Summary of Court Opinion

Factual and Procedural Background

The Petitioner sought a winding up order against the Respondent. After the petition was served on the Respondent, an individual associated with the Respondent (hereafter referred to as "Party"), its director and a shareholder, applied to appear as a lay representative under section 97 of the Courts Reform (Scotland) Act 2014 and the Act of Sederunt (Lay Representation for Non-Natural Persons) 2016. An initial motion by the Party was refused on 4 October 2025. The Party then lodged a further motion with additional material and a hearing was fixed for 11 November 2025. The Petitioner also enrolled a motion to have the prayer of the petition granted once notice under the petition had expired. At the hearing the court considered the Party's material, whether it demonstrated a change in circumstances, and submissions from the parties. The court undertook to set out reasons for its decisions in this Opinion.

Legal Issues Presented

1. Whether permission should be granted under section 97(3) of the Courts Reform (Scotland) Act 2014 to permit a lay representative (the Party) to conduct proceedings on behalf of the Respondent—specifically whether the Party is a "suitable person" in light of any "personal interest" under section 97(4)(d) and whether it would be in the interests of justice to grant permission.
2. Whether the debt claimed in the statutory demand is disputed on reasonable grounds such that the winding up petition should be dismissed, or whether the Petitioner has established that the Respondent is unable to pay its debts within the meaning of the Insolvency Act 1986.
3. Whether the Braganza principle (reviewability of contractual discretion) applies to the lender's discretion under clause 2.2 of the parties' investment/loan agreement and, if so, whether that discretion was exercised arbitrarily, capriciously or unreasonably.

Arguments of the Parties

Petitioner's Arguments

• The Petitioner relied on a statutory demand served on the Respondent and contended that the failure to pay within the prescribed period meant the Respondent was unable to pay its debts under the Insolvency Act 1986 (section 122(f) and section 123(1)(a)).
• The Petitioner maintained that, on the terms of the investment/loan agreement, the repayment period had commenced because no notice under clause 2.2 had been served and therefore instalments were due; default justified calling the whole loan for repayment.

Respondent's (Party's) Arguments

• The Party contended there had been no default because the repayment period had not commenced; specifically, clause 2.2 required the Petitioner to give written notice during the extension period to commence consultation and no such notice had been served.
• The Party argued that the lender's discretion under clause 2.2 was not unfettered and that a duty of review analogous to the principle in Braganza applied—such that the Petitioner was bound to have given the notice in specified circumstances.
• The Party advanced contextual points about the Petitioner, including its public-sector backing and its stated focus on accepting credit risk for innovative businesses, to support the contention that the Petitioner should have exercised its discretion differently.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hastings v Day 41 Ltd [2025] SAC (Civ) 26	Authority where permission under section 97 was refused in circumstances where the proposed lay representative was a shareholder of the company; treated as indicating a personal/financial interest.	The court noted this decision but observed that in Hastings there were additional difficulties rendering the person unsuitable. The court declined to determine the general question whether shareholding alone constitutes a disqualifying "personal interest" under section 97(4)(d), as it was not necessary to decide that issue for the present motion.
BNY Corporate Trustee Services Limited v Eurosail UK 2007-3BL Limited [2013] UKSC 28	The proposition that if the debt which is the subject of a statutory demand is disputed on reasonable grounds, the petition may be dismissed.	The court applied this principle to frame the enquiry as whether the debt in the statutory demand was disputed on reasonable grounds; this shaped the assessment of the Respondent's prospects of success for the section 97(3)(c) "interests of justice" test and for the petitioner's motion.
Braganza v BP Shipping Limited [2015] UKSC 17	The principle that contractual discretions or opinions may be reviewable and must not be arbitrary, capricious or unreasonable; courts may imply limits into discretions depending on context (e.g., employment contracts and duties of trust and confidence).	The court considered whether the Braganza duty applied to the Petitioner’s discretion under clause 2.2. It distinguished Braganza on the facts, finding the loan/investment context different from the employment/contextual situation in Braganza, and concluded either that Braganza did not apply or, even if it did, there was no basis on the available information to conclude the Petitioner’s decision was arbitrary, capricious or unreasonable.
British Telecommunications plc v Telefonica O2 Limited [2014] Bus LR 765	A statement (Lord Sumption) that in the absence of clear language to the contrary, contractual discretion must be exercised in good faith and not arbitrarily or capriciously; the scope of contractual discretion depends on its nature and construction.	The court cited this authority as part of the Braganza discussion, noting the need to consider the nature of the discretion; ultimately the court found the nature of the lender's discretion in the loan agreement different from the Braganza facts.
Mac Plant Lifting Services v Contract Lifting Services (Scotland) Limited [2008] CSOH 158	The formulation that a petition may be dismissed where "there are substantial grounds for disputing the debt".	The court invoked this standard when concluding that there were not substantial grounds for disputing the debt in the statutory demand, reinforcing the view that the Respondent's prospects of success were poor.

