Liquidation-Retrospective sanction for proceedings
Re: Gresham International Ltd (In Liquidation) and another –v- William Thomas Moodie and others
[2009] EWHC 1093
Chancery Division May 2009

Facts:
Proceedings were issued against a former director of the Company by the liquidator alleging preferences, transactions undervalue and transactions defrauding creditors.  The day after the proceedings were issued the liquidator wrote to the liquidation committee seeking sanction for the proceedings however that request was never considered.  Several months later the liquidator requested sanction from the Secretary of State although the application implied that the liquidator was proposing to issue proceedings rather than that he had actually done so.  The Secretary of State granted sanction to issue proceedings (but did not confirm the existing litigation) and the former director claimed that the sanction was ineffective. It was not until nearly a year and a half later that the liquidator applied to Court for directions as to whether the sanction was valid and, if it was not, for retrospective sanction to be given.  The former director opposed the application pointing out in particular there had been undue delay in making it.

Decision:
The sanction from the Secretary of State was held to be ineffective and could not take effect as retrospective sanction of what was at that time, existing litigation.  The Court agreed that there had been undue delay in making the application but granted sanction to litigate as from December 2008 which was the date that the application for directions was made.  The Court accepted that the delay between issuing proceedings and applying for sanction meant that it had no jurisdiction under the Insolvency Rules but went on to hold that it had a supervisory role in respect of liquidation which allowed it to grant the sanction in any event.  The Court took the view that applying for sanction to litigate part way through the proceedings was possible, that sanction to continue with the proceedings should be granted unless there were strong reasons not to do so but for the sanction to be retrospective the liquidator had to persuade the Court that it should exercise its discretion.  In this case where the failure to obtain appropriate sanction was not just inadvertent but essentially careless, this should not be granted.

Winding-Up - Misfeasance
Re: French and another –v- Cipolletta
[2009] ALL ER D155
Chancery Division 15th May 2009

Facts:
Proceedings were brought by the liquidator of the Company against a director alleging fraudulent misfeasance under Section 212 Insolvency Act 1986.  The allegations in the main were that the director deliberately caused the company not to complete VAT returns for a 22 month period and not to account to the Revenue for PAYE and National Insurance.  The director argued because the liquidators could not show that his actions, even if proved, had caused a loss to the Company there was no jurisdiction to bring a claim under s.212.  The liquidators argument was that the misfeasance relied on had prolonged the life of the Company and so created a greater deficiency to creditors than would otherwise have been the case.  The directors application was dismissed and he appealed.

Decision:
The Court agreed that to bring a claim under section 212 proof of loss was required.  In addition the claim needed to make it clear what type of losses were alleged to have been caused by the director’s breaches of duty.  The Court took the view, however, that in this case where it was alleged that losses had been suffered by the Company trading with money which should have been paid to Crown departments, that was sufficient to bring the claim.  The Court said that the liquidators may have difficulty proving causation and identifying losses however the claim could not be said to have no reasonable prospects of success and the director’s appeal was dismissed.

Liquidation-Claims by Contributories
Re: Palmier Plc (In Liquidation) 
[2009] EWH C983
Chancery Division May 2009

Facts:
There were two directors of this Company each owning one half of the shares. One of the directors also owned another company which was the sole buying agent for it.  The Company was in difficulty but was due a VAT rebate which would have enabled it to pay its debts and fund continued trading.  On that director’s instructions, however, the rebate was used to pay his other company for outstanding commission monies.  The other director obtained leave from the Court to sue for misfeasance however it was argued that the case was in effect a claim for a preference which only a liquidator could bring and that the claim also did not prevent the liquidator bringing a preference action and if he did, the Company could make a double recovery.

Decision:
The Court held that a contributory can bring a claim under s.212 with the Court’s permission to bring proceedings in the same way as a liquidator.  In addition there was nothing in s.212 which prevented the liquidator from bringing an action on similar grounds to a preference claim so there was nothing to prevent the contributory from doing so.  Whilst there was a risk of double recovery, any sums recovered in one action would prevent recovery in the other so a contributory’s action and a liquidator’s action could be brought in respect of the same transaction.

Administration – Review of Administrator’s Sale
Re: Clydesdale Financial Services and others –v- Smailes 
Chancery Division 18th June 2009

Facts:
This case involved an application by a creditor of a solicitors firm in administration to remove the administrator from office.  The firm operated as a limited liability partnership and was in serious financial difficulties.  The potential administrator was approached for advice about the future of the firm and took the view that it would be better to sell the firm’s work in progress.  A pre-pack contract was therefore entered into with another solicitor for the sale of that work in progress and the administrator was closely involved with the negotiations leading to the sale contract and the review of the firm’s assets. The firm went into administration and the sale contract became enforceable.  The creditor objected to the terms of the sale and argued that an independent review of it was required which would mean the removal of the administrator.

