Insolvency Oracle

Developments in UK insolvency by Michelle Butler


Leave a comment

(1) Legal charge for bankruptcy annulment service unenforceable; (2) Employment Appeal Tribunal acknowledges company’s conflicting statutory duties; (3) English court leaves US to decide bankrupt’s COMI; (4) company restoration did not avoid administration-liquidation time gap; (5) what are TUPE “affected employees”?; (6) more on Jersey administration appeal

IMGP5257

Sorry guys, I’ve been storing up a few court decisions:

Consolidated Finance v Collins: legal charge resulting from bankruptcy annulment service unenforceable
AEI Cables v GMB: protective awards reduced in recognition of company’s conflicting statutory duties
Kemsley v Barclays Bank Plc: English court leaves US to decide bankrupt’s COMI
RLoans LLP v Registrar of Companies: company restoration did not avoid 2-year gap between administration and liquidation
I Lab Facilities v Metcalfe: redundant employees in non-transferred part of business not TUPE “affected employees”
HSBC Bank Plc v Tambrook Jersey: Court of Appeal’s reasons for reversing rejection of Jersey court’s request for administration

Out of the frying pan into the fire for bankrupts achieving annulments

Consolidated Finance Limited v Collins & Ors ([2013] EWCA Civ 473) 8 May 2013

http://www.bailii.org/ew/cases/EWCA/Civ/2013/475.html

Summary: Appellants were successful in resisting the attempts of Consolidated Finance Limited (“Consolidated”) to enforce mortgages over their homes, mortgages which had arisen as a consequence of engaging the Bankruptcy Protection Fund Limited (“BPF”, “Protection”) to secure annulments of their bankruptcies. The agreements were found to be refinancing agreements and thus subject to the Consumer Credit Act 1974, the requirements of which Consolidated had not met.

Whilst the arguments centred around the construction and effects of the agreements, of greater interest to me are the judge’s criticisms of the transactions which, at least in the case examined as typical, were in his judgment manifestly to the bankrupt’s and her husband’s prejudice. He felt that some of the companies’ literature was misleading and noted that it made no mention of the “extraordinarily high rates of interest”. He also criticised the solicitors involved in the process, questioning whether they could avoid the duty to advise their clients, who were clearly entering into a transaction that was manifestly to their disadvantage, and suggested that they may have had “a conflict of irreconcilable interests” given their relationship with Consolidated and BPF.

The Detail: Five sets of appellants sought to resist Consolidated’s attempts to enforce mortgages over their homes. The judge focussed on the facts of Mr and Mrs Collins’ case as typical of all claims.

Mrs Collins had been made bankrupt owing a total of £13,544 to her creditors. She engaged the services of BPF to help her secure an annulment, given that the equity in her jointly-owned home was more than sufficient to cover all debts. Mrs Collins’ bankruptcy was annulled by reason of BPF settling all sums due by means of funds totalling £24,674 received from Consolidated. Under the terms of a Facility Letter, Consolidated agreed to make available a loan of £32,000 (which was also used to settle BPF’s fees), which was required to be repaid within three months after drawdown. Mr and Mrs Collins were unable to refinance their liabilities under the Facility Letter supported by a Legal Charge, resulting in Consolidated filing the claim, some 2.5 years later, for a total at that time of £77,385 inclusive of interest at 4% per month after the first three months (at 2.5% per month). The Facility Letter also provided for a so-called hypothecation fee of 2.5% of the principal and an exit fee of the greater of £3,000 and 2.5% of the principal.

Amongst other things, the appellants contended that the agreements under which they were alleged to have incurred the liabilities were regulated for the purposes of the Consumer Credit Act 1974 (“the Act”) and did not comply with the requirements of the Act. Consolidated’s case was that it was a “restricted-use” agreement, which would lead it to be exempted from the requirements of the Act. The Collins’ argument was that, if anything, it was a refinancing agreement, which would mean that it was not exempt.

Sir Stanley Burton concluded from the documents that Mrs Collins was indebted to BPF for the sums advanced at least until the annulment order was made. “The effect of the Facility Letter was to replace her indebtedness to Protection, which was then payable, with that owed to Consolidated. In other words, the purpose of the agreement between Mrs Collins and Consolidated was to refinance her indebtedness to Protection” (paragraph 47). Consequently, it was a regulated agreement and it was common ground that it did not comply with the statutory requirements and was unenforceable in the present proceedings.

The judge felt inclined to air his concerns at the “unfairness” of the transactions between the Collins and BPF/Consolidated. He stated that, “at least in the case of Mr and Mrs Collins, the transactions were in my judgment manifestly to their prejudice… If they failed to refinance their liabilities to the companies, as has happened, and the Legal Charges granted to Consolidated were enforceable, it would not only be Mrs Collins’ equity in their home that would be in peril, but also that of Mr Collins. In other words, they were likely to lose their home. This was the very result that, according to the companies’ literature, entering into agreements with them would avoid, but with the added prejudice that the far greater sums sought by the companies would have to be paid out of the proceeds of sale of their home as against the sums due in the bankruptcy (for which Mr Collins had no liability)” (paragraph 56).

He also noted that the companies incur no risk in making the advance to the bankrupt, as they will only do so if there is sufficient equity in the property, and therefore “to suggest that they take any relevant risk, as they do by describing their services as ‘No win no fee’, is misleading” (paragraph 57). “Moreover, the companies’ advance literature… make no mention of the extraordinarily high rates of interest they charge, rates that are even more striking given that the indebtedness is fully secured” (paragraph 58).

The judge also criticised the solicitors who acted for Mrs Collins and who were introduced to her by BPF, a relationship which, he suggested, may have given them “a conflict of irreconcilable interests”. “It must, and certainly should, have been obvious to them that for the reasons I have given the transactions with Mr and Mrs Collins were manifestly to their disadvantage. Mrs Collins was their client. I raise the question whether in such circumstances a solicitor can properly avoid a duty to advise his client by excluding that duty from his retainer, as LF sought to do” (paragraph 59).

Employment Appeal Tribunal acknowledges insolvent employer’s Catch-22, but only drops protective awards by a third

AEI Cables Limited v GMB & Ors ([2013] UKEAT 0375/12) (5 April 2013)

http://www.bailii.org/uk/cases/UKEAT/2013/0375_12_0504.html

Summary: Having consulted IPs and failed to seek additional funding, the company decided to make employees in one division redundant and keep another division running with a view to proposing a CVA. The CVA was approved, but the dismissed employees were granted the maximum 90 days protective awards, as the company had failed completely to consult with the trade unions/employee representatives as required by the Trade Union and Labour Relations (Consolidation) Act 1992.

The company sought to have the protective awards reduced. The Appeal Tribunal acknowledged that it was unreasonable to expect the company to have continued to trade while insolvent to enable it to comply with the consultation requirements of the Act – the company could have consulted, at most, for 10 days – and that the Employment Tribunal should have considered why the company acted as it did. The protective awards were reduced to 60 days.

The Detail: Around the middle of May 2011, insolvency practitioners warned the company that, unless they took action, they risked trading whilst insolvent. Following a failure to secure additional funding from the bank, the decision was made to close the company’s cable plant, leading to the redundancy of 124 employees, but continue to trade the domestic division, which employed 189 people, and seek to agree a CVA. On 27 May 2011, the 124 employees were dismissed with immediate effect and later a CVA was approved on 24 June 2011.

An Employment Tribunal found that the company had failed to consult with trade unions and employee representatives as required by S188 of the Trade Union and Labour Relations (Consolidation) Act 1992. The company raised no special circumstances in an attempt to excuse non-compliance, but it did appeal the length of the protective awards, which had been granted for the full 90 days.

The reasoning of the Appeal Tribunal went like this: “We very much bear in mind that the purpose of making a protective award is penal, it is not compensatory. It is penal in the sense that it is designed to encourage employers to comply with their obligations under sections 188 and 189. We also bear in mind that the starting point in considering the length of a protective award is 90 days. Nonetheless Employment Tribunals are bound to take account of mitigating factors and are bound to ask the important question why did the respondent act as it did. Had the Employment Tribunal asked this question it could not possibly have ignored the fact and the conclusion that the company simply was unable to trade lawfully after the advice it had received on 25 May. In those circumstances, it is clearly wrong for the Employment Tribunal to anticipate that a 90 day consultation period could have started” (paragraph 22). In this case, the Appeal Tribunal noted that the company could have started consultation around 17 to 20 May, when it seems the company first consulted the IPs, but there had been no consultation or no real provision of information at all before the dismissals on 27 May. “However, because in our opinion the Employment Tribunal failed to have sufficient regard to the insolvency and the consequences of trading and that a consultation period of 90 was simply not possible, the award of 90 days cannot stand” (paragraph 23). The protective awards were reduced to 60 days.

English court leaves US to decide bankrupt’s COMI

Kemsley v Barclays Bank Plc & Ors ([2013] EWHC 1274 (Ch)) (15 May 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/1274.html

Summary: An English bankrupt sought to have US proceedings against him restrained. The English court declined to intervene, observing that the Trustee’s ongoing application in the US Bankruptcy Court for recognition under UNCITRAL of the English bankruptcy would decide the bankrupt’s fate.

The Detail: On 26 March 2012, Kemsley was made bankrupt on his own petition. Shortly before this, Barclays commenced proceedings against him in New York (and later in separate proceedings in Florida). Kemsley’s Trustee applied to the US Bankruptcy Court for recognition under UNCITRAL of the English bankruptcy as a foreign main proceeding. At the time of this hearing, judgment on the Trustee’s application had not yet been given, but the New York proceedings had been adjourned awaiting the outcome.

Kemsley applied to the English court to restrain Barclays from continuing with either the New York or the Florida proceedings. The issue for Kemsley was that, although he would be discharged from his English bankruptcy on 26 March 2013, if Barclays were successful in the New York proceedings, that judgment would be enforceable for 20 years in the US and other jurisdictions that would recognise it.

Mr Justice Roth noted a couple of authorities, which followed the principle that “there must be a good reason why the decision to stop foreign proceedings should be made here rather than there. The normal assumption is that the foreign judge is the person best qualified to decide if the proceedings in his court should be allowed to continue. Comity demands a policy of non-intervention” (paragraph 30).

The judge noted that, if the English bankruptcy were recognised as foreign main proceedings on the basis that England was Kemsley’s COMI, the New York and the Florida proceedings would be stayed. But what if the US Court finds that Kemsley’s COMI was the USA? In that case, would it be right for the English court to intervene? As Roth J observed: “either Mr Kemsley’s COMI was in England, in which case an anti-suit injunction is unnecessary; or it was in the United States, in which case I regard such an injunction as wholly inappropriate” (paragraph 50). Consequently, Roth J dismissed the application.

In a postscript to the judgment, it was reported that the Trustee’s application for recognition was refused by the US court. The court found that, at the time of the petition, Kemsley’s COMI was in the USA.

Company restoration of no use to petitioner, as it left a 2-year gap between administration and liquidation

RLoans LLP v Registrar of Companies ([2012] EWHC B33 (Comm)) (30 November 2012)

http://www.bailii.org/ew/cases/EWHC/Comm/2012/B33.html

Summary: A creditor sought the restoration of a dissolved company to the register in order to pursue a preference claim. The company had been moved to dissolution from administration in 2010, so the petitioner sought a winding-up order that would follow on immediately from the administration so that the preference claim was not already out of time.

The judge restored the company and ordered the winding-up, but noted that this did not deal with the 2-year gap between insolvency proceedings. This was because he felt that, on filing the form under paragraph 84 of Schedule B1, the administration had ceased, dissolution being a later consequence, and so the eradication of the dissolution merely brought the company back to the position after the end of the administration.

The Detail: To enable a preference claim to be pursued, RLoans LLP sought the restoration of a company to the register and a winding-up order to take effect retrospectively from the date that the former Administrators’ notice of move to dissolution was registered. The transaction that is subject to the preference allegation occurred in March 2006; Administrators were appointed in January 2007 and they submitted the form to move the company to dissolution in June 2010. Therefore, only if the company’s restoration was accompanied by a continuation of insolvency proceedings – either a liquidation following immediately on the cessation of the administration or an extension of the original administration – would the preference claim have any chance due to the timescales involved; it would be of no use to the petitioner if the commencement of the winding-up were the date of restoration.

Mr Registrar Jones had no difficulty deciding that it was just to restore the company to the register. However, he concluded that the resultant fiction that the dissolution had not occurred had no effect on the cessation of the administration: “when paragraph 84 of Schedule B1 to the Act prescribes that the appointment ceases upon registration of the notice, it means that there is no longer any administration in existence. The cessation is not dependent upon dissolution taking place” (paragraph 26). Therefore, there would still be a gap of over two years between the end of the administration and the start of any winding-up, which would not help the petitioner. The judge also felt that the solution did not lie in extending retrospectively the original administration, because the company had ceased to be in administration before its dissolution; all the current direction could do was to restore the company to the position it was in before dissolution.

