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Insolvency View February 2019

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Insolvency View February 2019 Insolvency View February 2019 Contents INSOLVENCY VIEW THE LATEST MAJOR CASES REVIEWED BY NEW p1 Sleight v The Crown Estate SQUARE CHAMBERS’ INSOLVENCY SPECIALISTS Commissioners: standing of a trustee in bankruptcy to apply for a vesting order Jessica Powers p3 Heidi Boulton v Queen Margaret’s School, York Limited : Unreasonable Sleight v The Crown Estate Commissioners: refusal of a compounding standing of a trustee in bankruptcy to apply part-offer Jeff Hardman for a vesting order Jessica Powers p4 Global Corporate Limited v Hale: The pitfalls of using [2018] EWHC 3489 (Ch) dividends to remunerate a High Court of Justice Business and Property Courts in Leeds shareholder/director Insolvency and Companies List (ChD) employee His Honour Judge Davis-White QC Hermione Williams 19 December 2018 p6 Horsley v HMRC: the right to It is not at all uncommon for a trustee in appeal pre-bankruptcy tax bankruptcy to disclaim onerous property. But what assessments happens when that property is subsequently Kristina Lukacova realised such as to create a surplus; can a trustee in bankruptcy apply for a vesting order in respect p7 Pearse v HMRC: serving a statutory demand despite a of that surplus? guarantee excluding bankruptcy proceedings Facts James McKean Jillian Mascall passed away on 4 December 2014. Upon realising that the estate was insolvent, the Latest Updates executrix petitioned for an insolvency administration To receive the latest updates order. That order was granted on 22 December 2015, from our Insolvency team, and James Sleight was appointed as trustee in straight to your inbox, sign up bankruptcy. to our mailing list here >>> | Page 1 Insolvency View February 2019 In March and May 2016, Mr Sleight disclaimed (2)(a) of the Insolvency Act 1986 as referring approximately 20 properties owned by Ms to a person who, at the time of the application, Mascall as onerous property. Two of the has or claims a proprietary interest in the disclaimed properties, both of which were property. The Judge considered that freehold and were subject to a charge in construction was supported in the context of favour of Bank of Scotland, were sold by the section 320 of the Insolvency Act 1986 as a Bank in March and May 2018. Both sales whole, and by the authority of Hill v The East created a surplus, totalling approximately and West India Dock Company (1884) 9 App. £19,000. If that surplus were received into the Cas. 448. estate, the dividend to creditors would increase by 7p in the pound. It was therefore held that the trustee had no standing to bring the application. The applicable law Subject of the vesting order sought The effect of disclaimer of property is set out in section 315(3) of the Insolvency Act 1986: The trustee sought a vesting order in respect “[…] operates so as to determine, as from the of the surplus sale proceeds, rather than the date of the disclaimer, the rights, interests and freehold properties which he had disclaimed liabilities of the bankruptcy and his estate in or (those properties having been sold to a third in respect of the property disclaimed […]”. party). The ability to apply for a vesting order in The position with respect to disclaimed respect of disclaimed property has a long freehold property is that the freehold title is statutory history. The current provision is determined and the property escheats to the section 320 of the Insolvency Act 1986. Crown. Following disclaimer, the possibilities are that: Locus standi of the trustee 1. The Crown might create a new freehold Section 320(2) of the Insolvency Act 1986 title; prescribes who can apply for a vesting order. 2. A chargee/mortgagee might apply for a The trustee contended that he had standing vesting order; under section 320(2)(a) of the Insolvency Act 3. A chargee/mortgagee might rely upon its 1986 as a “person who claims an interest in existing proprietary interest and section the disclaimed property”. The basis for that 315(3) of the Insolvency Act 1986 as if contention was that the trustee was claiming the freehold interest remained in to have an interest vested him under the existence; or vesting order sought. That argument was 4. A chargor/mortgagor might apply for a rejected as patently bad, it being entirely vesting order (on the ground that s/he is circular. still liable to repay a charge/mortgage). HHJ Davis-White QC construed section 320 HHJ Davis-White QC considered that, if the third of the above possibilities had occurred in this case, then the surplus would vest in the Crown. The case of Lee v Lee [1999] BPIR 926 was considered as, in that case, on an application by the mortgagee for