Court's Reasoning and Analysis

The court first addressed the statutory test for lay representation under section 97 of the Courts Reform (Scotland) Act 2014. The court accepted that the Respondent could not afford legal representation (s97(3)(a)). The inquiry as to suitability focused on whether the Party had a disqualifying "personal interest" under s97(4)(d). The court observed that being a director qualifies a person to act as lay representative and that many small-company directors are also shareholders; whether shareholding equates to a disqualifying personal interest is a significant question but was not fully argued and therefore the court declined to determine it in this case.

On the s97(3)(c) requirement that it be in the interests of justice to grant permission, the court had to consider in particular (s97(6)) the prospects of success and the likely complexity. The court was not concerned by complexity but was concerned about the Respondent's prospects of success.

Turning to the substance of the petition, the petition was founded on insolvency grounds under the Insolvency Act 1986 (section 122(f)), relying on a statutory demand under section 123(1)(a). The court applied the principle from BNY/Eurosail that a petition may be dismissed if the debt is disputed on reasonable grounds, framing the central factual/legal issue as whether the Respondent had reasonable grounds to dispute the debt.

The contract between the parties established three periods: availability, extension and repayment. The parties agreed the extension period had begun; the repayment period's commencement depended on clause 2.2, which allowed the lender to give written notice to commence consultation during the extension, potentially converting debt into equity. No notice under clause 2.2 had been served. On a straightforward reading of the agreement, absence of such notice indicated the repayment period had started and instalments were due; the Respondent had defaulted.

The Respondent's proposed defence was that the lender's discretion to give notice under clause 2.2 was constrained—invoking the Braganza line of authority—and that the lender ought to have given notice. The court analysed Braganza and related authority. It distinguished Braganza on material points: Braganza concerned a decision that was akin to determining facts (where a "correct" answer existed) and was situated in the employment context with implied trust and confidence. By contrast, the loan agreement concerned a commercial lender's discretion about repayment structure and conversion to equity, which the court found to be materially different. The court therefore concluded that Braganza did not apply to the present circumstances; and even if Braganza applied, the available information did not show that the lender's decision not to serve a notice under clause 2.2 was arbitrary, capricious or unreasonable.

Accordingly, the court found that the repayment period had begun, instalments were due, default had occurred, and the Petitioner was entitled to demand repayment of the whole sum. The court invoked the standard that there were not "substantial grounds for disputing the debt" and concluded the Respondent's prospects of success were poor. On that basis the court determined it was not in the interests of justice to grant the Party permission under section 97 to appear as lay representative.

The same analysis supported the Petitioner’s motion to grant the prayer of the petition: the court concluded the Petitioner had established that the Respondent was unable to pay its debts within the meaning of section 123 of the Insolvency Act and was entitled to a winding up order.

Holding and Implications

Holding: The court refused the Party's motion for permission to appear as a lay representative under section 97 and granted the Petitioner’s motion to give effect to the prayer of the petition (i.e., a winding up order in respect of the Respondent).

Implications:

• Direct effect: The Respondent will be wound up pursuant to the granted petition; the Party's application to act as lay representative was refused because it was not in the interests of justice, principally due to the poor prospects of success on the substantive defence to the statutory demand.
• Broader precedent: The court expressly declined to decide the general question whether shareholding alone constitutes a disqualifying "personal interest" under section 97(4)(d). The court also distinguished the Braganza principle on the facts of this loan/investment agreement; it therefore did not extend Braganza to require that the lender's commercial discretion in these circumstances be exercised with the same constraints as in Braganza. No novel legal rule was established beyond the court's application of existing authorities to the facts before it.