Decision:
The Court took the view that the terms of the sale contract and the circumstances leading up to it did create a legitimate concern that should be investigated by an appropriate office holder.  In addition the administrator had been so closely involved with the negotiations that it would be difficult for him to conduct an independent review.  In addition the application for removal of the administrator was supported by the majority of the firm’s creditors and those views had to be considered together with the need for an independent review.  The Court therefore removed the administrator.

Receivership – Industrial and Provident Society
Re: Dairy Farmers of Britain
[2009] ALL ER D 2005
Chancery Division 18th June 2009

Facts:
This case involved an Industrial and Provident Society which operated as a dairy farmer’s co-operative working on behalf of around 1,800 member farms.  In June 2009 the Company was in financial difficulties and the directors were not able to get the Bank’s support for their future funding plans for the business  The Board then passed a resolution inviting the Bank to appoint joint receivers and managers, however, there was a concern as to whether this could lawfully be done in view of the prohibition in Section 72 A(1) Insolvency Act 1986 which provides that the holder of a qualifying floating charge in respect of  a Company’s property might not appoint an administrative receiver of the Company.  The bank applied to the Court for a declaration that the prohibition did not apply to Industrial and Provident Societies so that a receiver and manager could be appointed.

Decision:
The Court reviewed the relevant provisions of the Insolvency Act and in particular Section 72 A(1) and confirmed in its view a clear recognition by Parliament that there were separate insolvency rules for companies registered under the Companies Acts and registered Industrial and Provident Societies. In the circumstances the Court held that the Bank was entitled to the declarations sought and that the receivers would not be administrative receivers within the meaning of the relevant section of the Insolvency Act.

Bankruptcy – Realisation of the Bankrupt’s interest
Re: Lewis –v- Metropolitan Property Realisations Ltd
[2009] EWCA Civ 448
Court of Appeal June 2009

Facts:
This case involved a property invested jointly in the bankrupt and his wife which was their main residence.  There was a mortgage over the property and the wife claimed the equity of exoneration which she said meant that she was the sole owner of any equity in the property.  The trustee in bankruptcy disputed this but the creditors were not prepared to fund litigation seeking an order for sale of the property.  Accordingly the second largest creditor in the bankruptcy took an assignment from the trustee of the husband’s beneficial interest for the sum of £1.00 and payment of 25% of any sale proceeds.  The wife argued that after 3 years the bankrupt’s interest vested back in him and the creditor argued that the effect of the assignment was to amount to a realisation of the interest by the trustee.  The Judge agreed with the creditor and the bankrupt and his wife appealed.

Decision:
The Court held that the definition of “realise” implied a completed transaction and this was backed up by a number of other cases.  The normal meaning of “realise” would involve turning property into cash and this was inconsistent with some of the value of the interest being left outstanding or subject to an unfulfilled obligation.  The purpose of the provisions was to achieve a reasonable degree of certainty for the bankrupt and the co-owner and the sale of a beneficial interest for a future price or a partial future price did not comply with that definition. That type of transaction could not amount to a realisation within the meaning of the Insolvency Act 1986 and the Court held that the bankrupt’s interest had reverted back to him.

Administration – Appointment of Administrators
Re: Lovett and another –v- Carson Country Homes Ltd
[2009] EWHC 1143
Chancery Division 1st May 2009

Facts:
In this case joint administrators were appointed over a property development company having been appointed by the Bank pursuant to a debenture in its favour.  Following the appointment of the administrators one of the directors and shareholders of the Company said that his alleged signature on the debenture had been forged by the other director and shareholder. He argued therefore that the debenture was a nullity and the appointment of the administrators was invalid.  The Bank argued that the debenture purported to be signed in compliance with Companies Act 2006 and was duly executed so that both the debenture and the appointment were valid.

Decision:
The Court accepted that the debenture had not even signed by the director/shareholder however it took the view that the Bank was in the position of a purchaser as defined by Section 44 (5) Companies Act 2006 which refers to a “purchaser in good faith for valuable consideration and includes a lessee, a mortgagee or other person who for valuable consideration requires an interest in property”.  The Bank was entitled to assume that the director and shareholder who had signed the debenture had ostensible authority to confirm to the Bank that the debenture had been properly executed and it was entitled to rely on the signatures as being genuine.  The appointment of the administrators was therefore declared valid.

