August 2008.  This was the first time that he had seen them.  Each was signed by David Ogiamien as managing director of Burns Gordon Chase Limited.  Each included signing details for Hishan Jackaria which he never did.

151.	It can be seen therefore that Mr Gajan’s evidence was quite simply wrong.  Mr Stefanik had asked Mr Jackaria to confirm something which both of them knew was wrong and Mr Jackaria did so (although he now repents of what  he did).  Mr Jakeš and Mr Nestarec say that they knew nothing about what had actually happened (or not happened) on the ground and simply left everything to others.  

152.	I agree with Mr Tamlyn (who appears for Lacontha) that if the 7 January 2008 agreements were genuine, they were plainly designed to extract the Bearer Shares from the Company for no good consideration if the Company’s own evidence that the claim against Transgas had a zero value is to be accepted.  

153.	Mr Tamlyn further submits that, even if the litigation claim had value, the 7 January agreements were still a fraud on the Company.  The claim was being pursued by GBI CZ.  The Company owned 96.62% of the shares in GBI CZ.  If Transgas was held liable in the litigation, or settled it, the proceeds would ultimately benefit the Company.  So there was no possible commercial purpose in the Company transferring the Bearer Shares, and then paying £1.7 million for the benefit of the litigation claim.  £1.7 million is, it will be remembered, the difference between the £3.5 million being paid for the Bearer Shares and the £5.2 million being paid for an assignment of the Transgas claim.  That seems to me to be correct.  Moreover, I would add that if GBI CZ had value over and above the value of its claims against Transgas, as it appears it did, that value would pass to BGCL for no, or no adequate, consideration.

154.	The Company had failed to comply with the Unless Order.  Mr Jackaria’s Affidavit was served late, if nothing else.  Hence, the Discharge Application and Strike Out Application were automatically struck out, and the suspension on appointment of provisional liquidators lifted.

155.	Miller Rosenfalck LLP resigned as solicitors for the Company on 1 September 2008.  They came off the record by Order of Master Mark dated 3 September 2008.  Stella Directors (UK) Limited and Stella Secretaries (UK) Limited resigned as director and secretary of the Company on 2 September 2008.  On the same day as they resigned, Messrs Jakeš and Nestarec decided to dismiss Mr Jackaria and the Mauritian directors on the basis that their services had “not been provided with standard professional care”.

156.	3 September 2008 had been fixed for a one day hearing of the Discharge Application and Strike Out Application.  The hearing took place but the Company was not represented.  By Order dated 3 September 2008, Kitchin J. confirmed the appointment of the provisional liquidators and set out their powers.  He also ordered the Company to pay Lacontha’s costs of the Discharge Application and Strike Out Application on the indemnity basis, and Lacontha’s costs of the application to appoint provisional liquidators on the standard basis.  The Company was to make a payment on account in a sum of £74,000.  

157.	On 18 November, Mr Jakeš made his second Affidavit in these proceedings.  In it, he states that he and Mr Nestarec “are the current beneficial owners of the 43 bearer shares”.  This seems to be a recognition that their previous position that the Bearer Shares were owned by Alex Brown LLC was wrong and that the agreements which appear to transfer beneficial ownership to BGCL and then to Alex Brown LLC were ineffective; or, if they were effective to transfer title to the Bearer Shares, those entities hold as nominees for Mr Jakeš and Mr Nestarec.  

158.	It is not at all easy to see how Mr Jakeš and Mr Nestarec can possibly be the beneficial owners of the Bearer Shares.  The various agreements which I have considered in some detail and the surrounding facts point almost inevitably to the conclusion that the Bearer Shares belong beneficially to the Company (subject, I should add, to the application of the relevant foreign law applicable to each agreement producing a different result).  Mr Alexander agreed that it may well be, it is perhaps even likely, that the Bearer Shares do belong to the Company and acknowledged that Mr Jakeš and Mr Nestarec accepted that that might be so.  However, he was not really able to explain how the view that Mr Jakeš and Mr Nestarec owned the shares might be correct.  Their position, so far as it could be articulated by Mr Alexander, was that they owned the Company and therefore they owned the Bearer Shares.  This apparent refusal by Mr Jakeš and Mr Nestarec to recognise the elementary point of English company law that shareholders do not own the assets of the company is surprising.  It does not excuse, in the absence of the presentation of even an argument to the contrary, their retention of the Bearer Shares which seem to me clearly to belong to the Company assuming the validity of all the documentation to which I have referred and in particular the Second Alincon Agreement.