In the absence of the recipient of the alleged preference, the judge was not prepared to consider suspending the limitation period between the end of the administration and the commencement of liquidation. Therefore, all he did was restore the company to the register and order its winding-up. He also declined to order that the IP waiting in the wings be appointed liquidator: “I only have power to make the appointment if a winding up order is made ‘immediately upon the appointment of an administrator ceasing to have effect’ (see section 140 of the Act). For the reasons set out above, that has not occurred” (paragraph 61).

Another Employment Appeal Tribunal: “affected employees” narrowed for TUPE consultation purposes

I Lab Facilities Limited v Metcalfe & Ors ([2013] UKEAT 0224/12) (25 April 2013)

http://www.bailii.org/uk/cases/UKEAT/2013/0224_12_2504.html

Summary: Staff employed in one part of the business were not “affected employees” under the consultation requirements of TUPE, because they had not been affected by the transfer of the other part of the business, but by the closure of their business. The fact that the original plan had been that their part of the business would also transfer was not relevant, but rather it was what was finally transferred that was relevant for TUPE consultation purposes.

The Detail: I Lab (UK) Limited (“ILUK”) operated a business providing rushes and post-production work to the film and television industry. On 11 June 2009, the post-production staff were given notice of redundancy, but also were told that the plan was that some of them would be hired on new contracts. However it seems that the plan changed; the company was placed into liquidation on 30 July 2009 and on 11 August 2009 assets relating to the rushes part of its business were sold to I Lab Facilities Limited and no new contracts were made with the former post-production staff.

The Employment Tribunal found that ILUK had failed to comply with regulation 13 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), but the transferee appealed on the ground that the post-production staff were not “affected employees” for the purposes of TUPE, because that part of the business had not transferred, and thus they had not been entitled to consultation. The Appeal Tribunal agreed – the post-production staff had not been affected by the transfer, but by the closure of the business. However, Counsel for the employees argued that it had been the original plan – which would have affected the post-production staff also – that had generated the requirement to consult.

The Appeal Tribunal reasoned: “It is necessary to appreciate that the time at which an employer must comply with the obligations under regulation 13 (2) and (6) is not defined by reference to when he first ‘envisages’ that he will take the relevant ‘measures’. Rather, the obligation is to take the necessary steps ‘long enough before’ the transfer to allow consultation to take place. That being so, it can never be said definitively that the employer is in breach of that obligation until the transfer has occurred” (paragraph 20). Consequently, as the indirect impact of the actual transfer of the rushes business did not make the post-production staff “affected employees”, the appeal was allowed.

Court of Appeal re-opens the way for administrations of overseas companies

HSBC Bank Plc v Tambrook Jersey Limited ([2013] EWCA Civ 576) (22 May 2013)

http://www.bailii.org/ew/cases/EWCA/Civ/2013/576.html

Summary: As reported in an earlier post (http://wp.me/p2FU2Z-38), the Court of Appeal overturned a rejection of an application for an Administration Order over a Jersey company.

The Detail: At first instance, Mann J said that an Administration Order could not be made under S426, as the English Court was not being asked to “assist” the Jersey Court in any endeavour as there were no proceedings afoot in Jersey.

In the appeal, Lord Justice Davis expressed the view that, with all respect to Mann J, “his interpretation and approach were unduly and unnecessarily restrictive” (paragraph 35). His first point was that “S426(4) is not by its actual wording applicable (notwithstanding the title to the section) to courts exercising jurisdiction in relating to insolvency law: it is by its wording applicable to courts having jurisdiction” (paragraph 36) and, in any event, Davis J felt that the Jersey court was engaged in an endeavour: “the endeavour was to further the interests of this insolvent company and its creditors and to facilitate the most efficient collection and administration of the Company’s assets” (paragraph 41) and thus the Royal Court of Jersey made the request that it did to the English Court.


Leave a comment

Not the Eurosail Supreme Court judgment

IMGP3270

In the middle of drafting today’s post, I noted the release of the Supreme Court’s decision in Eurosail. I think I need time to absorb that judgment, but you can find it here: http://www.supremecourt.gov.uk/news/latest-judgments.html.

Instead, I’ll plough on here with a few other judgments:

SoS v McDonagh & Ors: post-CVA wages/HP claims arising on liquidation not payable from NI Fund
HSBC v Tambrook: Jersey court asks English court to make an administration order via S426 IA86
Tanner v Millar: does a friend’s blank cheque mean you’re not insolvent?
Firstplus v Pervez: a lesson for mortgagees in getting the pre-action process right

Post-CVA arrears of wages and holiday pay not payable from the NI Fund when company moves into liquidation

Secretary of State for Business Innovation & Skills v Mr M V McDonagh & Ors [2013] UKEAT 0287/12 (14 February 2013)

http://www.bailii.org/uk/cases/UKEAT/2013/0287_12_1402.html

Summary: This Appeal Tribunal overturned the decisions of two separate Employment Tribunals that former employees of a company that had been in CVA were entitled to claim arrears of pay and holiday pay from the NI Fund when the company subsequently went into liquidation. The appeals judge decided that the relevant date for claims was the date that the company’s CVA had been approved, not when later it had been placed into liquidation.

The Detail: Two separate Employment Tribunals had decided that former employees of companies that had been in CVA were entitled to claim arrears of pay and holiday pay from the NI Fund when the companies subsequently went into liquidation. In each case, all the twelve claimant employees had been unaware that the company had been placed into CVA – they had continued to be paid for some time until their employment ended when, or shortly before, the companies went into compulsory liquidation, leaving them with claims for arrears of wages and holiday pay. The NI Fund rejected their claims on the basis that the relevant date of these claims was after the commencement of the company’s insolvency, which it claimed was the date the CVA was approved, not the date of the liquidation commencement.

The Honourable Mr Justice Langstaff noted that the original judge, who had decided in favour of the employees, had interpreted the Employment Rights Act 1996 in light of what he had assumed was Parliament’s intention, suggesting that, because the company in CVA could – and did – continue to pay wages, at that time it had not become insolvent for the purposes of the ERA96, but that this point had occurred only when the company had been placed into liquidation. “That is to apply a definition of insolvency which is not to be found in the Act” (paragraph 22). “It is incoherent to suggest that a company which is insolvent by statute becomes insolvent again or in addition or in any additional way when wound up. The underlying state of insolvency has not changed” (paragraph 35).

The judge also found no contradiction in the EC Directive, which invites Member States to fix a relevant date for wages claims alternative to the commencement of insolvency proceedings, which, contrary to the original judge’s opinion, include CVAs, but that the UK had not taken up that invitation.

Langstaff J recognised the apparent unfairness of his conclusions in this case, particularly where the employees had no knowledge of the CVA, but he pointed out that this decision only affected debts that were payable before the start of the insolvency proceeding. “Other debts would be payable afterwards. A period of notice pay, for instance, to which each of these Claimants was entitled was not excluded from guarantee” (paragraph 56).

According to counsel on this case this was the first time that this question has been raised before any court, which personally I find most surprising: there must have been many cases where employees have been left with the full range of claims after a company in CVA has moved into liquidation. Perhaps this is the first time, however, that an employee has sought to dispute the RPO’s rejection.

English court’s rejection of Jersey court’s request for assistance in making administration order swiftly reversed

HSBC Bank v Tambrook Jersey Limited [2013] EWHC 866 (Ch) (12 April 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/866.html

Summary: A secured creditor applied for an English administration order over a Jersey company. The application was supported by a letter from the Royal Court of Jersey asking that the English Court assist, pursuant to S426 of the IA86, by making the administration order. At first instance, the application was rejected on the basis that, as there was no insolvency proceeding either ongoing or intended in Jersey, the English Court could not “assist” the Jersey Court by making an English administration order. On appeal on 1 May, this decision was overturned, although the decision has yet to be published.

The Detail: Tambrook is a Jersey-registered and generally accepted to be Jersey-COMI company, although its main business activity is in England. None of the insolvency options available under Jersey statute were considered attractive by either the company director or the company’s secured creditor, but they saw significant advantages in an English administration.

As the company’s COMI is not England, the secured creditor sought to apply for an English administration via S426 of the IA86. S426(4) states that the English court “shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory”. The Royal Court of Jersey had written a letter to the English High Court requesting that it assist, pursuant to S426, by making an administration order.

In the first instance decision, Mr Justice Mann declined to make an administration order on the basis that the court was being asked to provide far more than simply assistance to the Jersey Royal Court: “this court cannot ‘assist’ another court which is not actually doing anything, or apparently intending to do anything, in its insolvency jurisdiction” (paragraph 18). Mann J came to this decision despite the applicant’s counsel referring to five Jersey cases in which he claimed administration orders had been granted in similar circumstances; the judge felt that they did not assist him in any way, as no reasoned decisions were available on those cases.

Although the full judgment has yet to be published, several sources report (e.g. http://www.mourantozannes.com/news/news/breaking-news-tambrook-overturned-on-appeal.aspx) that this decision was overturned on the hearing of an appeal on 1 May 2013.

Does a blank cheque from a friend disprove insolvency?

Tanner v Millar [2013] EWHC 750 (Ch) (23 January 2013)

http://www.bailii.org/ew/cases/EWHC/Ch/2013/750.html

Summary: Although this was a fairly insignificant – and unsuccessful – application for permission to appeal against a transaction at an undervalue judgment, I thought it contained an unusual twist: the beneficiary of the transaction (Tanner) sought to prove that the bankrupt had not been insolvent at the time of the transaction because Tanner had been capable and willing to pay any sum to get the bankrupt out of a hole. The judge decided that this evidence probably would not have influenced the result of the case: the district judge had found that the debtor had been insolvent at the time based on the position of his own assets and liabilities.

The Detail: In an earlier judgment, the judge had found that the bankrupt had paid away substantial sums to Tanner by way of a transaction at an undervalue and thus ordered Tanner to repay the sums to the Trustee in Bankruptcy. Tanner sought permission to appeal the decision on a number of grounds. One of the grounds was that, at the time of the transaction, Tanner had had access to substantial funds and was willing to step in to provide to the bankrupt whatever funds were necessary to meet a contingent damages claim, which had been the key to the bankrupt’s insolvency.

Mr Justice Sales refused permission to appeal, deciding that this ground – and the others – did not meet the standard tests to allow fresh evidence to be admitted. In relation to this ground, Sales J decided that, even if admitted, it probably would not have an important influence on the result of the case: “It is quite clear, as the district judge found, that the bankrupt did not have sufficient assets of his own to meet his liability to pay damages. He was therefore insolvent. The fact that he had a generous friend in the form of Mr Tanner on hand who might have been prepared to help him (but had no legal obligation to do so) does not meet the point, as determined by the district judge, that the bankrupt was himself insolvent at the relevant time” (paragraph 15).

Mortgagee’s pre-action information must not be issued too early in the process

Firstplus Financial Group Plc v Mr Khalid Pervez [2013] ScotSC 27 (22 March 2013)

http://www.bailii.org/scot/cases/ScotSC/2013/27.html

Summary: In this Scottish case, the Sheriff decided that the mortgagee had not complied with the pre-action requirements for enforcing its security because it had provided the debtor with the pre-action information at the same time as the “formal requisition” letter and before the expiry of the calling-up notice. Although different Acts resulted in different interpretations of the timing of the debtor “entering into default”, each interpretation led to a conclusion that the pre-action information had been provided too early in the process. Although the Scottish Government’s guidance suggests compliance at an earlier stage, it could not take precedence over primary legislation.

The Detail: The mortgagee, Firstplus, sought orders for the possession and sale of Pervez’s residential house. The case turned on whether Firstplus had complied with the pre-action requirements of the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (“PAR Order 2010”).

Firstplus had communicated the debtor a number of times, culminating in the issuing of a “formal requisition” letter on 26 May 2011. This letter had included the required pre-action information. Later still, Firstplus served a calling-up notice on 19 July 2011. In view of the fact that the PAR Order 2010 states that the pre-action information “must be provided as soon as is reasonably practicable upon the debtor entering into default”, the key question was: when had the debtor defaulted? The question is complicated by the fact that “default” has different meanings under the different Acts to which the PAR Order 2010 refers: the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894.

