Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Setting the Scene for Game and other decisions

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I have a nagging suspicion that I’ve been keeping up with reading court judgments in an effort to postpone the job of looking at the draft Rules. I know that I’ll have to look at them sometime, but for now here’s my usual round-up:

• Setting the scene (1): the landlords’ appeal in Game that threatens the Goldacre and Luminar decisions
• Setting the scene (2): the SoS’ appeal of the redundancy consultation requirements in Woolworths and Ethel Austin
• Subtle variation in definitions between Scottish and English statute makes all the difference for a bankrupt living alone
• Limitation period not a barrier to breach of fiduciary duty claim
• Shareholder “acting unreasonably” by not pursuing alternative remedy to deadlock

One to look out for: the landlords’ appeal in the Game Group of Companies

Jervis v Pillar Denton Limited (Game Station) & Ors ([2013] EWHC 2171 (Ch)) (1 July 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/2171.html

Most of you will already be keeping an eye open, but I thought I’d cover it here, as BAILII now has published the first instance decision that, in light of the outcomes of Goldacre and Luminar, was pretty-much a foregone conclusion and to which all parties seemed to accept there would be an appeal.

To set the scene: Administrators were appointed on Game Stores Group Limited on 26 March 2012, the day after quarterly rents became due for payment in advance. A licence to occupy a number of properties was granted to Game Retail Limited when the business was sold to it on 1 April 2012. One further property was never occupied by Game Retail Limited, but was effectively abandoned by the Administrators when they removed goods from the property over the first five days of the Administration.

Of course, under Goldacre and Luminar, the rent that fell due prior to Administration is not payable as an expense of the Administration, notwithstanding any use of the property by the Administrators after appointment. In addition, any rents that fall due during the Administration are payable in full as expenses of the Administration even if the Administrators stop using the properties before the end of the relevant quarter. Nicholas Lavender QC made an order to this effect.

The landlords have been granted permission to appeal (and Game Retail Limited to cross-appeal), the key proposed ground being that the Lundy Granite principle and the decision in Re Toshoku Finance UK Plc should result in just and equitable treatment of the rent relating to the period when the property is being used beneficially for the purposes of the Administration as ranking as an expense of the Administration.

The case tracker suggests that the appeal will be heard in February 2014.

(UPDATE: The Game appeal judgment was released on 24 February 2014 (http://www.bailii.org/ew/cases/EWCA/Civ/2014/180.html), the general conclusion being that post-appointment rent (accruing on a daily basis) constitutes an Administration or Liquidation expense, if the property is occupied for the benefit of the Administration or Liquidation. Whilst some of the press coverage suggested that this was a victory for landlords over nasty office-holders, I think that the general mood amongst IPs is that this is a return to a just and sensible approach with which most are comfortable (although a Supreme Court appeal remains a possibility). For a summary of the appeal and its consequences, I would recommend: http://lexisweb.co.uk/blog/randi/landlords-can-rejoice-following-the-game-administration-decision/.)

Another one to look out for: the Secretary of State’s appeal in the Woolworths/Ethel Austin Employment Tribunals

USDAW & Anor v Unite the Union, WW Realisations 1 Limited and the Secretary of State for Business, Innovation & Skills ([2013] UKEAT 0548/12) (10 September 2013)

http://www.bailii.org/uk/cases/UKEAT/2013/0548_12_1009.html

This one is a lot less critical for IPs, but has the potential to reverse a fairly ground-breaking decision nevertheless.

In an earlier post (http://wp.me/p2FU2Z-3I), I reported on the original Tribunal of 30 May 2013, which decided that S188 of TULRCA (relating to the consultation requirements where redundancies are expected to affect “20 or more employees at one establishment”) was more restrictive than the EC Directive and that the consultation requirements should apply if 20 or more redundancies in total were planned, irrespective of the employees’ locations. These conclusions meant that some 4,400 former employees of Woolworths and Ethel Austin Limited (in two originally unconnected Tribunal cases) became entitled to 60 or 90 days’ pay… which, of course, fell at BIS’ door.

BAILII has now published the outcome of the Secretary of State’s application for permission to appeal, which was unique inasmuch as the SoS had declined expressly the court’s invitation to attend the previous hearing. However, HH Judge McMullen QC recognised that the previous judgment “made a substantial change in the outlook to this legislation, and it is in the interests of all that this issue be clarified as soon as possible” (paragraph 13). He also had no problem with the technicality that in fact the SoS was not a party at first instance to the Ethel Austin appeal, but only to the Woolworths one. He also imposed a stay on the order that arose out of the earlier appeal pending the SoS’ appeal.

A key issue for the appeal will be the outcome of the CJEU’s considerations of the case of Lyttle v Bluebird UK Bidco 2 Limited (C-182/13 NIIT, http://www.bailii.org/nie/cases/NIIT/2013/555_12IT.html), a February 2013 Northern Ireland Tribunal case, which covers the same ground.

