The case reinforces both the practical value of lodging caveats and the principle that liquidation proceedings are not the correct forum for resolving a genuinely disputed debt.
What is a caveat?
A caveat is a document that can be lodged in the Scottish courts in the name of an individual or a company to act as an early warning mechanism. If another party seeks interim orders, for example an interim interdict (injunction) or initiates insolvency proceedings such as the winding up of a company, the caveat will trigger notification to the caveat holder (the caveator).
Where a caveat is in place, no interim orders will be granted without the caveator being given the opportunity to be heard at a caveat hearing. Without having a caveat, first orders for service and advertisement of insolvency proceedings may be issued without warning, leaving the affected party unaware until it is too late to respond. This early notification allows immediate action and can prevent unfavourable orders from being granted unchallenged.
Parkin v Ayres Wynd Developments Limited: What happened?
Mr Parkin sought to wind up Ayres Wynd Developments Limited (the company) on the basis that the company could not pay its debts as they fell due in terms of section 123 of the Insolvency Act 1986. He was a director and shareholder of the company and claimed it owed him almost £1.4m. As the company had a caveat in place, a caveat hearing was assigned before any orders were granted by the court.
At the caveat hearing, arguments centred initially on standing. The company was already in administration, but the appointment was contested. The putative administrators had filed notice to move from administration to voluntary liquidation. Mr Parkin contended that only the company had a caveat lodged and therefore the directors (as third and fourth respondent) could not address the court. He also argued that because the company was in voluntary liquidation the directors could not instruct legal representation on the company's behalf as the decision-making powers now lay with the liquidator.
Lord Lake rejected the petitioner's arguments. Both the petition process and caveat hearings are public, meaning that anyone present who has an interest in the petition is entitled to be heard. The company's voluntary liquidation was also separately disputed and was the subject of other ongoing proceedings. As such, Lord Lake could not assume that the company was in liquidation as this would essentially determine the outcome of the current petition. By declining to determine the validity of the voluntary liquidation, Lord Lake held that legal advisers for the company were properly instructed.
First orders and a disputed debt
While the Court of Session Rules provide that first orders shall be granted, Lord Lake confirmed that this must be read alongside the Rules as a whole, in particular that a caveat may be lodged against an order for the winding up of a company. Lodging a caveat indicates an intention on behalf of the caveator to be heard and therefore the court, having heard the party, may decide to refuse first orders where appropriate.
On a review of the authorities including Foxhall and Gyle Nurseries Limited, Petitioners and PEC Barr (Holdings) Ltd v Munro Holdings UK Ltd, Lord Lake reiterated that first orders should be granted unless the respondents were bound to succeed in their opposition to the petition. In this regard, Lord Lake relied on Mac Plant Services v Contract Lifting Services, in which Lord Hodge held that a winding up petition was not the process for determining a disputed debt and where the respondent company can show that the debt is disputed in good faith and on substantial grounds the petition will likely be dismissed. The English courts adopted a similar approach in the case of IPS Law LLP v Safe Harbour Equity Distressed Debt Fund 3 LP.
The existence of the debt itself was at the heart of the current petition. Although the petitioner provided evidence of payments made, no affidavit was lodged explaining the basis of the alleged debt or the relevancy of the payments. The company, in contrast, maintained that the debt had been satisfied and produced evidence in support of that position.
The court refused to grant first orders, effectively dismissing the petition. Lord Lake said that this was a "paradigm of where there is a substantial dispute and the matter ought not to be resolved in a petition for winding up."
Lessons learned
This judgment clearly illustrates the value of maintaining caveats. Had the company not lodged a caveat, first orders would likely have been granted without its knowledge and without being given an opportunity to dispute the debt upon which the petition was based.
This article was included in our Litigation in Scotland Report 2026 - read the full report here.
