Insolvency Judgments - Support

XXIV Barristers’ Chambers Insolvency Judgments May 2012ContentsIntroduction 2Bickland Ltd; Rohl v Bickland Inc 3Leisure (Norwich) II v Luminar Lava Ignite(In Administration) 4Globespan Airways Ltd;Cartwright v Registrar of Companies 5Broadside Colours and Chemicals Ltd;Brown v Button 6Blight v Brewster 7Wright Hassall LLP v Duncan Morris 8Horler v Rubin 9Phoenix Kapitaldienst GmbH;Schmitt v Deichmann and others 10About XXIV Old Buildings 11About Cork Gully 12

XXIV Barristers’ Chambers Insolvency Judgments May 2012Leisure (Norwich) IIv Luminar Lava Ignite(In Administration)[2012] EWHC 951 (Ch)Chancery Division (HHJ Pelling QC sitting as ajudge of the High Court)Rent falling due before commencement ofadministration is not to be treated as an expenseof the administration but is instead provable in theadministrationGlobespan Airways Ltd;Cartwright v Registrarof Companies[2012] EWHC 359 (Ch)Chancery Division, Manchester District Registry,Briggs JMoving from administration to CVL: Paragraph 83of Schedule B1 to the Insolvency Act 1986.The applicant landlord had leased property to a company which operated a number of nightclubson terms which provided for the payment of rent in advance on a quarterly basis.The respondent administrators had been appointedjust after a quarterly advance payment had fallen dueand had continued to operate the company’s nightclubbusiness in the premises leased from the applicant.The applicant landlord sought an order that the lastquarterly payment of rent which fell due prior to theadministrators’ appointment should be treated as anexpense of the administration due to the administrators’continued use of the premises.The judge held that crucial date for determining whetherrent was payable as an expense was the date when thedebt became due and not the period in respect of whichthe rent was payable, a conclusion supported by thefact that the Apportionment Act 1870 did not apply torent payments due in advance but only to rent payablein arrears.4Consequently the judge rejected the landlord’sapplication and held that any rent, payable in advance,which fell due prior to the commencement of anadministration was only provable in the administrationand could not be treated as an expense, even if theadministrators had continued to use the property aftertheir appointment for the whole or part of the period forwhich the payment in advance was payable.This decision establishes that where rent, payablein advance, falls due on a property prior to theappointment of an administrator it is a debt provable inthe administration and not treated as an expense in theadministration, even if the administrator continues tooccupy the premises after his appointment during theperiod in respect of which the rent was due.The administration period of a company was due to end on 16 December 2010. On 14 December2010, the three joint administrators hand-delivered to the Registrar of Companies a notice(the First Notice) under Paragraph 83 of Schedule B1 in which they proposed two of them beappointed liquidators in the CVL.The three administrators provided their full names andaddresses in section (a) of the prescribed form (Form2.34B), but in section (e) they included only the namesof the two proposed liquidators, without repeating theiraddresses.On 16 December 2010, the Registrar rejected the FirstNotice as incomplete. A second, good, notice was sentand wrongly rejected by the Registrar. A third notice,identical to the second, was sent and, on 4 February2011, registered. The records purported to show thatthe company’s administration had ended and voluntaryliquidation had commenced on that day.The former administrators sought guidance fromthe Court as to whether the provisions of Paragraph83 applied in circumstances where a notice wasreceived by the Registrar before the termination ofthe administration, but the administrative steps ofregistration were taken after.The Judge found that the First Notice was adequate;it was not “necessary mechanistically to repeat [the]addresses in section (e)…since any person withreasonable intelligence reading the First Notice wouldwithout difficulty understand that the [proposedliquidators] had the addresses clearly identified insection (a) without needing to be repeated in section(e)”. The Judge was surprised that the Registrar had apolicy of rejecting incomplete forms without consideringwhether omissions could be ignored (under Section1073(1) of the Companies Act 2006).It takes the Registrar on average three working daysto complete paperwork under para 83. But the Judgeheld that Paragraph 83(4) of Schedule B1 should beinterpreted as meaning that registration takes effectfrom the date of receipt by the Registrar, not when thepaperwork is completed. The Judge considered thatParliament’s intention must have been that