The 1970 Act defines default, in part, as: “(a) where a calling-up notice in respect of the security has been served and has not been compiled with (Standard Condition 9(1)(a)); (b) where there has been a failure to comply with any other requirement arising out of the security (the court’s emphasis) (Standard Condition 9(1)(b));”. In this case, the Sheriff concluded that the calling-up notice had to be served and thus the earlier default notice was invalid and ineffective. On this basis, as the expiration of the calling-up notice had occurred after the pre-action information had been sent, the Sheriff decided that the PAR Order 2010 had not been complied with.

The Sheriff also reviewed the 1894 Act. He concluded that, although the 1894 Act does not expressly define “default”, “it is plain from the express terms of section 5 of the 1894 Act that the ‘default’ envisaged by that section can only occur ‘after formal requisition’ of the principal (my emphasis). Logically, therefore, the ‘default’ and the demand for payment cannot be simultaneous” (paragraph 59). It was Sheriff S Reid’s view that there must be a short time lapse between the issuing of the demand and the conclusion that the debtor had “made default” in terms of the 1894 Act and, although in this case the Sheriff need not have decided how long that time period should be, he expressed the view that “that time is likely to be very short – probably no more than one hour in commercial cases (Bank of Baroda v Panessar [1987] Ch. 335; Sheppard & Cooper Ltd v TSB Bank plc [1996] All ER 654), perhaps no more than a few clear banking days in non-commercial cases – being, in any event, no more than is necessary, in ordinary course, for the mechanics of a monetary transfer to be instructed and effected through recognised modern banking techniques” (paragraph 67). Therefore, because in this case the pre-action information had accompanied the “formal requisition”, the Sheriff decided that the PAR Order 2010 had not been complied with.

Firstplus had argued that it had been obliged to comply with the Scottish Government’s “Guidance on Pre-Action Requirements for Creditors”, which states that the pre-action information had to be provided as soon as the debtor enters into default “for example, by falling into arrears”, which would appear to suggest a far earlier point than that indicated by the 1970 and 1894 Acts. The Sheriff’s response was that “In my judgment, while creditors must ‘have regard to’ any Guidance issued by the Scottish Ministers in this respect, they are not obliged to follow it, still less is the Guidance a binding or definitive statement of the law. If that Guidance was seeking to define ‘default’ for the purposes of the 1970 Act as comprising merely a debtor ‘falling into arrears’, it would have been, in my judgment, an incorrect statement of the law. The Guidance cannot take precedence over, or contradict the proper meaning of, primary legislation” (paragraph 84).

This judgment has left me with a question: given the different timings of default under the two Acts, what would have happened had the pre-action information been sent after the “formal requisition” but before the calling-up notice?


Leave a comment

Peering into the Insolvency Statistics

Peru2114

Whilst clearing out my e-file, I took a few minutes to review the Insolvency Service’s insolvency statistics up to the end of 2012, released on 1 February 2013: http://www.insolvencydirect.bis.gov.uk/otherinformation/statistics/201302/index.htm. I thought I’d dig a bit deeper into the stats*.

Corporate Insolvencies (England & Wales)

It has always bugged me that the Service produces a Liquidations graph but none for the other corporate procedures, so I thought I’d produce one myself. Unfortunately, whilst I’ve had no trouble embedding photos into my posts, I have failed to do the same with graphs, so I’m afraid you’ll have to click here to see the graphs: Graphs 03-04-13 (I’m probably teaching grandmother to suck eggs, but if you Ctrl-click onto “Graphs 03-04-13”, it will open up a new tab, which will mean that you can easily switch from text to graphs.)

A few notes on the figures of graph (i) (drawn from the Insolvency Service’s published data, linked via the Insolvency Service release referred to above):

• They have not been seasonally adjusted, which I presume explains some of the spikiness of the graph and particularly, I suspect, the more pronounced Q4 troughs and Q1 peaks.
• I have counted three sets of group company insolvencies (844 Adms in Q4 06; 729 Adms in Q4 08; and 129 CVAs in Q2 12) as only one insolvency in each case.
• Recs includes LPA Receiverships and the Insolvency Service noted a difference in their handling of the data during 2007 and thus the figures for 2007 (the most pronounced effect being on the Receivership figures) are not directly comparable.

I wonder if these complications are some of the reasons why the Service has never produced graphs for these insolvency procedures!

A few personal observations and conjectures:

• With the Enterprise Act 2002 introducing a fundamentally-revised Administration process in September 2003, it seems that it took some time for the momentum to build – Administration numbers did not seem to start levelling out until late 2005.
• Alternatively, perhaps it has something to do with the timing of post-Sept 03 debentures and that probably some of these began leading to Administration as the years rolled on (probably not coincidental that Receivership appointments were also falling in this 2003-2005 period).
• I thought the sequence of peaks in the various types of insolvency was interesting: Administrations peaked in Q4 08/Q1 09; Liquidations in Q1/Q2 09 (not included on the above graph); Receiverships in Q3 09; and CVAs in Q2 10. No doubt, commentators of recession and insolvency processes will have their own explanations for this sequence. I have my own ideas also, but as I am coming at it from such a position of ignorance, I wouldn’t dream to putting them in print!

I also looked at the figures for Administrations that moved to CVLs and compared them with the number of Administration appointments for the previous year on the assumption that, generally, if a CVL were the appropriate exit route, the Administration would move to CVL a year after appointment – the spikiness of the resultant graph probably indicates that this is a rubbish assumption! See graph (ii) of Graphs 03-04-13

I am not a statistician – it shows, doesn’t it?! – so all I think this suggests, if anything, is that the percentage of Administrations moving to CVL has held pretty steady throughout the past six years. Is that some positive news, that, despite the apparent diminished value of assets in the recession, it seems that just as many Administrations (by percentage) move to CVL, i.e. have the prospect of returning something to the unsecured creditors?

Personal Insolvencies (England & Wales)

The Insolvency Service releases tend to be very thorough when it comes to personal insolvencies, so there’s not much to add, but their data does include figures for Income Payment Orders (“IPOs”) and Income Payment Agreements (“IPAs”), at which I thought I’d take a look. As bankruptcies are recorded at the date of the order, but IPOs/IPAs occur later, I thought it only fair to look at this on a yearly basis – see graph (iii) of Graphs 03-04-13.

IPOs/IPAs look fairly proportionate to bankruptcies, don’t they? Let’s look at this in a different way – see graph (iv) of Graphs 03-04-13.

I’m not sure what – if anything – this illustrates: does it suggest that a larger proportion of bankrupts can pay something from their income? Or does it demonstrate the success of IPAs, which were introduced in April 2004? Or does it suggest that Official Receivers have become more proactive in pursuing IPO/IPAs?

Another Insolvency Service note I found interesting was: “Prior to December 2010 a proportion of surplus disposable income was allowed to be retained by the bankrupt, post December 2010 all surplus disposable income was claimed by the Official Receiver as trustee. Another change in policy was implemented at the same time in that the minimum payment sought under an IPO/IPA reduced from £50 per month to £20 per month”. Perhaps that explains the 2011 peak, but then what about the 2012 dip? I’ll be interested to see how this graph develops over the next couple of years.

.
* All Q4 2012 figures are provisional.

By the way, if you’re wondering about the introduction of images… A friend suggested that I should liven up the posts (I absolutely agree they could do with it!) with photos that have a link – even if extremely tenuous – with the words. I hope it helps the readability!


Leave a comment

Legislative changes on the horizon: PTDs, TUPE, and gift vouchers

IMGP7643

Something else that I’ve been meaning to do post-holiday was sweep up all the announcements of consultations and proposals for changes to insolvency and related legislation that have been published by various government departments and agencies. Here are the ones I’ve discovered:

• AiB’s proposed changes to PTDs and DAS
• BIS TUPE consultation
• New proposal on gift voucher creditors

AiB’s proposed changes to PTDs and DAS

28/02/2013: The AiB published some welcome (by me, anyway) fine-tuning to her developing “vision of a Financial Health Service” (http://www.aib.gov.uk/news/releases/2013/02/bankruptcy-law-reform-update).

She has withdrawn the proposals to introduce a minimum dividend for PTDs and to deal in-house with creditors’ petitions for bankruptcy, two items that I covered in an earlier blog post: http://wp.me/p2FU2Z-V (and I know of many others who have been more vocal on the issues). The third item I covered in that post – restructuring PTD Trustees’ fees so that they can only be drawn as an upfront fixed sum plus a percentage of funds ingathered – seems to have strengthened in tone: no longer is reference made to “guidance”, so it seems possible to me that there will be a legislative change to enforce this. My personal view on this is that, although of course there are vast differences between PTDs and IVAs, straightforward IVAs have been worked on this basis for many years now and I think that, although the inevitable tension between creditors and IPs regarding the quantum of the fixed and percentage fees persists, on the whole it seems to have developed into a settled state generally acceptable to all parties. However, I see far more difficulty in moving away from charging fees on an hourly basis for complex cases – I sense that the fees in many complex IVAs and PVAs are still based on hourly rates – and I do wonder what will result from the AiB’s approach to fees for individuals with complex circumstances and unusual/uncertain assets.

The AiB has also dropped the idea that debts incurred 12 weeks prior to bankruptcy should be excluded (which also seemed to me difficult to legislate: http://wp.me/p2FU2Z-w).

So what now does she propose to introduce? Some new significant items for PTDs:

• A minimum debt level of £5,000 (previously £10,000 had been the suggestion)
• A new joint PTD solution (with a £10,000 debt minimum)
• A new requirement on the Trustee to demonstrate that a Trust Deed is the most appropriate solution for the individual. If the AiB is not satisfied with the case presented, there will be a new power to prevent it becoming Protected. As now, the Trustee could apply to the Sheriff, if they disagree with the AiB’s assessment. (Personally, I hope that the AiB will exercise this power only to deal with obvious cases of abuse. For example, looking solely from a financial perspective some individuals might be better served going bankrupt, but often they wish to avoid bankruptcy and improve their creditors’ returns, which is a commendable attitude that should not be stifled. Ultimately, is it not the debtor’s choice?)
• Pre Trust Deed fees and outlays will be excluded. Any such fees and outlays will rank with other debts. (I have some sympathy with the AiB’s apparent frustration at insolvency “hangers-on” seeming to reap excessive rewards from the process of introducing debtors to the PTD process, however I am not convinced that this is the solution. As an upfront fixed fee is going to be introduced, will it not simply send such costs underground?)
• On issuing the Annual Form 4 (to the AiB and to creditors), if the expected dividend has reduced by 20% or more, Trustees will be required to provide details of the options available and to make a recommendation on the way forward. (“Make a recommendation”? Who gets to decide what happens? Isn’t the Trustee obliged/empowered to take appropriate action?)
• Acquirenda will be standardised at 1 year for both bankruptcy and PTDs. (It makes sense to me to ensure that PTDs are not seen to be more punitive than bankruptcies, but this is quite a change, isn’t it?)
• No contributions will be acceptable from Social Security Benefits.
• Equity will be frozen in a dwelling-house at the date the Trust Deed is granted.

The AiB also has proposed some new changes to DAS, the one that caught my eye being that interest and charges will be frozen on the date the application is submitted to creditors, rather than at the later stage of the date the Debt Payment Programme is approved, as is the case currently. The AiB’s proposal also remains that a DPP might be concluded as a composition once it has paid back 70% over 12 years.

BIS TUPE Consultation

17/01/2013: The BIS consultation on proposed changes to the Transfer of Undertaking (Protection of Employment) Regulations 2006 was issued and closes on 11 April 2013 (https://www.gov.uk/government/consultations/transfer-of-undertakings-protection-of-employment-regulations-tupe-2006-consultation-on-proposed-changes – a 72-page document that takes some reading!).

Despite the calls for legislative clarity on the application of TUPE in insolvencies, most notably in administrations, the consultation states: “the Government’s view is that the Court of Appeal’s decision in Key2law (Surrey) Ltd v De’Antiquis has provided sufficient clarity and that it is not necessary to amend TUPE to give certainty” (paragraph 6.30). I don’t know about you, but every time I ask myself what is the current position on TUPE in administrations, I have to check the date! Key2Law may well appear to have settled the issue now, but I have to remind myself every time what its conclusion was exactly.

The proposals do include some elements that may be more useful:

• BIS invites views on whether there should be a provision enabling a transferor to rely on a transferee’s ETO reason, seemingly recognising the risks that purchasers of an insolvent business run in absence of this provision (paragraph 7.72 et seq).
• It is proposed that the regulations be changed so that a transferee consulting with employees/reps, i.e. prior to the transfer, counts for the purposes of collective redundancy consultation (paragraph 7.84 et seq).
• It is proposed that, where there is no existing employee representative, small employers (suggested to be with 10 or fewer employees) will be able to consult directly with employees regarding transfer-related matters (paragraph 7.94 et seq).

Whilst on the subject, it seems timely to remind readers that it is expected that the consultation requirement where 100 or more employees at one establishment are proposed to be made redundant will be amended from 90 days to 45 days. This change appears in the draft Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013, anticipated to come into force on 6 April 2013.

Gift Voucher Creditors

15/03/2013: R3 issued a press release entitled “Voucher holders’ proposal to become ‘preferred creditors’” (http://www.r3.org.uk/index.cfm?page=1114&element=17990&refpage=1008), but the motivation for this release, other than awareness of some stories surrounding high profile retail administrations, might not be known to you.

MP Michael McCann’s ten minute rule bill seeking consideration for gift voucher creditors to be made preferential seemed to go down well at the House of Commons on 12 February 2013 (http://www.youtube.com/watch?v=53_fN8c1f8Q&feature=youtu.be). Then on 14 March 2013, a House of Commons’ notice of amendments to the Financial Services (Banking Reform) Bill was issued, which included the following:

“(1) The Chief Executive of the Financial Services Compensation Scheme shall, within six months of Royal Assent of this Act, publish a review of the protections understanding that such payments are deposits in a saving scheme.

(2) The review in subsection (1) shall include consideration of any consequential reform to creditor preference arrangements so that any payments made in advance as part of a contract for the receipt of goods or services (such as gift vouchers, certificates or other forms of pre-payment) in expectation that those sums would be redeemable in a future exchange for such goods or services might be considered as preferential debts in the event of insolvency.”

As can be seen, a change to gift voucher creditors’ status seems a long way from becoming statute, but the wheels are now in motion for something to be done.

To me, R3’s suggested alternative of an insurance bond makes more sense. The costs of seeking, adjudicating on, and distributing on a huge number of relatively small gift voucher claims likely would appear disproportionate to the outcome… and it is not as if IPs need any more spotlight on their time costs! I appreciate that such costs will arise where claims need to be dealt with even as they are now, as non-preferential unsecured claims, but I suggest it would be unfair to other ordinary unsecured creditors if they were forced to sit in line and watch whilst realisations were whittled away in dealing with this large new class of preferential creditor. The USA Borders case demonstrates some of the difficulties in dealing with gift voucher claims (see, for example, http://www.lexology.com/library/detail.aspx?g=8298e876-f998-4777-bacf-ce781f312242 – the clue is in the name…)

There are other alternatives, of course, such as the use of trust accounts, although a paper (which now seems ahead of its time) by Lexa Hilliard QC and Marcia Shekerdemian of 11 Stone Buildings discusses the difficulties arising from these also (http://www.11sb.com/pdf/insider-gift-vouchers-jan-2013.pdf).

(UPDATE 22/05/2016: Gift vouchers became topical again with the Administration of BHS.  R3 summarised the difficulties in dealing with gift vouchers in an insolvency at https://goo.gl/eN20mN.  This “R3 Thinks” also brought to my attention a paper written by R3 on the subject in June 2013, accessible at https://goo.gl/GJDbNO.)

 

Right, that brings me up to date… almost. Just the consultation on the FCA’s regime for consumer credit remaining…


1 Comment

A brief briefing

Apologies for the silence – I’ve been enjoying the gorgeous sunshine blazing on Hawaii’s beaches and some exhilarating hikes across fresh lava fields (which is more my style)…

IMGP7906 lowres

In an attempt to get back on track, this is a brief update on case law that had accumulated before my trip:

• Valuing contingent claims
• What documents are Provisional Liquidators entitled to recover?
• COMI: Dublin v Belfast
• Iceland v Scotland: Nice try, Landsbanki
• Judge erred in dismantling component parts of circumstantial case of gratuitous alienation

Valuing contingent claims

Ricoh Europe Holdings BV & Ors v Spratt & Milsom [2013] EWCA Civ 92 (19 February 2013)

http://www.bailii.org/ew/cases/EWCA/Civ/2013/92.html

A group of creditors who had submitted contingent claims in an MVL believed that the liquidators should have reserved funds to cover the full possible value of their claims before paying a distribution to members. On appeal, this court agreed with the previous judge: “there are, I think, real difficulties in seeing how a liquidator who has already valued the contingent claims and so admitted them to proof in the amount of the valuation comes under a legal duty to provide for the contingency in full by making a reserve against any distribution to members” (paragraph 37).

The creditors had also disputed the value placed on the contingent claims; the liquidators had worked on the basis of an assessment of the most likely outcome, rather than a worst case scenario. The judge agreed with the liquidators’ approach: “It seems to me that any valuation of a contingent liability must be based on a genuine and fair assessment of the chances of the liability occurring… There is nothing in IR 4.86 which requires the liquidator to guarantee a 100% return on the indemnity by assuming a worst-case scenario in favour of the creditors” (paragraph 43).

What documents are provisional liquidators entitled to recover?

Caldero Trading Limited v Beppler & Jacobson Limited & Ors [2012] EWHC 4031 (Ch) (14 December 2012)

http://www.bailii.org/ew/cases/EWHC/Ch/2012/4031.html

The application centred around provisional liquidators’ (“PLs”) attempts to take possession of documents in the hands of the director, but his solicitors’ argument was that they should be entitled to review the documents and only provide to the PLs those that met the definition in the court order describing the PLs’ powers: “documents reasonably necessary solely for protecting and preserving the assets” of the company.

The judge decided that the court order did indeed restrict the scope of documents to which the PLs could have access: “The conclusion might be surprising, bearing in mind that prima facie the provisional liquidators have a right to call for all the books in which the company has a proprietary interest, but that prima facie right has, in my judgment, been deliberately cut down by the terms of paragraph 7.2 [of the previous court order]. Their entitlement is, therefore, to categories of document which fall within the definition. It follows that the provisional liquidators have no right, in my judgment, to call for documents which do not fall within the category as defined” (paragraph 78). However, the judge did not feel that it was appropriate that the director’s solicitors’ control the review process, but he invited the PLs to provide a more specific description of the documents of which they were seeking possession.

COMI: Dublin v Belfast

ACC Bank Plc v McCann [2013] NIMaster 1 (28 January 2013)

http://www.bailii.org/nie/cases/NIHC/Master/2013/1.html

This is another COMI case involving a business consultant who moved from the Republic of Ireland to Northern Ireland and was made bankrupt in NI the day before another creditor’s petition resulted in a second bankruptcy order in Dublin. The RoI creditor sought the annulment of the NI bankruptcy order on the ground that there had been a procedural irregularity in the hearing.

The judge found that the hearing had been procedurally irregular and should not have taken place; it should not have been an expedited hearing and, in light of the fact that there were two competing sets of bankruptcy proceedings, the court had been incapable of being satisfied that it had jurisdiction to make the NI bankruptcy order without hearing evidence from both the debtor and the RoI petitioner.

The judge also concluded on the evidence provided to him that the debtor’s COMI was not in NI. The judge made some interesting comments about the events leading to the NI petition, which was based on rent arrears of £1,402 arising from a house share agreement on the debtor’s NI address: he noted the incomplete affidavit of service of the statutory demand; the apparent lack of interest shown by the petitioner in the debtor’s ability to discharge the debt; the fact that he was in a position to pay the debt; and that “the Petitioner and the Respondent were at the very least acquaintances, if not friends” (paragraph 29).

Iceland v Scotland: Nice try, Landsbanki

Joint Administrators of Heritable Bank Plc v The Winding-Up Board of Landsbanki Islands hf [2013 UKSC 13 (27 February 2013)

http://www.bailii.org/uk/cases/UKSC/2013/13.html
Summary at: http://www.bailii.org/uk/cases/UKSC/2013/13.(image1).pdf

The joint administrators of Heritable Bank Plc (“Heritable”) rejected a claim submitted by Landsbanki Islands hf (“Landsbanki”) on the ground of set-off. Landsbanki’s winding-up board also rejected three of Heritable’s claims. Landsbanki’s winding-up board argued that, as they had rejected Heritable’s claims in the Icelandic proceedings, this decision applied to Heritable’s administration and thus Heritable had no claims available to set off against Landsbanki’s claim. They sought to rely on Regulation 5 of the UK’s Credit Institutions (Reorganisation and Winding Up) Regulations 2004, which resulted from an EC Directive.

The Supreme Court unanimously dismissed Landsbanki’s appeal. The court stated that Regulation 5 “is not concerned in the least with the effects of the mandatory choice of Scots law for the administration of Heritable in Scotland” (paragraph 58). In this case, other Regulations were relevant and these resulted in the conclusion that the general law of insolvency for UK credit institutions is UK insolvency law.

Judge erred in dismantling component parts of circumstantial case of gratuitous alienation

Henderson v Foxworth Investments Limited & Anor [2013] ScotCS CSIH 13 (1 March 2013)

http://www.bailii.org/scot/cases/ScotCS/2013/2013CSIH13.html

The Inner House upheld the liquidator’s appeal in respect of a gratuitous alienation challenge: “In this admittedly complex case it seems to me that, while the Lord Ordinary very properly acknowledged that there were unsatisfactory and indeed suspicious events and transactions, and while he recorded matters which he found inexplicable, questionable, difficult to believe, and even ‘damning’… he did not take the final step of (i) clearly recognising that there was a significant circumstantial case pointing to a network of transactions entered into with the purpose of keeping Letham Grange (valued at £1.8 million) out of the control of the liquidator, and (ii) explaining why, nevertheless, he was not persuaded that the liquidator should succeed. Rather the Lord Ordinary dismissed or neutralised individual pieces of evidence without, in my view, giving satisfactory reasons for doing so, thus dismantling the component parts of any circumstantial case which was emerging from the evidence, but without first having acknowledged the existence and strength of that circumstantial case, and then explaining why he rejected it” (paragraph 78).

.
I’ve spotted some more recent cases since my return from Hawaii – and I see that the consultations on draft revised SIPs 3, 3A, and 16 have now been issued, excellent! – but they’ll all have to keep for future posts.


Leave a comment

Three cases: (1) What is the relevant date for IVAs suspended on a S262 challenge? (2) When is an alleged transaction at an undervalue not a “transaction”? (3) Vesting of causes of action in Trustee foils attempts to pursue misfeasance claim

• Davis & Davis v Price & Price – what is the relevant date for IVAs suspended on a S262 challenge?
• Hunt v Hosking & Ors – when is an alleged transaction at an undervalue not a “transaction”?
• Fabb & Ors v Peters & Ors – vesting of causes of action in Trustee foils attempts to pursue misfeasance claim

What exactly is a “suspended” IVA?

Davis & Davis v Price & Price ([2013] EWHC 323 (Ch)) (21 February 2013)
http://www.bailii.org/ew/cases/EWHC/Ch/2013/323.html

Summary: As a consequence of a successful S262 challenge, two debtors’ IVAs were suspended and further creditors’ meetings were convened to consider their revised Proposals. After these were approved, the S262 challengers issued statutory demands in pursuit of their costs for bringing the challenge. The appeals judge agreed that the statutory demands should be set aside on the basis that the costs were caught in the IVAs, for which the relevant date was the second meetings’ date. Contrary to the wording of the S262 order, the judge felt that the effect of suspending the original IVAs was not to continue to bind the original creditors.

The Detail: The Prices challenged the Davises’ IVAs under S262 in relation to the values of £1 attributed to their claims for the purposes of voting at creditors’ meetings held in June 2010. The challenge was successful and the District Judge ordered the suspension of the Davises’ IVAs – which would not have been approved had the Prices’ claims been admitted for voting in the sum of £35,389, the value placed on the claims for voting purposes by DJ Gamba – and required the Davises to decide whether to re-present the original Proposals or to present varied Proposals for consideration at further creditors’ meetings to be convened by the Nominee. The Davises were also ordered to pay the Prices’ costs of £7,011.

At creditors’ meetings held on 13 January 2011, the Prices again voted to reject the Proposals, which had been revised by the Davises, but the Prices only proved in the sum of £35,389. However, the requisite majorities were achieved and the revised Proposals were approved. The Prices then pursued payment of their costs of £7,011 on the argument that they were not claims in the IVAs, because they did not exist at the time of the original interim orders in April 2010.

The question at the heart of this matter was: what was the effect of the suspension of the Davises’ IVAs? In this appeal, counsel for the Prices sought to distinguish between an order revoking an IVA and one suspending it, both options available to the court under S262(4). Mr Justice David Richards noted that there was only one rule relating to entitlements to vote at a creditors’ meeting convened to consider an IVA Proposal – R5.21; the rules make no distinction as to whether this is the first time such a meeting is convened or whether it is convened on the back of a revoked IVA or a suspended IVA under S262(4). The judge considered that in this circumstance the reference in R5.21(2)(b) to the “amount of the debt owed to him at the date of the meeting” was the amount owed at the date of the January 2011 meeting convened to consider the revised Proposals and therefore the Prices had been entitled to prove also in respect of their costs in bringing the S262 challenge.