159.	In my judgement, there are exceptional circumstances in the present case which justify the making of a winding-up order even if there were a bona fide dispute about the second debt on which the Petition is based.

160.	Firstly, the Company would appear to be insolvent even if the debt were not owed to Lacontha.  

i)	The only reason which, in my view, could give rise to any doubt about the debt is the possible invalidity of the Second Alincon Agreement since it is only that which would lead to the conclusion that the PPA itself was invalid.  I therefore propose to look at the consequence of such invalidity.

ii)	If the Second Alincon Agreement is invalid, then Alincon never had a damages claim against Navigata.  The PTOA would then have been based on a fundamental misconception, namely that Alincon did have a claim against Navigata.  In reality, there would have been no liability for the Company to take over from Navigata and Navigata’s apparent obligation to pay CZK4.3 billion under the PTOA would have arisen for no consideration.  I doubt very much that Dutch law would, in that case, say that the PTOA had any effect at all.  

iii)	In those circumstances, not only would the provision for set-off in the PTOA have no effect but the provision for set-off in the AAR would have nothing to bite on.  That would mean that the Company would remain liable to pay Navigata CZK4.3 billion in return for the benefit of the arbitration award against GBI CZ.  It seems to me improbable that the AAR would, in these circumstances, have any effect either.  The AAR and the PTOA were clearly part of a suite of agreements.  Were the matter governed by English law, I have no doubt that the invalidity of the PTOA would also entail the invalidity of the AAR.  I doubt that Dutch law would come to a different conclusion and, in the absence of any contrary evidence about Dutch law, I must assume that Dutch law is to the same effect as English law.  

iv)	The conclusion that the AAR is invalid is reinforced when the terms of the MCOSA are considered.  That agreement goes to emphasise the relationship of the AAR and the PTOA and gives support to the conclusion that if one of the agreements falls away, the other must fall away too.

v)	What then is the effect of the Share Subscription Agreement and the Set-Off Agreement in the light of the invalidity of the AAR and the PTOA?  The Share Subscription Agreement and the Set-Off Agreement both proceed on the basis that the Company is the owner of the debt owing under the arbitration award.  But if the AAR is invalid, that is a fundamental misconception. 

vi)	In that case, the likelihood must be (although this is a matter for Czech law) that the Share Subscription Agreement is of no effect.  Certainly the Set-Off Agreement must be invalid because one element of the set-off – the benefit of the arbitration award – was not vested in the relevant party, the Company.  So far as concerns the Share Subscription Agreement, one of its stated objectives was to enable GBI CZ to free itself of its debt (ie the damages claim by Navigata) with the intention of strengthening its financial situation; the Share Subscription Agreement was, it can be seen, also made under a fundamental mistake on the part of both parties.  

vii)	I do not know how Czech law would deal with this situation, but it is inconceivable to me that it would regard the Bearer Shares as validly issued to the Company as beneficial owner. Presumably the Czech court would consider that the Bearer Shares should not have been issued to the Company at all.  I imagine that one result would be for the shares to be cancelled.  In that case, GBI CZ would remain liable to Navigata under the arbitration award and the owners of the shares in GBI CZ prior to the issue of the Bearer Shares would own that company to the exclusion of the Company.  Alternatively, since everyone involved has treated the Bearer Shares as properly issued in consideration of the discharge of GBI CZ’s obligations to meet the arbitration award, the person providing that consideration should be treated as the owner of the Bearer Shares.  That person is Navigata on the basis that the AAR is invalid.  It is difficult to see how the Company could claim to be the beneficial owner of the Bearer Shares whatever the correct analysis. 

viii)	Accordingly, if the Second Alincon Agreement is invalid, the New Bearer Shares and the cash distribution of CZK107 million do not form part of the assets of the Company although nor should the obligation in respect of amounts owing under the PPA form part of its liabilities.  If those items are left out of account, the Company is balance sheet insolvent.  Its only asset is the small balance on current account at the bank; its liability for costs to Lacontha even treating the £74,000 interim award as having been satisfied, are likely to exceed that amount.  But even if that is wrong, the claims of Bacha & Bacha and Stirling Management Ltd – even if heavily discounted – together with Lacontha’s costs claims show that the Company is clearly insolvent.