registrationshould take effect “on receipt” of a notice by theRegistrar, as provided in Paragraph 83(4). There wasbut a small price to pay in the lack of transparency tomembers of the public in the administrative period.The Judge exercised his power under Section 1096of the Companies Act and ordered that the entries on4 February 2011 be removed from the register. Hedeclared that the First Notice be registered with effectfrom 14 December 2010.As long as the Paragraph 83 notice is filed on time,administrators should no longer have to worry aboutdelays at Companies House. The case may also causethe Registrar of Companies to take a more lenient viewof minor omissions in forms lodged, and to use thepower under Section 1073 of the Companies Act.5

XXIV Barristers’ Chambers Insolvency Judgments May 2012Broadside Colours andChemicals Ltd; Brown vButton[2012] EWHC 195 (Ch)Chancery Division, Leeds District Registry,Behrens HHJReviewing the Court’s decision after nonattendanceat trial of an insolvency application;service of proceedings on address found atCompanies House.Blight v Brewster[2012] EWHC 165 (Ch)Chancery Division, Mr Gabriel Moss QC sittingas a Deputy High Court JudgeSolvent debtor may be compelled to draw on rightto lump sum pension entitlement to dischargejudgment debt.James Button was a former director of a company, which went into CVL on 10 September 2004.On 9 September 2010, the liquidators of the company Two points of interest arise from this judgment. The firstissued misfeasance proceedings against James Button derives from the fact that the power to review an orderand two others including his father. The proceedings made in corporate insolvency proceedings at trial inwere served on James Button by post at his residential the defendant’s absence is not governed by CPR Partaddress as shown on a search of records at Companies 39, but by Insolvency Rule 7.47(1), which contains theHouse. At trial in May 2011, the case proceeded court’s power to review, rescind or vary any order madeagainst all 3 defendants and judgment was entered by it in the exercise of its jurisdiction.against James Button in his absence. In July 2011, theliquidators obtained charging orders against James The question whether a defendant has made hisButton’s properties.application promptly (as required under CPR 39.3) wasrelevant in the exercise of the court’s jurisdiction underIn January 2012, James Button applied to set aside the rule 7.47(1) but failure to apply promptly was not a barjudgment and the charging orders. He said he knew to relief. In this case, his undoubted delay was not fatalnothing about the proceedings until September 2011 to James Button’s application.because he had moved out of the family home in 2009;neither his father nor his former wife had spoken to him Secondly, the Court considered the Court of Appealof late and neither had told him about the proceedings. case of Collie v Williams [2006] 1 WLR 78 and held thatIn addition he put forward what he said was a good the liquidators were entitled to rely on the residentialdefence to the claim.address they found on their search at Companies Houseas James Button’s “last known address”: they had noThe Judge found that James Button had been properly reason to believe that James Button was no longerserved, but that he did have a realistic prospect of resident there and so service was good.successfully defending the claim by the liquidatorson the merits. The Court set aside the judgment and The Judge took the view that although though thecharging orders even though James Button had not proceedings were validly served on James Button, it wasmade his application promptly.appropriate to set aside both the May 2011 judgmentagainst James Button and the two final charging orders.The lateness of an application to set aside judgmentis relevant but not a bar to relief under Insolvency Rule7.47(1). Practitioners can rely upon an address on file atCompanies House if they have no reason to believe it isout of date or inaccurate.The appellant judgment creditors had been the victims of a fraud perpetrated by the respondentand sought an order compelling the respondent (who had not been made bankrupt) to exercisehis right to receive from his pension scheme a lump sum of 25% of the fund so that the a thirdpartydebt order could be made in respect of the debt then arising between the pension fund andthe respondent if the right was exercised.The respondent had successfully argued before a DistrictJudge, relying on Field v Field [2003] 1 FLR 376, that thecourt did not have the power to enforce the judgmentdebt by means of an injunction requiring the respondentto exercise the right to draw down a lump sum fromhis pension, nor could the court appoint a receiver toexercise the right by way of equitable execution.On appeal to the High Court the judge, applying TMSFv