REUTERS | Michael Dalder

Insolvency round-up May 2019

Insolvency and Companies Court (ICC): new ICC Interim Applications Court

On 25 April 2019, the Chancery Guide was updated to include a new chapter on the Insolvency and Companies List, including information, at paragraphs 25.28 to 25.30, on the operation of the new Insolvency and Companies Court (ICC) Interim Applications Court at the Rolls Building, which came in to being in January 2019.

The guidance states:

“The ICC Interim Applications Court takes place on Thursdays, Fridays and every other Monday. The ICC Judges’ listing officer (Claire Prosser) should be contacted in the event that an urgent application needs to be heard on any other day. She will seek to accommodate a hearing. The ICC Interim Applications Court will run in the same way as the High Court Judges’ Interim Applications Court, which is not affected by the introduction of this list. It is intended that the list will be used to hear applications for:

1. an injunction to restrain presentation of a petition to wind up a company or to restrain advertisement of such a petition
2. an administration order
3. an appointment of a provisional liquidator
4. search and seizure orders pursuant to section 365 of the Insolvency Act 1986
5. an appointment of an interim receiver pursuant to section 286 of the Insolvency Act 1986
6. validation orders
7. other applications that are urgent, such as those made pursuant to section 125 of the Companies Act 2006.

Parties appearing in the ICC Interim Applications Court should report to the ICC Judges’ clerks on the first floor before 10:30. The ICC Judges will work from hard copy documents and not from CE-file. Accordingly, in addition to the usual lodged bundles, any additional documents such as skeleton arguments or late-provided documents (whether or not they are also filed via CE-file) should be made available in hard copy, either via ICC Listing or to the ICC Judges’ clerks on the first floor in the normal way. [Added in Chancery Guide version only: Bundles and skeleton arguments should be delivered by 10am on the day prior to the hearing.] Applications with a time estimate of more than two hours (including pre-reading time, judgment and consequentials) are generally not suitable for the ICC Interim Applications Court.”

Can German court decide claim already rejected from proof by English administrators?

In Bundeszentralamt Für Steuern (Being the Federal Central Tax Office of the Federal Republic of Germany) v Heis and others, the High Court considered whether to stay appeals against the rejection of three proofs submitted in the special administration of MF Global UK Ltd, so as to allow the underlying claims to be dealt with in the German courts. The stays were sought by the creditors who argued that the German Tax Court was a better forum to determine the German legal and public policy issues involved.

The decision considers the limits to the principle that all matters going to the valuation of claims in an English insolvency process should be dealt here. The court also considered in detail the scope of the common law rule against double proof, and how to reconcile conflicting case law. The court granted a stay in the English litigation over the German Tax Authority’s claim so that it could be litigated in the German courts. This stay was made conditional on undertakings by the German Tax Authority that it would drop its claim if the German courts were unable to hear it or the claim was invalid in German law. The German Tax Authority also had to use its best endeavours to ensure the claim was dealt with expeditiously in Germany.

The court refused a stay in the English litigation over another creditor’s two contingent claims, finding in part that the rule against double proof made it unlikely that the first contingent claim would be admissible in the special administration in any event. The second contingent claim should also continue to be dealt with in the English courts as, among other reasons, it should be possible to address the English legal issues separately from the German issues, and this would provide a large saving for creditors.

Bankruptcy not annulled where petition not properly served

In Ardawa v Uppal and another, the Chancery Division of the High Court held that a judge could not retrospectively make an order for substituted service of a bankruptcy petition. However, despite the proceedings not being properly served, the bankruptcy was not set aside.

Here the claimant served a statutory demand on the defendant seeking payment of costs and that demand was served by posting it through a letterbox, but in fact the defendant no longer lived at that house, as he had moved out.

A bankruptcy petition was issued based on a failure to comply with the notice, which had not been properly served. The process server stated that he could not find an address for service, but while all of this was going on, the claimant and defendant were in regular contact in relation to childcare arrangements. Eventually the process server placed the petition through the letterbox of the house where the statutory demand had been served.

The defendant argued that a bankruptcy petition had to be served personally, whereas, here, service took place through a letterbox.

The court made an order of a substituted service. Here, the High Court held that there was no jurisdiction to make such an order for substituted service retrospectively.

Unlike a statutory demand, a bankruptcy petition must be served personally unless the court makes an order to the contrary (see 6.14IR). Thus, any order must be prospective and not retrospective. 6.14(2)IR states that “the court… may order substituted service to be effected in such manner as it thinks just”. That is a future event, and not a past event.

