Corporate Insolvency - Jurisdiction
Jefferies International Limited -v- Landsbanki Islands HF
[2009] EWHC 894
Queens Bench Division: 28th April 2009
Facts:
Landsbanki applied to stay proceedings brought against it by Jefferies International Limited. Following the Government freezing Landsbanki’s assets in the UK, the bank was then granted a moratorium order by the Icelandic Court. Prior to this Jefferies International Limited and the Bank had entered into a form of Security Lending Agreement which contained an English Law and exclusive jurisdiction clause. Jefferies argued that the collapse of the Bank effectively resulted in default under the agreement and a liability on the Bank of around £4.3m. Proceedings were issued which the Bank sought to stay, albeit based on an undertaking that if the claim could not be settled by the process in the Icelandic insolvency regime, the stay would be lifted.
Decision:
If a stay was ordered this would deprive Jefferies of its ability to refer the claim to the court of the jurisdiction agreed between the parties in the Agreement and this would be unjust and contrary to decided authorities. The exclusive jurisdiction clause and the provisions of the Lugano Convention meant that the Bank would have to show exceptionally strong grounds for ordering a stay which did not effectively deprive Jefferies of its chosen jurisdiction. There had to be strong and compelling reasons for a stay to be granted and in this case there was no benefit in a stay where there was no indication of how long the administrative claims process in the Icelandic insolvency would take. The Court therefore took the view that it either did not have the power or should not exercise any power to stay the proceedings in a way which would deprive Jefferies of its rights under the exclusive jurisdiction clause and the Lugano Convention.
Receivership - Construction of a Trust Deed
Re: Sigma Finance Corporation
[2009] All ER (D) 204
Chancery Division: 7th November 2008
This case involved an application by receivers for directions pursuant to section 35 of the Insolvency Act 1986 regarding the proper construction of a particular clause of a security trust deed. The issues involved the construction of the particular clause which is specific to the facts of the case and the Court’s jurisdiction to give directions in the circumstances. The Court confirmed that it did have jurisdiction to construe the relevant provision and did so in a way which arguably rendered other parts of the agreement inappropriate.
Company Voluntary Arrangement - Claims for Rent
Re: Cotswold Co. Ltd.
[2009] All ER (D) 97
Chancery Division: 7th April 2009
Facts:
The CVA for the Company was approved in January 2009. The original proposal for a CVA had been put forward in 2006 and shortly after that time the Company ceased trading. At that point the Company vacated premises owned by the Landlord which had been let for a term of 15 years from March 2003. After the premises were vacated, rent and service charges built up. The Landlord claimed in the CVA for past and future rent and service charges totalling £572,000 and a dilapidations claim. The Landlord received no response and told the Supervisor that he intended to commence proceedings following which a deed of surrender was entered into with the Company and sent to the Supervisor. The Supervisor had not been a party to the Deed and subsequently informed the Landlord that it had effectively extinguished the Lease and therefore that he would only allow £176,000 of the Landlord’s claim representing rent and service charges before the date of surrender. The Landlord applied to the Court under section 7(3) of the Insolvency Act 1986 to set aside the Supervisor’s decision on the grounds that the Deed of Surrender preserved his claim for future rent under the CVA.
Decision:
The Court reversed the Supervisor’s decision on the basis that the CVA was intended to include all of the Landlord’s claims in respect of rent up until termination which included future rent. The surrender of the Lease did not prevent the Landlord claiming for future rent and he had reserved his right to do so under the Deed of Surrender. The purpose of that Deed was to enable the Landlord’s claim to be quantified and by accepting it he had mitigated his claim in respect of future rent under the CVA.
Liquidation - Monies held on Trust
Re: Global Europe Trader Limited
[2009] All ER (D) 297
Chancery Division: 24th March 2009
Facts:
The company in question was a broker for derivatives trading. The business was regulated by the Financial Services Authority and client monies had to be dealt with in accordance with FSA Rules contained in the Client Assets Source book (CASS). The CASS Rules provided for client monies to be held in a segregated account on trust for the client, however, the Company took the view that money from certain clients did not have to be segregated and it was not paid into a separate account. There were two main groups of clients - the first clients whose monies were held in the segregated account and the second clients whose monies were not held in that account. Having gone into administration, the Company then went into liquidation. On the day of the liquidation the company’s bank failed to transfer money into the segregated account to correct a payment which should have been made out of the account. This created a shortfall in the account. The second group of clients argued that they were trust creditors with a proprietary interest in the money that should have been paid into the account and the first group of clients argued that by unsuccessfully transferring the monies a trust of that money had been created in their favour. The liquidators applied to the Court for directions as to how to distribute the assets.