Merrill Lynch [2011] UKPC 17, held that the court didhave the power to enforce the judgment debt by meansof an injunction or by appointing a receiver by way ofequitable execution to exercise the respondent’s rightto a lump sum payment. Bearing in mind the value ofthe claim the expense of appointing a receiver was notjustified and therefore the judge ordered the respondent,by means of an injunction, to sign the necessarydocumentation in to draw down a lump sum from hispension scheme so that the resulting debt owing tothe Respondent by the pension fund could be madethe subject of a third-party debt order to enforce thejudgment debt owed to the appellant.The judge also rejected the respondent’s contentionthat the special status of pension rights in a bankruptcyshould prevent the court from ordering the respondentto discharge his liability from his pension rights. As therespondent had not been made bankrupt he had avoidedthe disadvantages of bankruptcy such as the difficultiesin on obtaining credit and the prohibition of being thedirector of a company which are restrictions imposedto protect the public in the event of an individual’sinsolvency.Consequently, the position of a solventdebtor was very different from that of an insolventone and the protections available to pension rights inbankruptcy were not available to the respondent sothat all of his assets were available for the purposes ofenforcement by individual creditors.This decision establishes that, notwithstanding thespecial protection given to the pension rights in abankruptcy, solvent debtors may be ordered to exercisetheir right to a lump sum payment from their pensions inorder to satisfy a judgment debt following the approachof the Privy Council in TMSF v Merrill Lynch [2011]UKPC 17.67

XXIV Barristers’ Chambers Insolvency Judgments May 2012[2012] EWHC 188 (Ch)[2012] EWCA Civ 4Wright Hassall LLP vDuncan MorrisChancery Division, Birmingham District Registry,David Cooke HHJAdministrator not personally liable where claimbrought against him in his capacity as administrator.Horler v RubinCourt of Appeal (Civil Division), Mummery,Jackson, Lewison LJJVotes by proxies in creditors’ meetings andcreditors’ committees: Insolvency Rules 8.1 and 8.3.The applicant firm of solicitors sought to enforce a judgment debt, arising out of a claim forunpaid legal fees due to them as a result of acting for two companies in administration underConditional Fee Arrangements (CFAs).The applicant had previously brought Part 7 proceedingsagainst the administrator and had obtained judgmentbut as there were insufficient funds in the insolvencyestate to pay the judgment debt the applicant soughtto enforce the judgment debt against the administratorpersonally.The judge held that the position of an administratorwas different from that of a trustee who is personallyliable for any contract entered into on behalf of a trustsubject to any indemnity he may have to recover hiscosts from the trust fund. By contrast a company hasseparate legal personality and by virtue of Paragraph69 of the Schedule B1 to the Insolvency Act 1986 anadministrator acts as an agent of the company and asthere was no doubt that the applicant had been awarethat the administrator acted as agent.Thus the administrator was not personally liable underthe CFAs which he had entered into with the applicant inhis capacity as the administrator of the companies: hehad contracted as an agent of the Company only andnot in his personal capacity.Additionally, as the administrator had been named onthe amended claim form as defendant “in his capacityas Administrator of Market Balance Ltd and asAdministrator of Phoenix Insurance Management Ltd”,this reflected an understanding by the applicant that therespondent was being sued in his capacity as agent andnot personally so that the order made against him wasonly enforceable against the company itself.This decision underlines the fact that an administratorwho enters into a contract in his capacity as such will notnormally be personally liable under that contract as heacts as agent of the company by virtue of Paragraph 69of Schedule B1 to the Insolvency Act 1986. Moreover,where a claim is expressly made against a defendant“as administrator of X Ltd” this will reinforce thepresumption that the administrator is merely an agentof the company and not sued in his personal capacity.David Rubin, as trustee in bankruptcy of the estate of Mr Andrew Millar, sold various shareswhich later a man called Daniel Horler, former business partner and creditor of the Bankrupt,asserted were partnership assets not assets of the Bankrupt. The shares were shares in acompany called ATG.Mr Rubin sold a first tranche of shares and his accountsshowed the application of the proceeds of sale towardsthe costs and expenses of the bankruptcy. His accountswere unanimously approved