So what is the status of a suspended IVA? The wording of DJ Gamba’s order resulting from the S262 challenge had stated that, if the proposed variation was put to the vote and rejected, the approval of the IVAs on 8 June 2010 would be revoked with immediate effect “and the IVA Creditors shall ceased to be bound by the IVAs”; it further provided that, if the IVAs were reconsidered and approved, the suspension of the approval of the IVAs would be lifted with immediate effect and “the IVA Creditors shall continue to be bound by the IVAs in accordance with section 260”. However, David Richards J stated: “I do not think it is right that if the approval of an IVA is suspended, it nonetheless continues to bind creditors. Once approval is suspended, it does not seem to me possible to say that there is an ‘approved arrangement’ within the meaning of section 260(2)” (paragraph 29). He acknowledged that S262(7) grants the court power to give supplemental directions, but he did not believe that this enabled the court to substitute a different rule for R5.21 in relation to creditors’ voting rights.

12/02/2014 UPDATE: Although the appeal heard on 21/01/2014 was dismissed (http://www.bailii.org/ew/cases/EWCA/Civ/2014/26.html), it did highlight a(nother!) problem with the Act: S260, which binds creditors into an approved IVA, expressly has effect “where the meeting summoned under S257 approves the proposed” IVA. However, in this case, the meetings that led to approved IVAs were consequent to a S262 challenge and, as Lady Justice Arden put it, “if the IVAs were varied and the creditors approved those varied IVAs, those were the IVAs to come into force, not the original IVAs. In reality what happened in that event is that the varied IVAs replaced the original IVAs. The original IVAs ceased to have any legal existence after that” (paragraph 33).

Thus, were the creditors bound by S260? “The court must of course give effect to the intention of Parliament… However, where the effect of a literal interpretation of a statute is to create significant anomalies which the court is satisfied Parliament could not have intended, the court should seek to find an interpretation which avoids those anomalies” (paragraphs 38 and 39). In order to achieve this end, Lady Justice Arden interpreted the reference to a “further meeting” in S262(4)(b) to be a reference to a “further meeting under S257” so that S260 has effect.

The Company must be party to the transaction for it to be challenged at an undervalue

Hunt v Hosking & Ors ([2013] EWHC311 (Ch)) (22 February 2013)
http://www.bailii.org/ew/cases/EWHC/Ch/2013/311.html

Summary: A liquidator sought to challenge as transactions at an undervalue payments made to Mr Hosking from the Company’s client monies held by its accountants – the monies were paid to Mr Hosking in settlement of his private loan to the accountant, who appeared to be entitled to the monies by reason of two fee agreements with the Company. However, the liquidator’s S238 application failed on the basis that the payments to Mr Hosking were not “transactions” to which the Company was party. The judge pointed out that either the accountants were not authorised to pass the monies over, in which case it would be an issue of misappropriation of assets, or the challenge should be levelled at the fee agreements between the accountants and the Company.

The Detail: A firm of accountants, of which Mr Temple was the sole proprietor, held monies on behalf of its client, Ovenden Colbert Printers Limited (“the Company”), from which the accountants appeared to be entitled to draw fees pursuant to two fee agreements. A number of payments were made from the accountants’ client account to Mr Hosking, which he claims related to repayments of his private loan to Mr Temple (who later became bankrupt).

Mr Hunt, the Company’s liquidator, applied under S238 claiming that the payments made from the client account to Mr Hosking were transactions at an undervalue. The liquidator made other allegations regarding the strength of the fee agreements with a suggestion that they may have been induced under misrepresentation. However, the fee agreements were not the subject of the S238 application.

Mr Justice Peter Smith identified a fundamental difficulty with Mr Hunt’s argument that the payments to Mr Hosking were transactions at an undervalue: the Company was not a party to the payments. He illustrated it this way: “If Mr Temple held a bag of sovereigns for the Company and they were held to the Company’s order, and if he gave them away to Mr Hosking, I suggested that that would not be a transaction. It would simply be a case of misappropriation of assets. Of course, the Company through the liquidator would have any number of remedies to recover those sovereigns. Such a claim could be made not only against Mr Temple but also against Mr Hosking if he receives the sovereigns. That is not the present claim… The fundamental difficulty facing Mr Hunt is that however much he investigates; however much mud he wishes to throw at Mr Hosking; none of it is relevant to his application under section 238. This is because on the undisputed facts set out above, the Company has not entered into a transaction which the liquidator can review. The only transactions it entered into in my opinion were the two fee agreements and those are not under challenge and indeed one of them cannot be under challenge due to the passage of time. If the payments were authorised they cannot be challenged unless the two fee agreements are challenged and they are not in these proceedings. If the payments were unauthorised, there is no transaction by the Company” (paragraphs 50 and 55).

[UPDATE 26/11/2013: Hunt’s appeal against the summary judgment/strike out application was dismissed on 15/11/2013 (http://www.bailii.org/ew/cases/EWCA/Civ/2013/1408.html). It seems to me that the fundamental difficulty remained: there was no indication that the Company had been party to any relevant transaction. Thus, the Court of Appeal decided that the judge had been right to strike out the application, as the claims under S238 and S241 had no prospect of success.]

Vesting of causes of action in Trustee foils attempts to pursue misfeasance claim

Fabb & Ors v Peters & Ors ([2013] EWHC 296 (Ch)) (18 January 2013)
http://www.bailii.org/ew/cases/EWHC/Ch/2013/296.html

Summary: A claim against administrators under Paragraph 75 of Schedule B1 was struck out as an abuse of process on the basis that the claimant knew his causes of action had vested in his Trustee in Bankruptcy at the time. In addition, the fact that 96% of the administrators’ claims against Fabb had been abandoned was not sufficient to support a misfeasance claim, as judgment had been achieved in relation to the remainder.

The Detail: Fabb was made bankrupt after administrators of “Holdings” obtained judgment against him of c.£88,000 in relation to a loan account and on a conversion claim, although over 96% of the administrators’ original claim was, effectively abandoned.

Fabb asserted two causes of action against the administrators: misfeasance and, in effect, malicious prosecution of the earlier proceedings as regards the 96% of the claims that were abandoned. After the proceedings commenced, the court ordered Fabb’s Trustee to assign to Fabb the various claims, conditionally on payment of £10,000; the assignment had not yet been completed.

His Honour Judge Purle QC noted a fundamental objection to the misfeasance proceedings: “Proceedings under paragraph 75 can only (so far as presently relevant) be brought by a shareholder or creditor. Mr Fabb is neither of those things, and nor will he be either of those things even if the assignment takes place. Any interest he may have had in the shares of Holdings is now vested in his trustee. Likewise, any indebtedness formerly due to him is now vested in his trustee… There is a still further objection. These proceedings were brought at a time when Mr Fabb knew that the causes of action he wishes to assert were vested in his trustee in bankruptcy, and that he needed an assignment” (paragraphs 13 and 16). On this basis, the judge felt bound to strike out Fabb’s claim as an abuse of process.

In any event, the judge identified difficulties in relation to the merits of Fabb’s claims that the 96% claim was brought abusively, for an improper motive or an improper purpose: “What to my mind makes the claim impossible is that the proceedings in which the 96 percent claim was included were pursued to judgment. True it is that the 96 percent claim was abandoned, but the rest of the claim was pursued over an eight day hearing, I think it was, and the claim succeeded in substantial amounts, despite a fully argued defence. It is difficult to see in those circumstances how the proceedings can be characterised as malicious or an abuse, as they had to be, and were successfully, pursued to judgment, albeit in a much smaller sum than originally claimed” (paragraph 23).


Leave a comment

HoC BIS Committee recommendations on the Insolvency Service: will they help?

Goodness, what a busy week it has been! Consultations, draft Regulations, a DMP Protocol, and a bit of a backlog of High Court decisions… but they will have to wait.

Although the release of the House of Commons’ BIS Select Committee’s report on the Insolvency Service has already been reported widely, I wonder if you, like me, sigh at the tone of the press coverage, which all seems to lie somewhere on the spectrum between cold neutrality and wholehearted support. Don’t you wish people would come out and say what they really think? Therefore, I thought I would give it a go…

If you want to read all the Committee’s recommendations, this is not the place for you – I have only described the ones that have raised my hackles or got me thinking. You can access the report in full at: http://www.publications.parliament.uk/pa/cm201213/cmselect/cmbis/675/675.pdf

Changes to debtors’ bankruptcy fees

“At present, individual debtor bankrupts have to pay an upfront fee of £525. Given the level of debt relief they can receive we agree with the Insolvency Service that it would not be unreasonable to increase that fee, possibly on a sliding scale. We also agree that the fee should not be automatically required to be paid up front but could be staggered along similar lines as payments to debt management companies. We will expect the Insolvency Service to set out progress in both of these areas in its response to this Report.” (paragraph 43)

It is clear that the Insolvency Service’s sums currently do not add up; something must change (and the BIS Committee made other recommendations to this effect). However, I had always thought that the charges relating to the bankruptcy process reflected the work carried out (setting aside the need for cross-subsidisation, which gives rise to another debate entirely). How does the service provided differ depending on a debtor’s level of debt? Whatever the individual’s liabilities, he/she has to go through pretty much the same process to enter bankruptcy as anyone else. True, the higher the debt level, often the more time-consuming the bankruptcy administration, but this is usually also reflected in the asset values, and as asset realisations attract a percentage fee, this already means that a high-liability bankruptcy is paying more.

I am not saying that individuals with large debts should not pay more, but I feel it is quite a step-change to structure fees, not as proportionate to the work undertaken, but to reflect somehow the level of debt relief that the individual is receiving. I am certain that it would not work in other fields of insolvency: could an IP justify basing the cost of putting a company into liquidation on the level of creditors’ claims, rather than on how much work was involved in preparing the Statement of Affairs and convening/holding the meetings? There is a Dear IP (no. 18, July 1991) warning against such a practice!

It is widely accepted that the cost of the petition and court fee restricts access to bankruptcy for many individuals. Graham Horne told the Committee that the Service would look at the DMCs’ model of paying fees in instalments. However, from the consultation and response on bankruptcy petition reform, it appears to me that the Service is looking only at the possibility of individuals paying instalments prior to entering bankruptcy, not after bankruptcy. Quite simply, this is not the DMCs’ model, which involves providing the service of administering a debt management plan whilst being paid the fee by instalments. It will be of little use to individuals to have to make payments to the Service… over how long, 6 months, 12 months..? but not get the relief of a bankruptcy order until the £700 (or more) is paid in full. I can imagine the Service’s suspense account soon bulging with countless numbers of one or two months’ staged payments from individuals who intended to go bankrupt, but because of the continuing stress of fighting off creditors they handed their affairs over to a DMC simply for a break from it all.

If a bankruptcy order cannot be made until the petition and court fees have been paid in full, it is still an up-front fee notwithstanding whether this is paid in instalments, and it will remain a barrier to bankruptcy for many.

Would the Service contemplate providing for the fees to be paid after bankruptcy? The Service already charges £1,625 to each bankruptcy estate and the report acknowledges that this is not recouped “in the majority of cases” (paragraph 35), so a post-bankruptcy application fee would simply be another unrecovered cost to write-off. There would be a few cases that could bear this cost, but then who really would be paying? The creditors.

Pre-packs

“We therefore recommend that together, the Department and the Insolvency Service commission research to renew the evidential basis for pre-pack administrations.” (paragraph 72)

Some have greeted this with an “oh please, not this old chestnut again!” Personally, I would welcome this step. Arguments against the use of pre-packs as a principle (or at least those that involve connected parties, “phoenixes”) usually relate to the perception that the connected party has achieved an unfair advantage – the directors have been able to under-cut their competitors because they have left creditors standing with Oldco and they have bought the business and assets at a steal. There is the additional allegation that there is no overall benefit to the economy because, whilst jobs may be saved in the business transfer from Oldco to Newco, jobs are lost in rival companies and/or with creditors. I think that the difficulty the insolvency profession has in responding to these arguments is that all IPs can do is their best, their statutory duty to maximise realisations of the insolvent company’s assets; even if these anti-pre-pack arguments were valid and that pre-packs were not good for the world at large, if IPs were to adjust their actions somehow to accommodate these wider concerns, i.e. resist completing a pre-pack in favour of a break-up or an expensive trading-on in the hope that an independent buyer comes along, they could be failing in their statutory duties.

If these arguments against pre-packs hold water, then let’s see the evidence and then watch the policy-makers decide whether some or all pre-packs should be banned in the public interest. In the meantime, all IPs can do is their best to fulfil their statutory duties in relation to each insolvency over which they are appointed.