Decision:
As the company had honestly believed, albeit mistakenly, that certain of the monies received were not client monies and had paid them into the company’s own bank account, that money was no longer subject to a trust. The mere fact that the company had failed to treat the money as client money did not create a trust over that money. Regardless of the CASS Rules, money had not been kept in a segregated account and could not be construed as being held on trust. In addition, the failure by the bank to transfer the money as requested could not effectively create a declaration of trust of that money and to seek to construe a trust situation would result in preferences being created for certain unsecured creditors over others.
Winding Up - Public Interest
Secretary of State for Business, Enterprise and Regulatory Reform -v- Amway (UK) Limited
[2009] EWCA Civ 32
Court of Appeal: 29th January 2009
Facts:
The company’s business involved the sale of, inter alia, homecare products involving direct selling techniques. The salesmen arranged for other salesmen to work for them and the company indicated that significant amounts of money together with benefits could be made. A petition for winding up of the company in the public interest was issued on the basis of breaches of the Fair Trading Act 1973, a breach of the Lotteries and Amusements Act 1976 and on the grounds that the business risked causing losses to large numbers of people and so was “objectionable”. The Company however took steps to completely reorganise the way it operated so as to address the Secretary of State’s concerns and argued that the winding up order should not therefore be made. Whilst the Judge took the view that there were no breaches of either the Fair Trading Act 1973 or the Lotteries and Amusements Act 1976 he took the view that the business was inherently objectionable. Having said that the changes that the Company had made to the business remedied the problems in the original business model and the Judge agreed that the petition should be dismissed. The Secretary of State appealed that decision on the basis that if the Judge was satisfied that the original business model was contrary to the public interest then even if the company had changed its ways, the Court had no option but to wind it up.
Decision:
The Court of Appeal agreed with the Judge however and confirmed that the Court had discretion as to whether or not to dismiss the petition and to allow what was fundamentally a legitimate business to carry on the basis that it had taken steps to change the way that it operated.
Liquidation - Disclaimer and Rent
Gabriella Shaw -v- Hazel Doleman
[2009] EWCA Civ 283
Court of Appeal: 1st April 2009
Facts:
In this case there was an assignment of a lease of a retail unit from the original Tenant to the Company. The Company went into liquidation and the Liquidator disclaimed the Lease. When the Lease was assigned the original Tenant and the Landlord entered into an Authorised Guarantee Agreement whereby the original Tenant gave a guarantee in respect of the rent. The guarantee was for the “liability period” which was defined as “the period during which the Assignee is bound by the tenant covenants of the Lease”. The Landlord brought a claim against the original Tenant on the basis of the guarantee and was successful. The original Tenant appealed against that decision arguing that the Liability Period expired when the Company ceased to be bound by the covenants in the Lease ie. on disclaimer as this determined the Company’s liability under the Lease and so her liability under the guarantee.
Decision:
The Court accepted that the effect of the disclaimer was to terminate the Lease and the Company’s liability, however, this did not affect the liabilities of anyone else. This was made clear by section 178(4)(b) of the Insolvency Act 1986. The extent of the Liability Period was linked to whether the Company was bound by the relevant covenants in the Lease, however, the disclaimer did not affect the original Tenant’s liability as Guarantor - although the Lease determined and the Company was no longer liable to the Landlord under the relevant covenants, the Company was still bound by those covenants and therefore the liability period in the guarantee had not terminated.
Liquidation - Injunction to Prevent Hearing of a Petition
Vertex Trading SARL -v- Infinity Holdings Limited
[2009] EWHC 461
Chancery Division: 21st January 2009
Facts:
The case involved an application by a company to restrain the hearing of a winding up petition which had already been advertised. The application was made on the basis that the debt which was the subject of the petition was disputed. The company was in the middle of an appeal against a VAT assessment and was not trading.
Decision:
The judge took the view that whilst there was evidence of a dispute in relation to the debt which was the subject of the petition, the issue as to whether there was a genuine debt could and should be resolved at the hearing of the petition. By the time of that hearing further evidence could be submitted with regard to the alleged dispute and a decision made. The Court also took into account the fact that the company was not currently trading (albeit that it was indicated that once the VAT assessment had been concluded it would continue to do so) and the fact that it was of importance that the petition be brought to the attention of other potential creditors.