161.	Secondly, although Lacontha would not be a creditor by reason of the second debt relied on in the Petition, it would be a creditor in relation to its unpaid costs.  If, contrary to my view, the Second Alincon Agreement is invalid, Lacontha nonetheless remains a creditor and the Company is insolvent.  It might well be appropriate, in those circumstances, to allow Lacontha to amend the Petition even at this late stage but, even if there are difficulties with that, the facts that Lacontha is a creditor on any footing and that the Company is insolvent are factors to be taken into account in assessing the exceptional circumstances which justify a winding-up order even in the case of a disputed debt.

162.	Thirdly, no prejudice would be caused to the Company if a winding-up order were made.  The Company’s only function was to hold the Bearer Shares.  If it is correct that the Second Alincon Agreement is invalid, the Bearer Shares do not belong beneficially to the Company at all.  The Company is effectively dormant.  It is in this context that the observations in Brinds to which I have referred are of some relevance.  

163.	Fourthly, and most importantly, Lacontha is without an adequate remedy unless a winding-up order is made.  If the Petition is dismissed, the provisional liquidators will be discharged.  The liquidation of GBI CZ will continue and further distributions will be made to Mr Jakeš and Mr Nestarec as holders of the New Bearer Shares.  They will be able to deal with those further distributions and the CZK107 million already distributed without fear of action from the Company of which they are the shareholders and controlling minds.  In practice, no-one will assert the claim of the Company to the Bearer Shares so that if and when Lacontha eventually established the correctness of its claim that the Second Alincon Agreement is valid and that it is entitled to substantial damages from the Company, there will be no assets left.  As between the Company on the one hand and Mr Jakeš and Mr Nestarec on the other hand, the Company must, in my view, be entitled to the Bearer Shares; it may be that they belong to a third party on the basis of the invalidity of the Second Alincon Agreement;  it is not, however, open to Mr Jakeš and Mr Nestarec to deny the title of the Company under the Share Subscription Agreement.  It is quite clear that the Company will not assert that claim against them, since they control the Company, if the Petition is dismissed.

164.	It might be said that Lacontha could achieve continuing protection (similar to that afforded by the appointment of a provisional liquidator able to seek appropriate injunctive relief against Mr Jakeš and Mr Nestarec) by invoking the Chabra jurisdiction to obtain direct relief against Mr Jakeš and Mr Nestarec.  That possibility is one which I would bring into the balance in deciding whether or not to make a winding-up order on the basis of exceptional circumstances, but I see no reason why Lacontha should be compelled to adopt that course when a winding-up order would achieve better justice for it.  In particular, the Company (through its liquidator) would be able to assert the Company’s claims in other jurisdictions, something which Lacontha would have great difficulty itself doing and, indeed, may not be able to achieve at all.

165.	Fifthly, the practical advantage of a winding-up is that a liquidator will be able and willing to assess not only Lacontha’s claims but also the consequences of the invalidity of the Second Alincon Agreement, being able to form a view about the correctness or otherwise of my analysis of those consequences after taking appropriate foreign-law advice.  All of these issues, if they remain issues at all, would best be resolved within the context of a winding-up of the Company.

166.	An alternative would, I suppose, be to leave the Petition on foot with a provisional liquidator in place until resolution of all the issues which need to be determined as between all those concerned.  I cannot see that that has any advantage for any party or any merit as compared with an immediate winding-up.

167.	I would therefore order the Company to be wound up even if I considered, which I do not, that there is bona fide dispute on substantial grounds about the existence of the second debt on which the Petition is based.

168.	For completeness, I add that I am willing to hear, when this judgment is handed down, an application to amend the Petition to rely on the outstanding costs liability of the Company to Lacontha as a debt on which to found the Petition.  For reasons given, I am satisfied that, assuming the Second Alincon Agreement is invalid, the Company is insolvent.

Conclusion
169.	Lacontha has established that it is a creditor in respect of the second of its petition debts.  The Company is insolvent.  A winding-up order should be made.  Even if the debt were the subject matter of a bona fide dispute on substantial grounds, the case displays exceptional circumstances which would justify the making of a winding-up order and I would exercise my discretion to make one.
1.