One small point: I sincerely hope that the researchers avoid falling into the trap occupied by the pre-pack protesters. The arguments of unfair advantage and of creditors being left high and dry whilst the phoenix rises apply to business sales to connected parties, not to pre-packs. If an IP trades on a business in administration and then sells it to a connected party, the same allegations apply, don’t they? It seems strange to me that there is so much antagonism towards pre-packs when, really, I see little difference between a pre-pack administration and the Receivership business sales of the 1990s. In fact, I would suggest that pre-pack administrations are an improvement over Receivership business sales because at least the administrator is an officer of the court with wider responsibilities to creditors as a whole.

I’m not sure how the researchers will test the allegations. However, if they limit the research to a comparison of the direct outcomes of pre-pack sales compared with longer-running administration business sales, then I do not believe it will do anything to answer those who cry unfairness.

SIP16

“Despite the introduction of Statement of Insolvency Practice Note 16 and additional guidance, pre-pack administrations remain a controversial practice. The Insolvency Service is committed to continue to monitor SIP 16 compliance, but to make this effective, non-compliance needs to be followed through with stronger penalties by way of larger fines and stronger measures of enforcement. We have some sympathy with the concerns of the regulator R3, which argues that noncompliant insolvency practitioners are not made aware of the criteria on which they are being judged by The Insolvency Service, or given any feedback on their reports. We recommend that the Insolvency Service amend its monitoring processes to include feedback to each insolvency practitioner and their regulatory body where SIP 16 reports have been judged to be non-compliant. We further recommend that the criteria by which SIP 16 reports are judged should be published alongside the guidance.” (paragraphs 80 and 81)

This time I will cry: “oh please, not this old chestnut again!” Given the perceptions of unfairness surrounding pre-packs – or to describe the issue more accurately, business sales to connected parties – as explained above, it is not surprising that “despite the introduction of SIP16 and additional guidance, pre-pack administrations remain a controversial practice”. Even with 100% compliance with SIP16, the controversy would never fall away. SIP16 is simply about helping creditors to understand why the pre-pack sale was conducted; it will never answer the allegations that the practice of pre-packing businesses in general is unfair.

However, this limitation of SIP16 disclosures can never be an excuse for IPs failing to meet the requirements of the SIP. It is not beyond the ability of professional IPs to get this right.

Unfortunately, the key principle of SIP16 of “providing a detailed explanation and justification of why a pre-packaged sale was undertaken so that [creditors] can be satisfied that the administrator has acted with due regard for their interests” (SIP16, paragraph 8) does not fit well with a checklist of pieces of information. If an IP were to sit a creditor down and say “let me tell you why I did this sale this way”, I believe that it is very likely that, on a case-by-case basis, not every last detail required by SIP16 paragraph 9 would always be relevant to telling this story and it may even be that other factors not strictly required by SIP16 paragraph 9 would be valuable in helping the creditor understand. It makes me wonder how we got into this position – where unique stories describing a vast range of demised businesses and complex rescues are reduced to a monitoring exercise on a par with recounting Old Macdonald Had a Farm!

However, I repeat: this limitation of SIP16 monitoring should never be allowed to fuel the pre-pack critics. If IPs are being judged on strict compliance with SIP16, why can we not get it right?

There is no doubt in my mind that the absence of Insolvency Service feedback on each individual SIP16 disclosure has not helped. It also seems insensible to me that the Service would make these assessments and not inform each IP where they thought he/she had gone wrong. What on earth was the point of carrying out the review in the first place?!

However, I foresee a problem: in 2011, there were 1,341 appointment-taking IPs and 723 pre-packs. I appreciate that an average of 0.5 pre-packs per IP does not reflect reality, but even so it would seem to me that pre-packs are not that common; IPs might only conduct one or two each year and some IPs might go years before doing another pre-pack. In 2011, the Insolvency Service only reviewed 58% of all SIP16 disclosures, so there’s a big chunk of all SIP16s where no feedback is possible. In addition, 32% of the 2011 SIP16 disclosures reviewed were considered non-compliant by the Service. If our profession is lucky, it might be that these non-compliant SIP16s are being produced by the same bunch of IPs. However, my hunch (having worked in the IPA’s regulation department) is that sometimes an IP gets it right, sometimes he/she misses something. If this is the case, then years might pass before (i) an IP receives feedback on where he/she slipped up with SIP16 compliance and then when (ii) he/she can apply that feedback to his/her next pre-pack. Waiting for IPs to apply the Service’s feedback will not crack this nut: I suspect that, if the 2013 SIP16 monitoring report shows similar levels of non-compliance, there will be hell to pay!

Thus, I feel it is down to each and every IP to work at producing perfect SIP16 disclosures. Some may rebel at this formulaic approach to recounting the skills used in getting the best out of an insolvent company – I do! – but the threat of more legislation, which I suggest could be even more prescriptive and restrictive than SIP16, remains loud. Can we not just try to get it right?

Continuation of supply

“We recommend that the Department undertake a consultation as a matter of urgency on the rules relating to the continuation of supply to businesses on insolvency in order to assess whether a greater number of liquidations or further damage to businesses could be avoided if that supply was better protected.” (paragraph 86)

I shall use this opportunity to update you on the progress of the Enterprise and Regulatory Reform Bill. On 21 January, I reported that the House of Lords was considering a proposed amendment to S233 regarding the continuation of utilities and other contracted services and goods (https://insolvencyoracle.com/2013/01/21/more-on-the-err-bill-and-two-cases-1-scottish-court-shows-more-than-the-usual-interest-in-provisional-liquidators-fees-and-2-court-avoids-unpardonable-waste-or-scarce-resources/). Unfortunately, the Grand Committee threw the amendments out in full on the ground that there needed to be proper consideration of the consequences of such amendments. In hindsight, I can see that it was very unlikely that such changes could be slipped in to the Bill at such a late stage, but I guess that at least it keeps the issue on the table.

My personal view is that, whilst changes to S233 will be welcome, I do feel that some are over-egging the advantages. The BIS Committee picked up on R3’s research suggesting that “over 2,000 additional businesses could be saved each year, rather than being put into liquidation”, if suppliers were obliged to continue to supply on insolvency (paragraph 82). I bow to R3’s and IPs’ greater experience, however I cannot help but wonder whether companies really are resorting to liquidation, rather than trading on in an administration, simply because contracts with suppliers are terminated on insolvency. I would have thought that there were far more substantial barriers to trading-on that will remain even after S233 is changed.

Regulating the RPBs

“We agree that the Insolvency Service, in regulating the recognised professional bodies (RPBs), should have a wider range of powers, very much akin to those that the RPBs themselves have in disciplining their members.” (paragraph 97)

I note this simply because I was stunned at this non sequitur – none of the preceding paragraphs hinted that there was a problem with the RPBs that needed to be fixed or that this was any solution.

Having said that, personally I have no issues with the Service having such powers. In my experience at the IPA, whilst there may have been some tendency to want to push back on some of the Service’s recommendations from time to time (to be perfectly honest, usually more on my part than on the part of my employer!), it would always end up with the RPB taking the required action. I cannot see that the Service needs to be able formally to warn, fine, or restrict RPBs, but if it helps perception, why not?

.
As I mentioned at the start, there were other Committee recommendations, which I would encourage you to read if you have not already done so, as I believe they help us to see how the profession is viewed from the outside and, whether we agree with them or not, those views will continue to influence the shape of our profession in the years to come.


Leave a comment

More on the ERR Bill and two cases: (1) Scottish Court shows more than the usual interest in provisional liquidator’s fees; and (2) Court avoids “unpardonable waste of scarce resources” by striking out evidence

I present a bit of a mixed bag here:
• The Enterprise & Regulatory Reform Bill – developments since my blog post of 12 January
Nimmo – the Scottish Court of Session takes more than a passing interest in a provisional liquidator’s fees
Secretary of State v Potiwal – despite the seeming absence of a technical argument, the court saves the taxpayers’ money in proving a case a second time

Update on the Enterprise & Regulatory Reform Bill

New Bankruptcy Application Process

On 12 January, I posted to this blog my thoughts on the insolvency parts of the ERR Bill. Last week, some interesting tweaks to the Bill had been proposed: that the adjudicator be allowed to apply to the court for directions (which might have helped if the adjudicator had been presented with a bankruptcy application with tricky COMI dimensions); and that, if the adjudicator felt that an alternative remedy were more suitable, the individual be given ten days to seek advice and potentially withdraw the bankruptcy application. Unfortunately, both these proposals were withdrawn following the House of Lords’ debate.

In relation to the subject of applying to court for directions, Viscount Younger of Leckie said: “Persons appointed as adjudicators will have the skills they need to do the job without the need for recourse to the court. It is acknowledged that the court still has a role to play. Where the adjudicator refuses to make a bankruptcy order because the criteria are not met, the debtor will have the right to appeal to the court. That provides a route to court in those cases where it is needed” (Lords Hansard on House of Lords Grand Committee 16 January 2013, http://www.publications.parliament.uk/pa/ld201213/ldhansrd/text/130116-gc0002.htm).

With regard to allowing the individual time to explore alternative solutions, Viscount Younger said: “I reassure noble Lords that before making their bankruptcy application, applicants will be strongly encouraged to take independent debt advice to ensure that bankruptcy is really the right option for them. My officials will work with the Money Advice Service and providers within the debt advice sector to ensure that applicants have the information they need to make an informed decision. Furthermore, within the electronic application process itself, we propose to include a series of warnings to ensure that applicants are made fully aware of the serious implications of bankruptcy before they make their application. We will also ensure that the process flags up any alternative debt remedies that may better suit their circumstances. The Government consider that these safeguards are sufficient to ensure that debtors are empowered to make an informed decision as to whether or not bankruptcy is the right option for them before they take the serious step of making a bankruptcy application. The Government believe that these amendments would unnecessarily complicate the process by requiring the adjudicator to exercise discretion on a case-by-case basis. That would increase administration costs with an impact on the application fee. It would also delay access to debt relief for the debtor, who would have elected for bankruptcy in full knowledge of their other options.”

Whilst I understand the government’s intention to formulate a simple administrative process to replace the current court-led debtor’s bankruptcy petition process (although those IA86 provisions are not being repealed via the Bill, presumably so that individuals who cannot/do not wish to apply online can still instigate their own bankruptcy), it seems inevitable to me that such a process will be ill equipped to deal with out-of-the-norm cases.

Continuation of contracted supplies in corporate insolvencies

It seems that R3’s “Holding Rescue to Ransom” campaign is paying off! Added to the list of proposed amendments to the Bill are the following proposed changes to S233 of IA86:

• To include “a supply of computer hardware or software or infrastructure permitting electronic communications” as another utility that must continue to be supplied (subject to the current S233 conditions) on request by the office holder.
• Utility supplies to be caught by the provisions irrespective of the identity of the supplier.
• To include that “any provision in a contract between a company and a supplier of goods or services that purports to terminate the agreement, or alter the terms of the contract, on the happening of any of the events specified in subsection (1) [i.e. administration, administrative receivership, S1A moratorium, CVA, liquidation, or appointment of a provisional liquidator] is void” – this does not seem to be limited only to utility supplies.

It remains to be seen, however, if these proposed changes survive the debate in the House of Lords (next sitting is scheduled for 28 January 2013).

Scottish Court of Session not content to take as read the court auditor’s and reporter’s recommendations of approval of provisional liquidator’s fees

Nimmo, as liquidator of St Margaret’s School, Edinburgh, Limited [2013] ScotCS CSOH 4 (11 January 2013)

http://www.bailii.org/scot/cases/ScotCS/2013/2013CSOH4.html

Summary: Despite both the reporter and the court auditor recommending that the provisional liquidator’s remuneration of c.£120,000 be allowed, the court sought further information in justification of the fee. Whilst IPs can take some comfort in the result that the judge allowed the fees in full, his comments suggest some lingering concern and hinted at a desire for a review of the court procedures.

The Detail: Over 20 days, a provisional liquidator managed “a high profile and extremely sensitive appointment” (paragraph 9) over a school and incurred time costs of c.£120,000. Later, the IP was appointed liquidator of the same company with his fees for the liquidation being approved by the liquidation committee. Interestingly, Lord Malcolm disapproved of the use of the word “cost” when referring to as yet unauthorised remuneration: “For the future I would advise that in reports to committees the proposed fee should not be described as ‘a cost’ already incurred by the liquidator. It should be made clear that the committee is being asked to exercise a judgment as to whether the proposed remuneration is reasonable and appropriate (or words to that effect). A proposed fee is in a different category from outlays. The scope for disagreement or questioning should be obvious to the readers of the report” (paragraph 31). The IP’s fees as provisional liquidator remained to be approved by the court.

