Insolvency Oracle

Developments in UK insolvency by Michelle Butler

(1) Court-appointed receiver entitled to payment as officer of the court after discharge; (2) Mothballing business not an ETO reason for dismissals; (3) Wife’s statutory demand set aside as potentially viable defence that she was not properly advised; and (4) A VAT decision survives appeal

Leave a comment

0618 Fazenda
Still catching up post-holiday, some court decisions…

Glatt & Ors v Sinclair: Court-appointed receiver continued as officer of the court after discharge and thus was entitled to be paid from receivership assets
Kavanagh & Ors v Crystal Palace FC (2000) Ltd & Ors: Tribunal decision reversed: redundancies made to mothball a business with a view to a going concern sale (whether sooner or much later) did not constitute an ETO reason [UPDATE 26/11/2013: see the more recent post – http://wp.me/p2FU2Z-4I – for a summary of the Court of Appeal’s decision reversing this judgment]
Welsh v Bank of Ireland (UK) Plc: a Northern Ireland case acting as a reminder to lenders seeking PGs from spouses
HMRC & Ford Motor Co Ltd v Brunel Motor Co Ltd: an appeal against a VAT Tribunal decision is dismissed

Court-appointed receiver entitled to payment as officer of the court after discharge

Glatt & Ors v Sinclair [2013] EWCA Civ 241 (26 March 2013)

http://www.bailii.org/ew/cases/EWCA/Civ/2013/241.html

Summary: Although a receiver appointed by the court under the Criminal Justice Act 1988 was discharged in 2006, he was entitled to be paid from the receivership assets his remuneration and expenses (subject to the court’s approval of the quantum) incurred after discharge on the basis that “he continues to be an officer of the court (and subject to the supervision of the court) to the extent that he still has functions to perform with a view to a final conclusion of the administration of the receivership.”

The Detail: In 2006, Mr Glatt successfully appealed against a confiscation order, which was set aside; this was swiftly followed by the discharge of a 2001 receivership order made under the Criminal Justice Act 1988. There followed a number of disputes between Mr Glatt and the former receiver, in particular regarding the Receiver’s entitlement to exercise a lien over the assets covered by the receivership order to meet his remuneration and costs. In December 2010, an order found in favour of the receiver for his costs plus interest and, after further consideration by a costs judge, another order was granted in June 2012 confirming that the 2010 order did extend to the receiver’s post-discharge remuneration, expenses and disbursements, and that the receiver was entitled to payment out of the receivership assets.

In this appeal, the appellants sought to argue that the court had no power to order payment of post-discharge remuneration and expenses.

Firstly, Lord Justice Davis did not believe it would be just to allow the appellants to argue this point. He felt that the appellants could have been in no doubt that the receiver had proceeded on the basis that he was entitled to claim post-discharge remuneration and expenses; they had had an earlier opportunity to debate the point, but had not. Nevertheless, Davis LJ proceeded to consider the question of the receiver’s entitlement.

The judge noted that there may be a number of tasks required of a receiver post-discharge, for example the preparation and filing of closing accounts, and it was his view that: “Where a receivership order made under the Criminal Justice Act 1988 is discharged, the receiver continues to be an officer of the court (and subject to the supervision of the court) to the extent that he still has functions to perform with a view to a final conclusion of the administration of the receivership. It would be a wholly unsatisfactory and arbitrary state of affairs were it to be otherwise” (paragraph 41). In this case, the significant post-discharge work of the receiver had been substantially in dealing with the appellants’ challenges on issues such as ownership of assets and the extent of the lien. “In my view, therefore, the general principle being that the receiver looks to payment from assets under the control of the court (not from the parties), the receiver here continued, after discharge, to act as an officer of the court and to be subject to its supervision in and about the enforcement of his lien” (paragraph 44), although the asset-owner was not left entirely without remedy, as the receiver’s remuneration and expenses were still subject to the court’s approval.

“Mothballing” for future going concern sale not an ETO reason for dismissals

Kavanagh & Ors v Crystal Palace FC (2000) Limited & Ors [2012] UKEAT 0354 (20 November 2012)

http://www.bailii.org/uk/cases/UKEAT/2012/0354_12_2011.html

Summary: The appeal judge decided that the Tribunal had erred in law in misapplying the facts it had found to the statutory regime. Following Spaceright v Baillavoine, an economic, technical or organisational (“ETO”) reason must be an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it. In this case, an intention to mothball the club with a view to selling it as a going concern – whether to purchasers already on the scene or others later – should have led the Tribunal to a conclusion that there was no ETO reason and thus the liabilities should have passed from the transferor to the transferee.

The Detail: Although an apparently old decision, it has only recently appeared on BAILII. The company’s administration began in January 2010 and over the next few months the administrator attempted to sell the club, but it proved difficult mainly because the sale was dependent upon the purchasers also acquiring the stadium, the sale of which was not in the administrator’s control.