a vesting order the Court ordered that the surplus be paid to the trustee in bankruptcy (the mortgagee having consented to that order). The Court of Appeal upheld that order on the basis that the Court had a wide discretion as to the terms of a | Page 2 Insolvency View February 2019 vesting order. been unreasonably refused by the School. Ms Boulton sought to overturn the bankruptcy Unfortunately, in this case, as the Judge found order. that he could not make a vesting order, Lee could not rescue the surplus. The Judge Appeal acknowledged that the likely consequence was that the surplus would be held in the It was agreed that the judge had erred in law Court funds office for an indefinite period. by holding that the appellant could not dispute the debt recovery costs despite not applying to set aside the statutory demand (see Barnes v Whitehead [2004] BPIR 693). Nevertheless, the School contended that the offer was not one which fell within the ambit of s.271(3)(b) which provides that: “The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied … (b) Heidi Boulton v Queen Margaret’s that the acceptance of that offer would have School, York Limited : Unreasonable required the dismissal of the petition…” (underlined for emphasis). refusal of a compounding part-offer Jeff Hardman The School contended that an offer in respect of only part of a debt would leave open the [2018] EWHC 3729 (Ch) High Court of Justice balance for dispute at a later date. In other Chancery Division words, the dismissal of the petition would not Mr Justice Arnold have been the immediate consequence 31 October 2018 following the acceptance of the offer. Facts Mr Justice Arnold preferred the approach of Ms Boulton had accrued arrears of school the appellant and held that the debtor’s offer fees for the period April 2012 to July 2013. did qualify under s271(3). To the extent that Queen Margaret’s School (“the School”) part of the petition debt was disputed bona served a statutory demand on Ms Boulton on fide, that element could not fall into s.271(1). 30 November 2017 for the sum of £44,520.75 The disputed part was not a ‘debt’ for the comprising unpaid school fees and inclusive purposes of s.271 regarding which the of interest and contractual costs. The School appellant was required to make an offer under presented a bankruptcy petition on 10 January s.271(3). 2018. Ms Boulton admitted the debt to the value of £38,279.78 but disputed the balance. The case is a stark reminder that petitioners Ms Boulton offered to pay the debt plus should be wary of refusing offers which cover interest at 3% in instalments, to be paid by her only part of the sum demanded. The partner, and secured by a charge over a consequence on appeal in the extant case property. The School replied that it would only was the setting aside of the bankruptcy order. accept the offer if the charge included the debt recovery costs and its costs on an indemnity Jeff Hardman appeared on behalf of the basis. Ms Boulton argued that the court Respondent. should dismiss the petition as her offer had been unreasonably refused (s.271(3)). The judge held that Ms Boulton could not dispute the debt recovery fees because she had not applied to set aside the statutory demand. Furthermore, as her offer had not been for payment of the whole debt, it had not | Page 3 Insolvency View February 2019 from 24 January 2014 to 26 October 2015 – in which time H received £23,511 in dividend payments, each being recorded as an “interim dividend” in a “dividend tax voucher” prepared by the company’s accountants for HMRC. The strategy proposed was that, if it Global Corporate Limited v Hale: The appeared at the end of the financial year that there were insufficient distributable pitfalls of using dividends to reserves out of which dividends could be remunerate a shareholder/director declared, the accountants would reverse employee the dividends and re-characterise them as Hermione Williams salary. [2018] EWCA Civ 2618 The Company was placed in a CVA on 25 Court of Appeal November 2015 and its statement of affairs Patten, Asplin, and Coulson LJJ indicated that there was a deficiency of 27 November 2018 some £173,594.99. In Global Corporate Limited v Hale (the The liquidators took the view that the “Case”), the Court of Appeal (“CoA”) has dividends had been unlawful because at unanimously held that dividends received the relevant time the Company had by a shareholder/director of a company insufficient distributable reserves of profits were not lawfully made as distributions out of which the dividends could have been and should be repaid. The Case provides paid in conformity with section 830 of the a helpful example of what can go wrong Companies Act 2006 (the “2006 Act”).
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