Oh dear, the Official Receiver cannot seem to get it right. In the first case, his swift handover of an appointment left the Trustee with outstanding costs and no bankruptcy, but in the second case, his delay in getting to grips with a new case that clearly warranted an IP’s appointment jeopardised the continuance of an action commenced by the Provisional Liquidators. Is this “a reflection of the enormous pressure on resources, both financial and human, under which the OR is working” (TAG Capital Ventures v Potter, paragraph 31)?
The circumstances of the Appleyard case were unique (as demonstrated by the fact that it revealed a previously unreported lacuna in the 1986 Rules) and therefore I do not think that they serve as an argument for an OR to delay passing a case to an IP. However, I would suggest that the TAG Capital Ventures case demonstrates a more obvious downside of such a delay. To ensure the most beneficial outcome for creditors, I would have thought that a swift review of each case as soon as it comes into the OR’s hands – to identify the cases that are more appropriate for IPs and to get those shifted asap – surely is the best way to work, particularly with limited resources, isn’t it? Of course, it’s easy to see what needs to be done, but not so easy to do it when one is fire-fighting and this may be a one-off, but such ‘endemic, notorious, delays’ surely warrant attention.
Appleyard v Wewelwala  EWHC 3302 (Ch) (23 November 2012)
Summary: An unfortunate train of events left the Trustee in Bankruptcy with outstanding costs after the debtor’s bankruptcy was overturned on appeal. The judge’s view was that the Trustee had been “unjustly left out in the cold”; he decided that the debtor’s property should stand charged with payment of the Trustee’s costs incurred up to the point when he learned that the bankruptcy order had been set aside; and he recommended amendment to the Insolvency Rules to deal with this lacuna.
The Detail: The debtor appealed the bankruptcy order on the grounds that the petitioning creditor had unreasonably refused to accept her offer to make payments by instalments. On 14 December 2011, the court provided that the bankruptcy order be set aside and that the hearing of the petition be adjourned for twelve months on the debtor’s undertaking to pay instalments to the petitioner. The order made no provision for the Trustee’s release from office or for payment of his expenses. In fact, it may have been the case that the judge did not even know that a Trustee had been appointed.
Appleyard had been appointed Trustee by the Secretary of State – the Official Receiver believing, correctly at the time, that the debtor had been refused permission to appeal. Appleyard had not been notified of the hearing – there is no provision in statute or the CPR requiring him to be notified – and he only learned of the setting aside of the bankruptcy order when the debtor telephoned him in January 2012. The Trustee had progressed the case in the usual manner, incurring costs of some £6,500.
Mr Justice Briggs felt that, as the Trustee was simply doing his job, there was no reason in principle why the Trustee’s expenses – up to the point when he learned of the successful appeal – should not be paid. In considering from whom those expenses ought to be paid, Briggs J drew on the judgment in Butterworth v Soutter, an annulment case: if the ground for annulment was where the order ought not to have been made (S282(1)(a)), then “there must be strong argument for saying that the petitioning creditor should pay the trustee’s costs” (paragraph 25), but if it were on the ground of payment/securing of the bankruptcy debts, then there is strong argument that the bankrupt should pay. This, and the decision in Thornhill v Atherton, led Briggs J to conclude that “Mr Appleyard’s right as trustee to recover his expenses, having acted entirely properly and innocently at least until January 2012, must prevail over Mrs Wewelwala’s right to enjoy to the full her estate upon its re-vesting in her as a result of the setting aside of the bankruptcy order. This is so even if, as between her and Davenham [the petitioner], it may be Davenham which was largely to blame for the circumstances leading to those expenses being innocently incurred… I do not think that it would be right to make an order against her personally, since this is more than Mr Appleyard would have been entitled to, had he remained her trustee. Nonetheless I should direct that her property… stand charged with payment of Mr Appleyard’s reasonable expenses down to January 2012, leaving him to obtain execution in that respect in such manner as he should think fit, in the absence of agreement with Mrs Wewelwala” (paragraphs 32 and 33). The judge left it open to the debtor whether she might challenge the reasonableness of the Trustee’s fees and/or to pursue a claim for compensation against the petitioner.