Both the reporter and the court auditor considered that the provisional liquidator’s fees were reasonable, but the judge requested further information. Despite learning of the complexities handled by the IP, Lord Malcolm stated: “nonetheless I retain a sense of surprise and concern at a proposed fee of over £120,000 (exclusive of vat) for 20 days work, and I suspect that many will find it remarkable that the winding up of a middling size private school can generate fees of over £620,000 (again exclusive of vat)” (paragraph 31). However, the judge allowed the fee, noting that “the court cannot simply reject the clear advice of the reporter and the auditor of court without cogent and objectively justifiable reasons for doing so” (paragraph 35).

Lord Malcolm’s closing comments suggest a desire for more widespread consideration of the issue of insolvency office-holders’ remuneration: “Perhaps it is no bad thing that, now and again, an opinion is issued which shows how these matters are presented to, and addressed by the court. Generally they are resolved without any public hearing or publicity. There is at least a risk that the fee levels and general practices and procedures seen as normal in the corporate insolvency world become, when the court is asked to adjudicate, in a sense self-fulfilling. This highlights the important role of the auditor of court in the current system, given that he is not directly involved in such work. It may also be that, from time to time, and in the light of experience, the judges should review current practice to check whether there is room for improvements in the court’s procedures which might help it to exercise its jurisdiction under the insolvency rules” (paragraph 38).

Court avoids “unpardonable waste of scarce resources” by striking out director’s evidence in disqualification proceedings

Secretary of State for Business, Innovation & Skills v Potiwal (Rev 4) [2012] EWHC 3723 (Ch) (21 December 2012)

http://www.bailii.org/ew/cases/EWHC/Ch/2012/3723.html

Summary: In relation to disqualification proceedings, the Secretary of State (“SoS”) sought to rely on the fact that a VAT Tribunal had already proven a director’s knowledge of his company’s fraud. The court found that, although the SoS’ argument that the director was estopped from denying knowledge failed because the SoS and HMRC were not privies, it agreed that it would be manifestly unfair and it would bring the administration of justice into disrepute to require the SoS to prove the director’s knowledge a second time.

The Detail: An earlier VAT Tribunal had concluded that the director knew of the company’s VAT fraud, but in evidence to defend disqualification proceedings the director denied having such knowledge. The SoS sought to have that part of the director’s evidence struck out on the grounds that he was estopped from denying that he had this knowledge; or that his denial was an abuse of process, as it would be manifestly unfair for the SoS to be put to the substantial cost and delay of proving the allegation; and/or that to permit the issue to be re-litigated would bring the administration of justice into disrepute.

For the argument of estoppel to win out, the parties to the disqualification proceedings – the SoS and the director – had to be in privity with the parties to the earlier VAT Tribunal – HMRC and the insolvent company. Given the director’s role in the company and in the VAT Tribunal proceedings, the judge had no difficulty in concluding that the director and his company were privies. However, he decided that the SoS and HMRC were not privies: “I consider that it would therefore go against the grain of the development of the law about abuse of process to identify for the first time a new class of privity of interest between two very different arms of government pursuing different aspects of the public interest, and being motivated in particular cases by different policy and funding considerations when doing so” (paragraph 21). Consequently, in relation to the first ground, Mr Justice Briggs concluded that, because there was no privity of interest between the SoS and HMRC, the proven position in the VAT Tribunal could not be carried forward into the disqualification proceedings.

However, Briggs J then considered whether “hundreds of thousands of pounds” of tax-payers’ money should be used to prove the allegation a second time. Having considered the circumstances of the VAT Tribunal, which was funded by the taxpayer throughout, the judge concluded that it would be manifestly unfair to impose the cost of re-litigating the issue on the SoS. With regard to the argument that re-litigation would also bring the administration of justice into disrepute, Briggs J stated: “Where, as here, the issue as to a director’s knowledge of a complex MTIC fraud has been fully and fairly investigated by an experienced tribunal and the director found to have had the requisite knowledge, it seems to me that right-thinking members of the public would regard it as an unpardonable waste of scarce resources to have that issue re-litigated merely because, by a simple denial and without deducing any fresh evidence, Mr Potiwal seeks to require the complex case against him to be proved all over again” (paragraph 29). Thus, he ordered that parts of the director’s evidence be struck out as an abuse of process.


Leave a comment

Soapboxing on the Enterprise & Regulatory Reform Bill

I don’t know about you, but I could do with a break from all these case law blog posts, so I thought I’d catch up with insolvency’s appearance in the Enterprise & Regulatory Reform Bill (“ERR Bill”).

Helpfully, John Tribe has posted extracts from the Bill (as at 18 October 2012) at http://www.jordansinsolvencylaw.com/articles/bankruptcy-applications-determination-by-adjudicators-draft-legislation; he also has reproduced the 16 October 2012 House of Commons’ debate on the insolvency part of the Bill at http://www.jordansinsolvencylaw.com/articles/interesting-recent-hansard-on-bankruptcy-hc-report-stage-debate-re-bankruptcy-amendments-16-10-12 (my references below to comments from MPs are drawn from this article). To follow the Bill’s progress through Parliament, take a look at http://services.parliament.uk/bills/2012-13/enterpriseandregulatoryreform.html. As you will see, the Bill has emerged from the House of Commons and is now working its way through the House of Lords.

What is in the Bill?

In brief, the Bill provides for an individual to apply to an “adjudicator” for a bankruptcy order, rather than petitioning the court. Adjudicators will hold office within the Insolvency Service, but will not be a role for Official Receivers. Once a bankruptcy order has been made under this route, the bankruptcy will be administered in the same manner as currently; the Bill includes consequential amendments to the Act so that the making of a bankruptcy application has the same effect as the presentation of a petition (e.g. S341 will be amended so that the relevant times for preferences and transactions at undervalue will be counted from the date the bankruptcy application is made).

To obtain a bankruptcy order, the individual must:
• be unable to pay his/her debts at the date of the adjudicator’s determination;
• not have a bankruptcy petition pending; and
• have a COMI in England/Wales or his/her COMI is not in an EC Regulation-relevant state, but he/she is: domiciled in E/W or, within the past three years, has been ordinarily resident, or has had a place of residence, or has carried on business, in E/W (the Bill also proposes to make changes to S265 so that the conditions for creditors’ petitions will be exactly the same).

The debtor must pay a fee, which Ms Swinson MP stated is anticipated to comprise an administration fee of £525, as presently, and an application fee of £70 (as compared with the current court fee of £175).

If the adjudicator is satisfied that the above criteria are met, he “must” make the bankruptcy order; if he is not so satisfied, he must refuse to make an order. During the “determination period”, the adjudicator may ask for more information to come to a conclusion, but he must either make or refuse to make an order before the end of this period.

If the adjudicator has refused to make an order, the debtor may ask him to review the information, provided the debtor’s request is made before the end of the “prescribed period”. If the adjudicator then confirms the refusal, the debtor may appeal to court before the end of the prescribed period.

The Bill does not prescribe the periods – presumably this is a detail for supporting rules to follow if/when the Bill obtains Royal Assent.

The Bill also removes S279(2) from the Act, so that bankrupts will no longer be able to be discharged early upon the filing of the Official Receiver’s notice.

Is it controversial?

A significant part of the Insolvency Service’s proposals – that consideration of creditors’ bankruptcy petitions also be moved away from the courts – proved particularly controversial and therefore has not been taken forward, demonstrating to me that responding to consultations does work!

Some also have concerns about debtors’ petitions being moved away from the courts, however the 2011/12 consultation did not ask a direct question on this matter, I presume because it had already been addressed in previous consultations. For example, 90% of those who responded to a February 2010 consultation were of the opinion that consideration of debtors’ bankruptcy applications should be the responsibility of someone within the Insolvency Service (http://webarchive.nationalarchives.gov.uk/+/http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/DPRefResponses/DPrefIndex.htm).

I do not believe that it is the core principle that concerns some – after all, a company can resolve to wind itself up outside of any court procedure so, arguably, why should an individual not be granted a similar power? – but it seems to me there remain some questions surrounding the proposed process.

Will the individual always understand his/her options?

Of course, it could be argued that the current debtor’s petition process does not safeguard against individuals taking the so-called last resort without adequately considering the other options. However, I do wonder whether the apparent steps to improve access to bankruptcy detract from the seriousness of the act with the result that it risks losing its “last resort” status.

In the House of Commons’ debate, Ms Swinson recognised that “for many, other debt remedies will continue to be more appropriate. We will therefore encourage debtors to take independent debt advice before making their bankruptcy applications. We will work with the Money Advice Service and providers in the debt advice sector to ensure that all debtors have the information that they need in order to make an informed decision.” Thus, there will be no requirement for individuals to have obtained advice before applying for their bankruptcy; they will simply be encouraged to do so.

In that respect, it seems to me that the Insolvency Service will be following Scotland’s lead where an individual may apply direct to the Accountant in Bankruptcy. My knowledge of Scotland’s process is scanty, but having looked on the AiB website it seems to me that an individual can download the application pack and post it off to the AiB and, provided the criteria are met (receiving independent advice seems to be a prerequisite only if the individual is taking the Certificate of Sequestration route), sequestration follows. The AiB publishes a Debt Advice and Information Package (which, personally, I feel is not a touch on the Insolvency Service’s “In Debt – Dealing with your creditors” publication) that the AiB’s Guidance for Trustees states must be provided to debtors before they sign up a Trust Deed, but this does not appear to be part of the debtor’s bankruptcy application process. Do I have this right? The application form has a warning that “the consequences of bankruptcy can be severe” – although according to the form they are limited to the effects on one’s credit rating, and possibly to employment prospects, bank accounts and utility supplies! – and a strong recommendation to seek advice with some contact details provided, but is that seen as sufficient safeguard against individuals taking the last resort when another option may be more appropriate? Coming from a world where so much diligence is expected of IPs before agreeing to help an individual propose an IVA, this seems to me somewhat lightweight. I appreciate, however, that this process has been operating in Scotland for many years, so I am sure that the Insolvency Service has access to evidence of its effectiveness in ensuring that people do not end up bankrupt when an alternative process would have been more appropriate.

Would the Post Office providing a service to bankruptcy applicants, similar to the passport application “check and send” service, further erode the image of bankruptcy as the last resort? 65% of consultation respondents said that they did not believe this was a “useful” service (perhaps the consultation should have asked if it was thought “appropriate”). However, Ms Swinson told the House of Commons: “The Post Office is looking at a wide range of ways in which it can increase its services and its revenue. Playing a wider role in identity checks, as was mentioned, is one of those… On the issues relating to advice, there are examples of more credit union facilities and a wider range of financial services being able to be accessed through post offices”.

Will access to alternatives be cut off?

Ss273 and 274 provide that, in the right circumstances, a debtor’s petition for his/her bankruptcy can result in an IVA. I understand that these provisions are very rarely used (although there are plenty of cases of IVAs being proposed after a debtor has been made bankrupt), but at least there is an opportunity for the court and debtor to consider this alternative to bankruptcy. There is no provision in the ERR Bill for the debtor to exit the bankruptcy application process with an IVA; for the debtor to withdraw from the process, if he/she decides at the last minute to propose an IVA; or for the adjudicator to suggest the possibility of an IVA – if the debtor meets the criteria, then the bankruptcy order is made.

Similarly, S274A provides for the court to stay proceedings on a debtor’s petition, if the court thinks that it would be in the debtor’s interests to apply for a Debt Relief Order. Again, there is no provision in the Bill for the new bankruptcy application process to result in a DRO.

Will “bankruptcy tourism” be tackled?

The recent case of O’Donnell & Anor v The Bank of Ireland ([2012] EWHC 3749 (Ch)), on which I commented a week ago (https://insolvencyoracle.com/2013/01/04/three-pre-christmas-judgments-1-bankrupt-refused-suspension-of-discharge-to-pursue-iva-2-another-failed-attempt-to-prove-england-comi-and-3-receiver-refused-payment-of-costs-after-restraining/), demonstrates some of the difficulties in assessing whether the court has jurisdiction to grant bankruptcy orders and there are many more cases involving diverse circumstances that give rise to COMI issues.

Although the Insolvency Service’s consultation document suggested that bankruptcy applications might be referred to court where there is a dispute, there is no such provision in the ERR Bill. I wonder if an adjudicator’s referral to court was considered unnecessary in view of the fact that the new process now is limited to debtors’ applications. The Bill only provides for a referral to court in the event that an individual wishes to appeal the adjudicator’s confirmation of refusal to make a bankruptcy order; the adjudicator has only two choices on receipt of an application: make, or refuse to make, an order.