Bankruptcy – Private Examination
Re: Rottmann –v- Brittain 
[2009] EWCA Civ 473
Court of Appeal June 2009

Facts:
A trustee in bankruptcy made a request to the Official Receiver for a public examination of the bankrupt who claimed that he had no assets and had come to England to avoid criminal charges in Germany.  The bankrupt applied to adjourn the public examination on the grounds that it would force him to incriminate himself with regard to the charges in Germany which would affect his chances of having a fair trial.  The Judge at the first hearing adjourned the public examination but ordered a private examination in its place. The bankrupt appealed this decision arguing that the record of the private examination may be made available to the german prosecutors which would infringe his human rights.

Decision:
The Court accepted that a public or private examination would result in a record of information being created that may assist the prosecutors in Germany however whether his right to a fair trial was infringed depended on the use of the information obtained by the examination not the nature of the examination process.  The Court had to balance the bankrupt’s right to a fair trial against the interests of the creditors in obtaining information to help recover assets.  The Court took the view that the Judge at the first hearing had correctly ordered a private examination to address the bankrupt’s concerns and had pointed out that the bankrupt could, for example, ask for an Order preventing distribution of the transcript of the hearing without a court order.  The bankrupt’s appeal was dismissed.

Bankruptcy – Setting Aside a Statutory Demand
Re: John Remblance –v- Octagon Assets Ltd
[2009] EWCA Civ 581
Court of Appeal 17th June  2009

Facts:
A Company entered into a lease of premises and Mr Remblance guaranteed the Company’s obligations to the landlord under the lease.  The Company brought a claim against the landlord alleging breach of the terms of the lease including the right to quiet enjoyment of the property.  The Company also stopped paying the rent.  As a result the landlord issued a statutory demand against Mr Remblance as guarantor for the outstanding rent which he then applied to the Court to set aside.  He acknowledged that he was able to pay the sum set out in the Statutory Demand.  At the first hearing the Judge would not set aside the statutory demand on the basis that as guarantor Mr Remblance could not take advantage himself of the fact that the Company had a counterclaim against the Landlord in respect of the claim for unpaid rent.  The Judge took the view that as he had an obligation under the terms of the guarantee to make payment to the Landlord and was able to make payment there is no reason for the demand to be set aside.  Mr Remblance appealed.

Decision:
The Court of Appeal agreed that the guarantor could not make use of the Company’s counterclaim in support of his application however the Court went on to say that it was unjust to require the guarantor to pay more under the statutory demand than the Company would have had to pay and that this potential injustice was sufficient to justify setting aside the demand.  The Court held that the guarantor’s obligation was to ensure that the Company complied with its obligations under the lease and that the guarantor could only be liable to the landlord to the extent that the Company was.  The guarantor’s appeal was therefore granted.

Bankruptcy – Limitation /Right to bring a claim
Re: Pickthall –v- Hill Dickinson and another
[2009] EWCH 543
Court of Appeal 16th June 2009

Facts:
Hill Dickinson acted for Mr Pickthall in 2001 when he agreed to sell his shareholding in a Company.  Shortly after completion of the share sale the Company went into administration and an injunction was granted in favour of the administrators preventing Mr Pickthall from dealing with the completion monies.  Approximately 6 months later he was then made bankrupt.  In 2006 the trustee was released and the bankrupt’s assets vested in the Official Receiver, the bankrupt being discharged in August 2006.
In February 2007, one day before the limitation period expired, the bankrupt issued professional negligence proceedings against Hill Dickinson with regard to the advice that they gave him in relation to the share sale agreement.  At the time the claim was issued the bankrupt had been advised by Counsel that the cause of action was vested in the Official Receiver and that he would need to take an assignment of it. Although the bankrupt had sought to assign the claim prior to issue he had not done so and the assignment was not effected until some 4 months later.
The Judge at the first hearing accepted that at the time when the assignment of the cause of action took place the claim was time barred but did not consider that this was grounds to strike out the claim for abuse of process and allowed the claim form to be amended to plead the assignment.  Hill Dickinson appealed.

Decision:
The Court held that the claim was an abuse of process and should be struck out as the bankrupt knew when the proceedings were commenced that cause of action was not vested in him and that the limitation period was likely to expire before an assignment could take place. The bankrupt had therefore tried to stop the action being time barred by issuing within the limitation period.  The Court took the view that where proceedings were started by someone knowing that the cause of action was vested in someone else it was hard to see why this was not an abuse of process.  It was not the case that the bankrupt did not know or was uncertain as to whether he had title to sue as he had been advised that he did not.  The appeal was therefore allowed and the claim struck out.