However, in relation to the Trustee’s costs incurred after he had learned of the setting aside, Briggs J “reached the opposite conclusion”. It seemed to him “that he [the Trustee] should have incurred no further expense without first applying to the court for directions” (paragraph 34).
Briggs J concluded: “it is most unfortunate that it was not appreciated by either of the parties to Mrs Wewelwala’s appeal last December that Mr Appleyard’s expenses need to be addressed. A trustee in bankruptcy’s expenses are as important a matter to be dealt with on an appeal against a bankruptcy order heard after his appointment, as they are in any application for rescission or for annulment. To the extent that the Insolvency Rules fail to make this clear, consideration should be given to their amendment, or to the issue of an appropriate practice direction. In any event, it is to be hoped that the reporting of this judgment may draw this aspect of bankruptcy practice and procedure to the attention of litigants and their professional advisors” (paragraph 37).
TAG Capital Ventures Limited v Potter  EWHC 3323 (Ch) (23 November 2012)
Summary: The fact that the Official Receiver had not been in a position to continue an action commenced by Provisional Liquidators and a four month delay were insufficient to conclude that continuance of the action would amount to an abuse of process of the court or to discharge a freezing order made at the outset of the action.
The Detail: Immediately following their appointment, the Provisional Liquidators applied for a freezing order against director, Potter, and commenced an action against him. A trial timetable was agreed, although neither party complied with disclosure.
Hot on the heels of the OR’s appointment as Liquidator on 25 June 2012, Potter’s solicitors asked the OR about his intentions with regard to the action. They asked again on 3 October and received the response: “Based on the information we have, and the fact that the provisional liquidators have not provided the records to date, the Official Receiver is not in a position to continue this action”.
Around the same time, the OR sent a report to creditors confirming that he did not intend calling a meeting of creditors. Shortly on receipt of this report, on 5 October, the petitioners’ solicitors contacted the OR’s office and put in train the process to have one of the former Provisional Liquidators appointed as Liquidator by the Secretary of State.
On 8 October, the date for filing the pre-trial questionnaire, Potter’s solicitors notified the OR’s office that failure to discontinue the proceedings would result in their client’s own application to have the proceedings struck out. No response was received and thus the application was made.
The IP was appointed Liquidator on 23 October and was now keen on continuing the action.
Mr Justice Warren commented that, without the OR’s statement on 4 October that he was “not in a position to continue this action”, Potter’s application would be “hopeless” (paragraph 37) and that the evidence (emails between the OR and the IP) suggested that up until the end of September “the OR had made no decision at all, a fact consistent with the suggestion made by Mr Wolman [for the claimant] that there are endemic, and he would say notorious, delays within the OR’s office” (paragraph 39). The judge suggested that, even if the conclusion were that on 4 October the Company did not intend to intend to pursue the action (a conclusion on which the judge cast significant doubt), it would be “an entirely disproportionate response” to strike out the action (paragraph 45).
In considering whether any delay in progressing the action supported the discharge of the freezing order, Warren J took no account of any delay prior to the appointment of the OR, as the Company was not in a position to act prior to this point. He also stated that “the OR must, on any footing, have been given a reasonable time after his appointment in which to consider his position in relation to the proceedings. I do not say that in all cases involving an insolvent company as claimant that a defendant simply has to accept the delays caused by the insolvency process. But in the present case, Mr Potter was the controlling mind and owner of the Company and ultimately responsible in practical terms for its demise… It would be wrong, I think, for Mr Potter to be able to rely on delay resulting from the orderly implementation of an insolvency process in order to obtain the discharge of the freezing order” (paragraph 48).
However, Warren J did observe that there seemed to be a delay over and above the “proper time for those matters” of some two months and that it may have been reasonable to expect the OR to have decided in July that, in view of the existing litigation, it would have been appropriate to hand the case to an IP, but nevertheless this small delay did not warrant the discharge of the freezing order.
The judgment includes details of exchanges between the OR’s office and the Provisional Liquidators, which demonstrate that there was no constructive dialogue between these parties throughout the OR’s term of office (which was not entirely due to delays by the OR) and leaves me wondering why the OR did not conclude swiftly on his appointment that an IP should be appointed (particularly given this case’s profile) or, failing this, why it took over three months for him to issue a Notice of No Meeting to creditors.