Ms Swinson was asked about the risk of “bankruptcy tourism”. She replied: “There is no evidence of widespread abuse, but the official receiver or a creditor can apply to court to annul the bankruptcy order if abuse takes place”. Evidence of widespread abuse there may not be, but it is a shame that the valuable gatekeeper role of the court (and others, e.g. the Official Receiver, who opposed Mr Benk’s bankruptcy petition (see https://insolvencyoracle.com/2012/09/07/two-case-summaries-comi-and-a-rejected-administration-order-application/)) will be removed and then it will be up to the OR or creditors to seek to unravel the bankruptcy after the event.

Ms Swinson was also asked about the skills of the adjudicator and she responded: “On the question about the adjudicator, the Insolvency Service is already looking at this for the debt relief orders that it administers and it will be able to do exactly the same in relation to the way in which adjudicators conduct their business. On the qualifications of adjudicators, they will be making an objective decision by reference to prescribed criteria and there will be a right of appeal for an applicant if the adjudicator refuses to make an order. Obviously, they will need appropriate qualifications and experience to function effectively, and the Secretary of State will make sure that people appointed to that role are appropriately qualified. They will be based within the Insolvency Service which, as the House knows, is an executive agency of BIS, and will already have extensive experience of administering an electronic administrative process similar to the debt relief order regime”. I imagine that it is unlikely that much, if any, “DRO tourism” exists given the low level of debt criterion for a DRO, so it is worrying that the new bankruptcy application process is being put on the same footing as a DRO application. Will Insolvency Service staff really be equipped to decide on complex COMI issues, a topic which already has taken up so much court time and effort?

Will paying by instalment work?

Although the majority of consultation respondents (possibly up to 61%) were opposed to the proposal that individuals may pay the fee by instalment, Ms Swinson informed the House of Commons that this would be part of the process, although it is not clear whether this is to apply only to the application fee, anticipated at £70, or also to the administration fee of £525.

The consultation document highlighted the difficulties of refunding instalment payments, but the summary of responses did not report how the two questions on this topic were answered nor is it known what the current plan is. Presumably, an application will not be considered as having been made until the fee has been paid in full. What is the individual supposed to do in the meantime? Will it really help individuals to trickle through payments over months but without any change in their status and with the risk that the monies will not be refunded if they decide to withdraw from the process?

.
Of course, we live in a world of cost-saving efforts, so it is not surprising that this process, which in most cases is simply an administrative function, is considered a candidate for change (although some of the figures in the Impact Assessment, e.g. the estimated court time in dealing with a petition, seem a little over-cooked). As always, there are risks that a “streamlined” process introduces loop-holes or is not so well-equipped to deal with extraordinary circumstances. This does not make it wrong to make changes, but those risks should be understood and managed as best they can.


1 Comment

Three pre-Christmas judgments: (1) Bankrupt refused suspension of discharge to pursue IVA; (2) Another failed attempt to prove England COMI; and (3) Receiver refused payment of costs after restraining order set aside

Below, I catch up on some pre-Christmas judgments:

• Bramston v Haut – reverses earlier judgment and decides that the bankrupt’s attempt to suspend his automatic discharge in order to propose an IVA fails (and includes a warning about the statutory requirements for Nominees’ reports)
• The O’Donnells v The Bank of Ireland – decision on COMI sends away Irish couple from obtaining E&W Bankruptcy Orders
• CPS v The Eastenders Group – upholds decision that Court-appointed Receiver was not entitled to be paid from third party assets, but also decides that, at least under the Proceeds of Crime Act 2002, neither should the CPS pay. Note: this is subject to a Supreme Court appeal. (UPDATE 08/05/14: The Supreme Court has allowed the Receiver’s appeal that his fees be paid by the CPS (but has maintained that the third party assets are out of his reach). For a more detailed summary, see http://wp.me/p2FU2Z-6S.)

Appeal Court sees sense in Trustee objecting to bankrupt who sought suspension of discharge to pursue IVA

Bramston v Haut [2012] EWCA Civ 1637 (14 December 2012)
http://www.bailii.org/ew/cases/EWCA/Civ/2012/1637.html

Summary: The appeal was allowed; the judge’s view was that the earlier order suspending the debtor’s discharge from bankruptcy ought to have been set aside. Lord Justice Kitchin believed that the discharge was suspended, not because of the debtor’s failure to comply with his obligations or for any other purpose that might be within S279(3), but to give the debtor time to put forward an IVA proposal. The judge stated that, it seemed to him, this was “impermissible and outside the scope of the jurisdiction conferred by S279(3)” (paragraph 52).

The judgment includes a reminder on the necessary wording of Nominees’ reports, which, although it surprised me that an IP could have slipped up on this, may serve as a warning to IPs to double-check that their own reports meet the statutory criteria.

The Detail: A good summary of the pre-appeal position is given on page 18 of Lawrence Graham’s August 2012 edition of The Angle. In brief, the debtor had applied under S279(3) for the suspension of his discharge from bankruptcy so that he could put forward an IVA proposal, but the Trustee had opposed the suspension as he had concerns about various aspects of the proposal. The previous judge had dismissed the Trustee’s challenge on the basis that approval of the IVA proposal was a matter for the creditors and he viewed the Trustee as unreasonable for refusing to make the S279(3) application himself in order to block the IVA proposal.

The judge on appeal considered that the purpose of the power conferred by S279 is to extend the bankruptcy to ensure that the bankrupt continues to suffer the disabilities of an undischarged bankrupt until he complies with his obligations. At the time that this debtor had applied for the discharge suspension, his position was that he had complied with all of the Trustee’s demands, albeit that later the Trustee contended the opposite when he sought to have the order set aside.

Kitchin LJ suggested that the debtor could have applied for an interim order under S253, which could, via S255(4), include suspension of the automatic discharge. He pointed out that, to do so, the debtor would have to have given notice of the application both to the OR and the Trustee, which he did not do.

Such an application also would have required the submission of the Nominee’s report on the IVA proposal. In this case, although a Nominee’s report was submitted, it did not comply with S256A or S256(1) as it stated merely that the debtor, not the Nominee, was satisfied that the IVA had a reasonable prospect of being approved and implemented. As I mentioned above, perhaps we should all make doubly-sure that Nominees’ reports are compliant in this regard.

Consequently, the judge concluded that, even if the debtor had applied for an interim order under S253, “it would inevitably have foundered” and thus “the judge fell into error concluding that the court had jurisdiction” to make the order suspending the discharge (paragraphs 64 and 65).
In considering whether the Trustee had been unreasonable to refuse to make an application himself under S279, Kitchin LJ stated: “I do not understand it to be one of the duties of a trustee that he must respond affirmatively to a bankrupt’s request that he co-operate in the promotion of a proposal for an IVA. Furthermore, in the circumstances of this case, the Trustee believed that Mr Haut was in continuing default of his obligations and that the Second Proposal was defective, prejudicial to the interests of the creditors who had no personal connection to Mr Haut and appeared to be designed to thwart his efforts to carry out a proper investigation into Mr Haut’s affairs. Yet the order Mr Haut invited the Trustee to seek was intended to give Mr Haut an opportunity to put the Second Proposal before his creditors and thereafter secure the annulment of his bankruptcy with all the consequences the Trustee was anxious to avoid” (paragraph 73) and he thus concluded that this was far from a case where the Trustee had acted perversely.

Another case of a failed attempt to prove an England COMI

O’Donnell & Anor v The Bank of Ireland [2012] EWHC 3749 (Ch) (21 December 2012)
http://www.bailii.org/ew/cases/EWHC/Ch/2011/3749.html

Summary: An apparent permanent move to London prior to the presentation of bankruptcy petitions was insufficient to prove that the debtors’ COMI had moved to England, because it was not ascertainable to third parties.

The Detail: The Bank opposed petitions by Mr and Dr O’Donnell for English bankruptcy orders, presented in March 2012, alleging that the debtors’ COMI had always been Ireland, where its own petitions had been adjourned awaiting outcome of the EWHC case.

The O’Donnells maintained that they had left Ireland permanently in December 2011. Dr O’Donnell said that “she did not wish to live in a ‘bankocracy’”, “‘the onslaught and negative publicity, et cetera, that the Bank of Ireland have generated against us in the media has created such an atmosphere of hate and nastiness that I think we no longer wish to live in Ireland’” (paragraph 50).

Although the judge accepted that the O’Donnells intended to stay in London, he considered that the O’Donnells’ COMI was still in Ireland when the petitions were presented, largely because that is what it seemed an objective observer would have concluded by reason of information held on the Irish Companies Registration Office, the UK Companies House, and on the website of one of the O’Donnells’ companies. Consequently, the O’Donnells’ bankruptcy petitions were dismissed.

(10/10/13 Update: The O’Donnells’ application for a review of the above decision was dismissed on 06/03/13 – see http://www.bailii.org/ew/cases/EWHC/Ch/2013/489.html – and on 28/08/13 they were adjudicated bankrupt in the High Court in Ireland – see http://www.bailii.org/ie/cases/IEHC/2013/H395.html.)

Court-appointed Receiver left out of pocket after court decides third party assets no longer caught by order

Crown Prosecution Service v The Eastenders Group & Anor [2012] EWCA Crim 2436 (23 November 2012)
http://www.bailii.org/ew/cases/EWCA/Crim/2012/2436.html

Summary: Receivership and restraining orders enabled the Receiver to realise assets of a number of companies, but later the orders were set aside and, although the court was sympathetic to the Receiver, it concluded that to allow the Receiver to discharge his costs from the third party’s asset realisations would violate that third party’s rights under the European Convention on Human Rights. The judges also concluded that the court had no power to order the Crown Prosecution Service to settle the Receiver’s costs, although it left the door open to the Receiver to seek a common law remedy. (UPDATE 08/01/2014: this is subject to a Supreme Court appeal.)

The Detail: A good summary of this case was published in Accountancy Age on 13 December 2012 (“Receivers’ remuneration not in the bag following High Court battle”), but for the sake of completeness, I thought that I would add my own version here.

Orders were granted appointing a Receiver and restraining two individuals from dealing with their assets or the assets of a number of their companies, “Eastenders”. On appeal, the orders were set aside and the court held that Eastenders’ assets were not realisable property held by the individuals. The Receiver applied for an order that his costs be paid from Eastenders’ assets, but the judge declined to grant such an order on the basis that it would violate Eastenders’ rights under Article 1 Protocol 1 of the European Convention on Human Rights (“A1P1”). At a second hearing, the court concluded that it was unacceptable to deny the Receiver payment of his costs and thus it ordered that the CPS pay the Receiver’s costs – this was the subject of this appeal.

In order to review the CPS’ liability to pay the Receiver’s costs, the judge first re-considered the basis under which it had been decided that the Receiver was not entitled to payment from Eastenders’ assets. Lord Justice Laws considered that, although the previous appeal court had decided that Eastenders’ assets were not “realisable property”, the Receiver was entitled to rely on the original order up to the point that it was set aside and thus he felt that the Receiver could recover his costs from what had been considered receivership property.

Laws LJ did not view the result in this case as a violation of Eastenders’ rights under A1P1, but this is where his view differed from the other two appeal court judges. For assets to be subject to a receivership order, there must be “reasonable cause to believe that the alleged offender has benefitted from his criminal conduct” (S40(2)(b) of the Proceeds of Crime Act 2002 “POCA”) and, on the documents presented to court, there must be “a good arguable case… for treating particular assets as the realisable property of the defendant” (CPS v Compton, as quoted in paragraph 78 of this judgment), but in this case the appeal that resulted in the setting aside of the receivership and restraint orders concluded that neither of these two conditions were met and thus the appointment of the Receiver over Eastenders’ property had been unlawful. A1P1 states that “no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law”; in this case, the Receiver’s claim to Eastenders’ property did not meet the exception, as the Receiver’s appointment had been unlawful.

But was the Receiver entitled to payment from the CPS? The court decided that it had no power under POCA so to order, although Laws LJ noted that the Receiver had not appealed the discharge of his lien and commented that in his opinion the lien was good. In conclusion, the other two appeal judges stated: “We acknowledge that the outcome of this appeal will be clearly unsatisfactory to a receiver who has undertaken work and incurred expenses in the expectation that he would be both rewarded and recompensed out of assets identified for him by the CPS. Our judgment does not exclude the possibility that he may have a common law remedy against those who sought his appointment. All that it does is to establish that he cannot be paid out of the companies’ assets in circumstances in which the legal basis for such provision is absent” (paragraph 72).

(UPDATE 08/01/2014: an appeal lodged by the Receiver is scheduled to appear before the Supreme Court on 24 February 2014. UPDATE 08/05/2014: the Supreme Court allowed the Receiver’s appeal that his fees be paid by the CPS. For a more detailed summary, see http://wp.me/p2FU2Z-6S.)