at a creditors’ meeting.Mr Rubin then sold a second tranche and paid theproceeds into escrow because there was a disputeabout whether they were beneficially owned by theBankrupt’s daughters. He then made a claim to theproceeds of sale and soon after settled the claim.Mr Horler alleged that the shares of ATG were assetsof the partnership and their proceeds should have beenused to pay the partnership’s creditors.After settling the claim Mr Rubin sent a report tocreditors explaining that he believed the agreement wasbeneficial for the creditors. Mr Rubin also set out hisaccounts and his costs to date. Unknown to Mr Rubin,Mr Horler did not read the report. Mr Rubin conveneda creditors’ meeting and creditors’ committee. MrHorler was represented in his absence by a Mr Hoggas his proxy. Mr Horler had not given Mr Hogg expressinstructions to vote in favour of the resolutions. Thecreditors’ meeting and creditors’ committee (includingMr Hogg as Mr Horler’s proxy) unanimously approvedthe resolutions including the application of the tranchetwo sale proceeds.At first instance the Judge found that Mr Horler had notconsented to the application of the Jamestown monies:he had not authorised Mr Hogg to consent and wouldnot have done so if asked.But on appeal, Lewison LJ (with whom Jackson andMummery LJJ agreed) pointed out that under InsolvencyRules 8.1(6) and 8.3(6) it is for the proxy to decidehow to vote on resolutions not dealt within the proxy;the proxy’s authority is to make whatever decision hethinks fit unless his authority is actually restricted by hisprincipal. Mr Horler had not prohibited Mr Hogg fromvoting. Therefore Mr Horler was to be taken as havingvoted in favour of the application of the tranche twoproceeds and had no valid complaint.A creditor will be bound by the vote of his proxy at acreditors’ meeting unless the proxy acted in breach ofhis express directions. The proxy, under the InsolvencyRules, has a wide discretion to vote on matters whichare not dealt with in the proxy.89

XXIV Barristers’ Chambers Insolvency Judgments May 2012Phoenix KapitaldienstGmbH: Schmitt vDeichmann and othersPhoenix was a German company, carrying on businessin Germany and allegedly was loss making from thestart: it was said that it was a Ponzi scheme. TheAdministrator, pursuant to the Recognition Order, issuedan application for relief under Section 423 againstDeichmann and others. They appealed the making ofthe Recognition Order.It was common ground that the neither the CouncilRegulation (EC) No 1346/2000 on InsolvencyProceedings nor the UNCITRAL Model Law as appliedby the Cross-Border Insolvency Regulations 2006 couldapply: the Administrator’s only recourse was undercommon law.The Court had to determine whether it has an inherentcommon law jurisdiction to permit the statutorypower under Section 423 to be applied to a foreignadministrator not falling within the express scope ofthe Act. The Appellants maintained that there was nojurisdiction to do so; the Administrator maintained thatthere was. Germany is not relevant country or territorywithin the provisions for co-operation in Section 426.Proudman J, after considering Cambridge Gas vNavigator [2007] 1 AC 508, Re HIH Casualty andGeneral Insurance [2008] UKHL 21, Rubin v Eurofinance[2011] Ch 133 and Al Sabah v Gruppo Torras [2005 2 AC333, derived the following principles:i) There is a power to use the common law to recogniseand assist an administrator appointed overseas.ii) Assistance includes doing whatever the Englishcourt could have done in the case of a domesticinsolvency.[2012] EWHC 62 (Ch)Chancery Division, Proudman JThe court has inherent jurisdiction to permitthe statutory power under Section 423 of theInsolvency Act 1986 to be applied to a foreignadministrator not falling within the express scopeof that Act.The German Administrator (Herr Frank Schmitt) of Phoenix Kapitaldienst, obtained recognitionunder the common law and authority to exercise the powers afforded to licensed IPs under theInsolvency Act 1986 (the Recognition Order).iii) Bankruptcy proceedings are necessarily collectiveproceedings for the enforcement (not establishment)of rights even when those proceedings includeproceedings to set aside antecedent transactions.iv) Proceedings to set aside antecedent transactionsare central to the purpose of insolvency.The powers contained in Section 423 can becharacterised as part of the collective enforcementregime of the bankruptcy proceedings.The court did have jurisdiction to authorise theadministrator to use Section 423, although it retained adiscretion whether to do so. Although it was suggestedin case law that this use of the common law could besaid to thwart the statutory purpose of Section 426, itwas held that in any conflict between the between theapplication of black letter law and a broad commercialsupport of international comity, the later should prevail,in the absence of a determinative decision explainingthe conflict. Therefore Proudman J found that the courthad jurisdiction to grant recognition and assistance andthe appeal was dismissed.This case is another in the line of 21st Century casesconcerning the power of the English Courts to assist inforeign insolvency proceedings. Rubin v Eurofinanceis now listed for hearing in the Supreme Court in lateMay 2012. It is hoped the Supreme Court will take theopportunity to review and clarify the law.About XXIV Old BuildingsXXIV Old Buildings is a long-established set of selfemployedbarristers based in Lincoln’s Inn, near theHigh Court at the heart of legal London.XXIV provide specialist legal advice and advocacyservices in London, nationwide and worldwide to thefinancial, commercial and professional community aswell as to private individuals.The members of XXIV Old Buildings are particularly wellknownfor appearing in Court in off-shore and crossborderdisputes and insolvencies. Members also adviseindividuals and companies, in the UK and abroad, ona wide range of contentious and transactional matters.XXIV Old Buildings is recognised in the legal directoriesas one of the leading insolvency chambers. Ourmembers deal with domestic corporate insolvenciesand bankruptcies as well as complex internationalinsolvency disputes. As such we have been involvedin the major insolvencies of recent years includingLehman Brothers, Kaupthing, Madoff, Bear Stearns.Our members are instructed in the important crossborderinsolvency case, Rubin v Eurofinance, which isexpected to be heard in the Supreme Court later thisyear.As self-employed barristers, we are able to takeinstructions directly from English solicitors, foreignlawyers and also from qualified accountants and otherprofessionals.Members are experienced in all aspects of insolvencylaw including:• Administrations & liquidations• Asset tracing and recovery in fraud cases• Bankruptcy & bankruptcy restriction orders• Cross-border insolvency• Off-shore and multi-national disputes• Directors’ disqualification• Voluntary arrangements• Public interest winding upFurther details are available on the website at:http://www.xxiv.co.uk/1011

XXIV Barristers’ Chambers Insolvency Judgments May 2012About Cork Gully LLPIn 1906 WH Cork established WH Cork & Co asan insolvency practice largely focused on helpingbusinesses in the grocery trade. In 1935, WH Corkformed a partnership with his son Kenneth and anotheraccountant, Harry Gully, creating Cork Gully. After WHCork’s death and a period of war service, Kennethbecame the owner of the firm and built the business tobecome the leading name in the field of insolvency work.Sir Kenneth Cork (as he later became known) waschairman of the Cork Committee, which published theCork Report in 1982, leading to a change in primarylegislation and subsequent introduction of the InsolvencyAct 1986.Stephen Cork now leads the business, representingthe fourth generation to be in the field of restructuring.Stephen and the vastly experienced team he has broughtto Cork Gully have advised both owner-managedbusinesses and main listed publicly quoted companieson the recovery strategies available to the Board as wellas their financiers.Cork Gully provide a comprehensive range of formaland informal corporate recovery and insolvencyservices. Their services are delivered by a team ofseasoned professionals who have extensive experienceof the restructuring environment. The current tradingenvironment is increasingly complex and fast moving –so the solutions provided to clients are more creative,responsive and effective than ever.More information can be found at www.corkgully.comNature of assignments undertaken:-Restructuring• Cash flow management• Operational restructuring• Distressed M & A• Refinancing• Return of capitalDebt Advisory• Debt advisory services• Independent business review• Workout of stressed and distressedproperty assets• Managed exits• Debt for equity swaps• Compromise agreementsRecovery• Litigation support• Forensic accounting• Investigation services• Asset tracing and recovery• Creditor servicesInsolvency• Contingency planning• Advice to board of directors• Administrations• Company voluntary arrangement• Receiverships• Insolvent liquidations• Personal insolvencyDisclaimerThe content of this report is for general information purposes only and although we havemade every effort to ensure the content is accurate and up to date, it should in no way beconstrued as professional advice.12 13

ContactNicholas LuckmanPractice ManagerXXIV Old BuildingsLincoln’s InnLondon WC2A 3UPTel: +44 (0)20 7691 2424Fax: +44 (0)870 460 2178e: nicholas.luckman@xxiv.co.ukSandi SelveyHead of CommunicationsCork Gully LLP52 Brook StreetLondon W1K 5DSTel: +44 (0)20 7268 2150Fax: +44 (0)20 7268 2151e: sandiselvey@corkgully.com