When the sale had not been completed at the end of the football season, the administrator decided to “mothball” the club. He prepared to make the majority of the staff redundant and the potential purchasers were warned of the plan and invited to avoid this eventuality by providing ongoing funding and finalising a purchase of the stadium. In response, the potential purchasers suggested that it might be best for them to withdraw their bid in the hope that someone else might come forward in the short time left. The Honourable Mr Justice Wilkie at this appeal said: “It is clear that what was going on, to some extent, was by way of brinkmanship” (paragraph 8). The administrator explained to the press that due to lack of funds there was no alternative but to make staff redundant and that the players would have to be next, which likely would result in the potential purchasers withdrawing. The first Tribunal commented that the growing media and public pressure had the “desired effect and an agreement for sale of the stadium was made within a few days” (paragraph 11), with the club’s sale and the CVA approval following thereafter.

The first Tribunal had concluded that the administrator’s primary reason for the redundancies was to mothball the club in the hope that it could be sold some time in the future and that it was not in the administrator’s contemplation that publicity of the redundancies might lead to the swift sale of the stadium and consequently the club. Wilkie J commented that this “is a wholly surprising conclusion” that “flies in the face of the evidence” (paragraphs 29 and 30). However, he continued that this divergence in opinions between himself and the Tribunal judge made no real difference, because, either way, the administrator still intended to sell the club as a going concern, whether to the existing potential purchasers or to others some time in the future. “It is very clear from all the findings of fact that the Tribunal made that the only possible conclusion that they could draw was that the dismissal of the Claimants was for the purpose of selling the business, albeit it was not at that stage certain that there would be a sale, nor necessarily to whom the sale would be, but, in our judgment, by reason of the authorities to which we have been referred, that is not relevant for the purposes of the application of Regulations 4 and 7” (paragraph 31).

The key authority to which Wilkie J referred was the case of Spaceright Europe Ltd v Baillavoine and Anor, which concluded that “for an ETO reason to be available, there must be an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it”. However, in this case the administrator had no intention to continue to conduct the business as such “but to preserve it so that it could, in new hands, if that came about, resume the conduct of business” (paragraph 30). Thus the judge concluded that the Tribunal had erred in law in misapplying the facts to the statutory regime; it should have concluded that the dismissals were not for an ETO reason but with a view to sale or liquidation; and therefore the liability for the various claims should have passed from the transferor to the transferee.

[UPDATE 26/11/2013: The Court of Appeal reversed this decision on 13/11/2013 (http://www.bailii.org/ew/cases/EWCA/Civ/2013/1410.html), which is the subject of a more recent post: http://wp.me/p2FU2Z-4I. The appeal judges distinguished between the facts of Spaceright and this case, in relation to which they were satisfied that the dismissals were for an ETO reason; the dismissals had been necessary to reduce the wage bill in order to continue running the business.]

A knowledge of case law helps when giving advice!

Welsh v Bank of Ireland (UK) Plc [2013] NIMaster 6 (11 March 2013)

http://www.bailii.org/nie/cases/NIHC/Master/2013/6.html

Summary: In this Northern Ireland case, Ms Welsh succeeded in her application to have set aside a statutory demand in pursuit of monies owed under a personal guarantee of a loan to her husband. As the Bank had not evidenced that all of the core minimum requirements described in Etridge with regard to obtaining proper legal advice had been met, the judge felt that Ms Welsh had a potentially viable defence, which was sufficient cause to order the setting aside of the statutory demand.

The Detail: Ms Welsh applied to have the Bank’s statutory demand against her set aside on the ground that the Bank had constructive notice of alleged undue influence and/or misrepresentation by her husband and that she did not receive proper legal advice prior to signing the personal guarantee, which was the subject of the statutory demand.

Master Kelly noted that “an applicant debtor need only demonstrate a genuine arguable case, or a potentially viable defence to the dispute requiring investigation, to succeed in preventing legal proceedings issuing by way of insolvency proceedings. It follows therefore, that in the case of an application to set aside a statutory demand, the hearing is not for the purposes of a trial of the dispute; rather it is for the court to determine whether the applicant’s grounds for disputing the debt constitute a potentially viable defence” (paragraph 16). The judge looked to the case of The Royal Bank of Scotland v Etridge (No 2) for the core minimum requirements of a lender when a wife offers to guarantee her husband’s debts. In this case, the Bank had not evidenced any direct communication with Ms Welsh and the solicitor’s confirmation of advice in a letter after the guarantee had been signed was not sufficient evidence to prove that all the core minimum requirements had been met (it also cannot have helped that the solicitor admitted that he was not familiar with the Etridge case). Consequently, the judge felt that Ms Welsh had an arguable case that would require a full trial. As she had demonstrated a potentially viable defence, the judge ordered that the statutory demand be set aside.

And finally… briefly… a VAT case

HMRC & Ford Motor Company Limited v Brunel Motor Company Limited (in administrative receivership) [2013] UKUT 006 (TCC) (19 March 2013)

http://www.bailii.org/uk/cases/UKUT/TCC/2013/6.html

Summary: The Upper Tribunal dismissed an appeal to a First Tier Tribunal decision of September 2011 that Ford’s actions to re-possess vehicles subject to a supply agreement (which had terminated automatically due to the receivership) and issue credit notes were unilateral acts and thus there had been no agreed rescission of the agreement with the consequence that the credit notes had no effect for VAT purposes.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s