Winding-Up – Disputed Debt
Bolsover District Council –v- Dennis Rye Ltd
2009 EWCA Civ 372
Court of Appeal 6th May 2009
Facts:
The key facts in this case are that a local authority presented a Winding-Up Petition against the Company in respect of arrears of Council Tax for various properties and penalty charges. The total sum due was nearly £17,000. A number of Magistrates court liability orders have been made in respect of the unpaid Council Tax. The company had not complied with them, appealed against them or taken any steps to have them set aside. Once the Winding-Up Petition was issued, however, the Company argued there was a dispute in relation to the debt and argued that it had a cross claim so that the Petition should be dismissed. The Judge at the first hearing disagreed that there was a genuine and serious cross claim against the local authority and dismissed the application. The Company appealed arguing that the Judge should have considered the issue of whether or not the relevant properties were in fact exempt from Council Tax and so the liability orders should never have been made. On that basis it was argued that there was a genuine cross claim for the balance outstanding under the Petition.
Decision:
It was accepted by the Court of Appeal that in the usual course if a company could show a genuine and serious cross claim likely to exceed the debt under the Petition the Court would dismiss that Petition. The fact that the Company could have raised the claim prior to presentation of the Petition or had delayed in bringing proceedings did not necessarily prevent the existence of a cross-claim resulting in a dismissal of the Petition. The Court did, however, have to take into account all the relevant circumstances when considering whether the cross claim was genuine and serious and in this case the Company had taken no steps whatsoever to contest the liability to Council Tax either by seeking to challenge or set aside the Liability Orders. Accordingly on the evidence there was not enough to show a genuine and serious cross claim. The Court went on to say that the Judge needed to be satisfied that the cross claim was not merely arguable but was genuine and serious. The Company’s appeal therefore failed.
Administration – Administrators Release
New Screen Media Group Plc (In Liquidation) –v- Michael Vincent McLoughlin and Alan Watson Graham
[2009] EWHC 944
Chancery Division 6th May 2009
Facts:
This case involved an application to set aside an Order made discharging and releasing the Administrators from liability as administrators of the company. The grounds of that application were that the release had been obtained by fraud. Following the Administrators’ appointment in respect of the Company a number of CVAs of group companies were accepted by the creditors and the Administration Orders were discharged and the Respondents released from liability. There was an issue with regard to a sum of money held in an escrow account which the individual contended should have been referred to the CVA companies rather than, as part and parcel of additional funds, to the Administrators of another group company. The Administrators denied allegations of fraud and false accounting and argued that not only had they not acted in breach of duty but in any event no duty was owed by them to the individual.
Decision:
The Court held that whilst there was some evidence of possible irregularity regarding one of the CVAs there was no evidence at all indicating that the irregularity was in any way fraudulent or that the discharge and release of the Administrators had in some way been secured by way of fraud or other misrepresentation. The Court also confirmed that the Claimant had no standing to bring the application as the Administrators owed fiduciary and common law duties to the companies in respect of which they were appointed but owed no duty of care to creditors, shareholders or officers of those companies. Had there been any breach of duty action could be brought against the Administrators either by the companies or, subsequently by the Liquidators. This had not been done. The complaints of misrepresentation were groundless and the application was refused.
Bankruptcy - Rehearings
Re: Haghighat (a bankrupt) -v- Brittain (trustee in bankruptcy)
[2009] All ER (D)
28th April 2009
Facts:
This case was reported on in our January Update and involved two previous hearings in December 2008 and January 2009. The original application was the Trustee in Bankruptcy’s claim for possession of a flat where the bankrupt lived with his wife and family. The first hearing involved a preliminary issue as to whether nor not it could be argued that bankrupt’s wife was a beneficial owner of the property which had therefore not vested in the Trustee. The Bankrupt was not present at the first day of the two day hearing and it had gone ahead in his absence. On the second day the Bankrupt made an application to have the preliminary issue reopened and this was refused.
At the second hearing the Court made a possession order suspended for three years on the basis of exceptional circumstances. At that hearing the Bankrupt attended but was without an interpreter. He was given permission to apply to have the decision on costs reheard and the Bankrupt also applied for the preliminary issue dealt with in the first judgment and the substantive case dealt with in the second judgment to be reheard under section 375(1) of the Insolvency Act 1986. The Bankrupt argued that before the first hearing material documents relevant to his case had not been provided to the Court and that he had not seen the hearing bundle.
Decision:
The Bankrupt’s application was dismissed on the basis that section 375(1) required exceptional circumstances being present such as, for example, new evidence being available but subject to the reason for that evidence not being available at the first hearing. The Bankrupt would also have to show that there was a realistic prospect that had the evidence been available there would have been a different outcome. The Court the view that the extra documents did not affect the issue as to the beneficial ownership of the property and if the bankrupt wanted to challenge that decision the appropriate course of action would be to go to the Court of Appeal rather than ask for a rehearing on a point of law. The Bankrupt’s application that there had been an abuse of process had no reasonable prospects of success on a rehearing of the preliminary issue.