The judgment contains a detailed consideration of the relevant Civil Procedure Rules and the relevant Insolvency Rules. CPR 3 did not give a general power to authorise substituted service as it starts with the words “except where these Rules provide otherwise….”, and the rules do provide otherwise in relation to bankruptcy petitions.

Here, the High Court held that there was no inherent jurisdiction of the court to authorise substituted service. Nevertheless, in spite of the improper service of the bankruptcy petition, and the fact that there is no power retrospectively to make an order for substituted service, the court did not annul the bankruptcy order. The court held that this was a matter of discretion where there had been a procedural irregularity, as here.

The High Court, in exercising its discretion not to annul the bankruptcy petition, considered the fact that this was an undisputed debt arising from orders in court proceedings between the parties, which the bankrupt had failed to pay. It was also undisputed that the bankrupt had the means to pay that debt, that he was aware of both the statutory demand and the bankruptcy petition at the time, and had lied about his place of residence. He was deliberately seeking to evade service.

In those circumstances, the High Court held that this was not a case where it was appropriate to annul the bankruptcy order.

Enforcement of adjudicator’s decision refused as it would distort company voluntary arrangement

In Indigo Projects London Ltd v Razin and another, the Technology and Construction Court (TCC) declined to enforce an adjudicator’s decision due to Indigo’s company voluntary arrangement, finding that to do so would interfere with the company voluntary arrangement supervisors’ accounting exercise to calculate the balance due between Indigo and its creditors. This was because the payment to Indigo ordered by the adjudicator might have to be repaid, and the operation of set-off arrangements in the company voluntary arrangement would cause a loss to the Razins. A key feature was that Indigo’s company voluntary arrangement was entered into after the adjudicator’s decision and after the enforcement application had been made.

However, the judge felt that because the adjudicator’s decision related to a payment that was, for all intents and purposes, an interim payment in circumstances where the Razins had not submitted a pay less notice, known as a “smash and grab” adjudication, the adjudicator had not carried out a determination of the parties’ claims and cross-claims. This was something that the company voluntary arrangement supervisors would do for the first time as part of the company voluntary arrangement.

This decision should be considered alongside previous authorities, such as Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd,Cannon Corporate Ltd v Primus Build Ltd and Westshield Ltd v Whitehouse and another.

Directors’ administration appointment by electronic filing out of court hours is valid

In Wright and others v HMV Ecommerce Ltd and another, the High Court considered the validity of a purported appointment of administrators where directors of a company filed a notice of appointment electronically out of usual court opening hours.

The court held that the filing was either not in breach of paragraph 8.1 of the Practice Direction – Insolvency Proceedings July 2018, which was ambiguous; or alternatively was a breach or defect, but one that did not invalidate the purported appointment.

Any non-compliance with paragraph 8.1 of the Practice Direction – Insolvency Proceedings 2018 was capable of being remedied by order or declaration of the court under paragraph 104 of Schedule B1 to the Insolvency Act 1986, rule 12.64 of the Insolvency (England and Wales) Rules 2016 SI 2016/1024, and CPR 3.

Company in liquidation cannot commence adjudication

The Court of Appeal heard two appeals together concerning the interplay between construction adjudication and the insolvency regimes.

In Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd, the High Court had granted an injunction preventing an adjudication from proceeding because the referring party was in liquidation.

In Primus Build Ltd v Cannon Corporate Ltd, the High Court had enforced an adjudicator’s decision and, despite the referring party’s company voluntary arrangement, declined to grant a stay of execution.

Both first instance decisions were upheld.

The Court of Appeal noted that the “unspoken suggestion” in the appeal was that, since the judgments gave rise to markedly different outcomes, one of them must be wrong. This was not the case. Just because a company was in a company voluntary arrangement did not mean that summary judgment should be refused or a stay of execution should be granted. Each case would turn on its own facts.

Conversely, if a company was in insolvent liquidation, to allow an adjudication to continue would be “an exercise in futility”. While an adjudicator had theoretical jurisdiction to deal with the adjudication, it was of no practical use if the court would inevitably grant an injunction to prevent the adjudication from continuing. This indicated a general incompatibility between the adjudication and insolvency regimes.

Given the facts in Primus v Cannon, the judgment also deals with the applicable principles on waiver, and the nature of general and specific reservations to challenge the adjudicator’s jurisdiction. Unsurprisingly, the judge concluded that while a general reservation mat be undesirable, it may be effective, but not if, as here, it was “so vague… as to be ineffective”. A party cannot word it in such a way “simply to try and ensure that all options (including ones not yet even thought of), could be kept open”.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: