Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Two High Court decisions: (1) retrospective leave to commence proceedings; and (2) questions of admissible S235 evidence and conflicted solicitors where a petition debt is disputed but Provisional Liquidators are in office

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I have covered two newly-released judgments below:

  • Colliers International – can the court grant retrospective permission for a creditor to commence legal proceedings after a court-based insolvency (i.e. Bankruptcy, Compulsory Winding-up, or Administration) has begun?
  • TAG Capital Venture – should a Provisional Liquidator’s S235 interview be excluded from evidence in relation to an opposed petition on a disputed debt?  Also, in the case of a disputed petition debt, can the same solicitors act for both the petitioners and the Provisional Liquidators?

Bank of Ireland (UK) Plc v Colliers International UK Plc [2012] EWHC 2942 (Ch) (24 October 2012)

http://www.bailii.org/ew/cases/EWHC/Ch/2012/2942.html

Decision: Richards J makes it clear that this judgment is intended to resolve uncertainties suggested by the history of previous judgments and to establish the principle that retrospective permission may be given for the commencement of proceedings under S130(2) or S285(3) of the Insolvency Act 1986 or under Paragraph 43(6) of Schedule B1 (paragraphs 35 and 36).

Background: The uncertainties are explained in Sealy & Milman’s note to S285(3) (page 340 in 15th edition).  S285(3) provides that, after the making of a bankruptcy order, creditors with provable debts may not commence any action except with leave of court (and the Act provides generally similar provisions for compulsory winding-ups and Administrations).  Sealy & Milman’s note describes the case precedent: in Saunders (1997), the court granted retrospective leave, but in Taylor (2007), it was refused; then in Bank of Scotland Plc v Breytenbach (2012), the court followed the earlier decision in Saunders.

In this current case, the applicants notified the Administrators of potential claims two months after Colliers was placed into Administration.  The claims relate to allegations of negligence in providing valuations on Southern Cross group care homes provided in 2006 in view of valuations obtained in 2011 indicating much reduced values.  The applicants issued claim forms in September 2012.  Assuming the court had jurisdiction to grant retrospective permission, Richards J stated that it was a clear case for permission to be granted (paragraph 8).

After considering the case precedent, Richards J reflected on the purpose of the statutory provisions requiring leave of court to be obtained to commence actions.  He noted that there was no corresponding provision for CVLs and thus, to quote “Black LJ in Boyd v Lee Guinness Limited, ‘this section is one of a series of provisions designed to ensure that when a winding-up order has been made by the court the whole of the task of supervising the collection and distribution of the company’s assets should be committed to the winding-up court and, accordingly, that all proceedings having any bearing upon the winding-up of the company should remain under the supervision and control of that court.’  Given that purpose, it is hard to see why the court should not be permitted to grant retrospective permission if in the circumstances it is appropriate to do so” (paragraph 32).

Re TAG Capital Venture [2012] EWHC 1631 (Ch) (8 February 2012)

http://www.bailii.org/ew/cases/EWHC/Ch/2012/1631.html

This judgment appears to have been released last week, but it relates to a February 2012 case.

Decision: Richards J addressed two issues: (1) he rejected the director’s request that a transcript of his interview with Provisional Liquidators under S235 should be excluded from evidence on a winding-up petition; and (2) he agreed with the director that, in the circumstances of this case, the solicitors for the petitioners should not also be acting for the Provisional Liquidators.

Background: The sole director opposes the petition and disputes the petition debt, but Provisional Liquidators have been appointed.  The director argued that the purpose of a S235 interview conducted by a Provisional Liquidator is to enable him to undertake his duties, which are essentially to establish underlying facts about the nature, business, liabilities and assets of the company and to ensure the preservation of its assets.  The judge agreed that these were amongst the Provisional Liquidator’s duties, but an investigation into the petition debt and any contracts between the parties would be wrapped up in this purpose.  Richards J stated: “If in the course of his investigations a provisional liquidator discovers or obtains evidence which is relevant to the issues to be determined in the petition, it would in my judgment be perverse if he could not place that evidence before the court whether it assisted the petitioner or those opposing the petition” (paragraph 7).

On the conflict issue, Richards J stated: “in circumstances where the petition debt is the subject of actual dispute leading to a one day hearing to determine whether the petition is well founded, there is a conflict between the positions of the provisional liquidators and the petitioners” (paragraph 12), but he continued: “in saying this, I am not suggesting that it is never appropriate for the same firm of solicitors to act both for the petitioning creditor and for provisional liquidators, or for the same firm to act for creditors and for a liquidator appointed after a company has gone into winding up. It will all depend upon the circumstances. If there is no dispute about the debt owed to the petitioning creditor then in the absence of other circumstances, there is no conflict between the petitioner’s position and the position of the provisional liquidators” (paragraph 16).

The judge also observed that, as the director knew that the same solicitors were acting for both the petitioners and the Provisional Liquidators at the time of the S235 interview, he can have no complaint that information from that interview has already passed between the parties.  He also rejected the director’s argument that the solicitors should cease to act for the petitioners, but saw that the more appropriate course of action was for the Provisional Liquidators to instruct new solicitors.

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