(UPDATE (09/03/14): On 22 January 2014 (http://www.bailii.org/ew/cases/EWCA/Civ/2014/142.html), the Court of Appeal agreed to make a reference so as to give the CJEU an opportunity to join these cases to the Lyttle case with a view to producing a single judgment. Lord Justice Maurice Kay felt that this was appropriate, as there are no employee representations in the Lyttle case and it could be that a judgment on Lyttle alone might not resolve the issues arising in these cases in any event.)

(UPDATE 08/03/15: the European Advocate General’s opinion suggests that ‘at one establishment’ does have a purpose and is compatible with EU law.  Although it is likely, it remains to be seen whether the ECJ will follow the Advocate General’s opinion.  For a summary of the position as it stands at present, take a look at http://goo.gl/HhjHPN or http://goo.gl/MsfGFZ.)

Different Scottish and English treatments of bankrupt’s home do not lead to unfairness

McKinnon v Graham ([2013] EWHC 2870 (Ch)) (20 September 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/2870.html

This case nicely demonstrates a subtle difference between the English and Scottish laws relating to a bankrupt’s home: both provide that the property revests in the debtor after three years, but the provisions apply in different circumstances.

S40(4)(a) of the Bankruptcy (Scotland) Act 1985 defines “family home” as: “any property in which at the relevant date the debtor had (whether alone or in common with any other person) a right or interest being property which was occupied at that date as a residence by the debtor and his spouse or civil partner or the debtor’s spouse or former spouse or civil partner (in any case with or without a child of the family) or by the debtor with the child of the family”, but the corresponding S283A of the Insolvency Act 1986 applies “where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of the bankrupt, the bankrupt’s spouse or civil partner or a former spouse or civil partner of the bankrupt”. Consider the position of a property occupied only by the debtor: under English law the property would revest after three years, but under Scottish law it would not.

This case centred around such a property to which the Trustee of Mr Graham’s sequestration had been granted an order for possession. Mr Graham appealed, arguing that the judge had been wrong to apply Scottish law, which must give rise to situations that are manifestly unfair and thus offends public policy. HHJ Behrens endorsed the original decision, satisfied that the judge had correctly concluded that this was not an exceptional case requiring departure from the principle of modified universalism; he had been correct to apply Scottish law. “The fact that Scottish law chose to do this by reference to ‘the family home’ rather than the English law reference to ‘the sole or principal residence of the bankrupt, the bankrupt’s spouse or civil partner or a former spouse or civil partner of the bankrupt’ does not seem to me to come within a measurable distance of offending public policy or a fundamental principle of English insolvency law. As I have indicated the only difference between the 2 sections are the rights afforded to the bankrupt where he alone occupies the family home. Both jurisdictions provide protection where there is occupation by a spouse, civil partner or children. To my mind this difference is not fundamental to English insolvency law, nor does it offend public policy or create manifest unfairness” (paragraph 26).

Limitation period not applicable in case of director dishonesty

Vivendi SA & Anor v Richards & Bloch ([2013] EWHC 3006 (Ch)) (9 October 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/3006.html

Claims for breach of fiduciary duty succeeded against a director and shadow director in a fairly complex, but not extraordinary, case. However, personally what I learned from it was that the usual six-year limitation period did not apply as Mr Justice Newey had concluded that the director and shadow director had engaged in dishonest conduct. The payments in question were made between March 2004 and February 2005 and the company went into liquidation in the middle of 2005, but proceedings were not issued until May 2011.

Winding up order not the only solution for “deadlock” company

Maresca v Brookfield Development and Construction Limited & Anor ([2013] EWHC 3151 (Ch)) (16 October 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/3151.html

Mrs Maresca sought the winding up of Brookfield Development and Construction Limited (“BDC”) on the ground that its affairs had been conducted in a way that was unfairly prejudicial to her or alternatively on the just and equitable ground.

The personal relationship between Mrs Maresca and the other shareholder/director had broken down and Mr Justice Norris did consider “that on Mrs Maresca’s contributories’ petition she is entitled to relief by the winding up of the company and (in the absence of any other remedy) it would be just and equitable that the company should be wound up. However I consider that there is another remedy available to her and that she would be acting unreasonably in seeking to have BDC wound up instead of pursuing that other remedy: section 125(2) Insolvency Act 1986” (paragraph 40). With aplomb, Norris J then proceeded to quantify Mrs Maresca’s claim as a creditor based on the facts before him, leading to an order that, if BDC paid her £10,000 by 1 December 2013, then she is bound to transfer her share in BDC to the other shareholder and BDC is not to be wound up.

Norris J ended his judgment with a lesson: “I would readily acknowledge that there is a degree of approximation in this. But I have seen my task as providing a just outcome according to law by the application of resources appropriate to the dispute. Further refinement would come at a cost that would be ruinous to the parties (who have probably devoted to this case more than it is worth). Those who present petitions of this sort for companies like BDC must understand that that is likely to be the approach adopted: and would be wise to adopt the same approach in settlement negotiations” (paragraph 51).

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