Insolvency Legal Update 2019 1 Frederick Terrace, Frederick Place, Brighton, East Sussex, BN1 1AX Tel: 01273 766355 Fax: 01273 766350 www.juliandobson.com JULIAN DOBSON SOLICITORS We are solicitors dealing exclusively with insolvency matters. Based in the City of Brighton & Hove, we are close to Brighton County Court, one of the busiest bankruptcy courts in the country. The firm acts mainly for insolvency practitioners throughout England and Wales. As a firm of solicitors, we have a Licensed Insolvency Practitioner (non-appointment taking). We emphasize a practical approach in our dealings with clients, the courts and others. For all enquiries on insolvency related matters contact: Information [email protected] Julian Dobson [email protected] Kate Sobiborec [email protected] Christine Boyce [email protected] The contents of these notes are a summary of the relevant provisions. Legal advice should be taken in relation to specific enquiries. Any liability is disclaimed. www.juliandobson.com 1 Frederick Terrace, Frederick Place, Brighton, East Sussex, BN1 1AX Tel: 01273 766355 Fax: 01273 766350 INDEX ADMINISTRATION Page Conn v Ezair Re Charlotte Street Properties Limited (In Administration) [2019] EWHC 1722 (Ch) Administrators’ use of Section 234 Insolvency Act 1986 to recover properties 1-3 Green & Newman v SCL Group Limited [2019] EWHC 954 (Ch) Decision to place company into administration and appointment of administrator as liquidator 4-7 Hyde v Nygate [2019] EWHC 1516 (Ch) Application for permission for new claim against administrators – alleged failure to pursue objective under para 3(1)(a) Schedule B1 8-12 Wright v HMV Ecommerce Limited [2019] EWHC 903 (Ch) Validity of appointment by directors out of hours 13-14 BANKRUPTCY Ardawa v Uppal & Jordan [2019] EWHC 456 (Ch) Annulment of bankruptcy order and exercise of Court’s discretion 15-16 Ardawa v Uppal & Jordan [2019] EWHC 1663 (Ch) Trustee’s costs payable as an expense – subject to summary assessment 17-19 Birdi v Price [2019] EWHC 291 (Ch) Application to remove trustee in bankruptcy 20-22 Lambert v Forest of Dean District Council & Ors. [2019] EWHC 1763 (Ch) Annulment improper service and abuse of process 23-24 Sleight (As Trustee of the Estate of Jillian Paula Mascall Deceased) v The Crown Estate Commissioners [2019] BPIR 430 Disclaimer of freehold - Application for vesting order in respect of freehold and/or surplus 25-27 Tate & Hopkirk v Farrell & ors [2019] [2019] BPIR 671 Transaction defrauding creditors – s 423 Insolvency Act 1986 28-30 LIQUIDATION Burnden Holdings (UK) Limited (In Liquidation) v Fielding [2019] EWHC 1566 (Ch) Liquidator’s claims under Section 423 Insolvency Act 1986 – unlawful dividends 31-36 Dumville v Rich [2019] EWHC 2086 (Ch) Whether compensation payable by a misfeasant director can be discounted? 37-40 VOLUNTARY ARRANGEMENTS CFL Finance Limited v Bass [2019] EWHC 1839 (Ch) Application of good faith to voluntary arrangements 41-44 ADMINISTRATION Conn v Ezair Re Charlotte Street Properties Limited (In Administration) [2019] EWHC 1722 (Ch) Administrators’ use of Section 234 Insolvency Act 1986 to recover properties Facts The Applicants were administrators of Charlotte Street Properties Limited (In Administration) (“the Company”) and were liquidators of an associated company Northern Estates Limited (“NEL”). The administrators sought an order under Section 234(2) of the Insolvency Act 1986 (IA86) requiring Mr. Ezair to transfer to them title to six properties (“the Properties”). Mr. Ezair was registered as the freehold owner of each of the Properties having acquired them between 1973 and 1984 as part of a larger portfolio. NEL was formed to acquire a business of managing and letting the portfolio of properties of which the Properties formed part. By an Agreement dated 05 April 1999 Mr. Ezair agreed to sell the portfolio to NEL in consideration for the allotment of 98 ordinary £1 shares. Completion was to take place following the giving of seven days’ written notice. Mr. Ezair received the shares from NEL and had therefore been paid the contractual consideration in full. Subsequently Mr. Ezair set up a family trust in Jersey and incorporated the Company. Both the family trust and the Company were established to avoid UK tax liability. There was a later Agreement dated 28 November 2003 between NEL and the Company whereby NEL agreed to sell the Company some of the portfolio properties which included the Properties for £1.3m. The contractual consideration of £1.3m was funded from a Northern Rock Loan of £800,000 and an inter-company loan from NEL. The Company furnished consideration by assuming liability for repayment of the loans. Whilst the Properties were shown as assets in the Company’s accounts the legal title remained in the name of Mr. Ezair. The Company fell into arrears under the Northern Rock Loan and LPA receivers were appointed. The Properties were then re-financed with Barclays. On 12 November 2015 NEL was subject to a winding up order and on 16 October 2017 the Company went into administration. Mr. Ezair continued to collect the rents and despite being requested to do so, did not account for them to the administrators. Previously the administrators’ solicitors had submitted TR1’s to Mr. Ezair requesting him to execute and return them to enable the Properties to be transferred to the Company. Following the issuing of the administrators application at an earlier hearing it was conceded that Section 234(2) IR86 would enable the court to order the Properties to be transferred to the Company, it would not however enable an order to be made in respect of the rents that continued to be collected by Mr. Ezair. 234 Getting in the company’s property. 234(1) [Application] This section applies in the case of a company where— (a) the company enters administration, (b) an administrative receiver is appointed, or (c) the company goes into liquidation, or 1 Julian Dobson Solicitors 2019© (d) a provisional liquidator is appointed; and “the office-holder” means the administrator, the administrative receiver, the liquidator or the provisional liquidator, as the case may be. 234(2) [Court’s powers] Where any person has in his possession or control any property, books, papers or records to which the company appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder. 234(3) [Application of s.234(4)] Where the office-holder— (a) seizes or disposes of any property which is not property of the company, and (b) at the time of seizure or disposal believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property, the next subsection has effect. 234(4) [Liability of office-holder] In that case the office-holder— (a) is not liable to any person in respect of any loss or damage resulting from the seizure or disposal except in so far as that loss or damage is caused by the office-holder’s own negligence, and (b) has a lien on the property, or the proceeds of its sale, for such expenses as were incurred in connection with the seizure or disposal. For Mr. Ezair it was put that it was a particularly complex dispute and it was not appropriate to summarily determine the matter under the provisions of Section 234. This argument was rejected by the Court who continued to consider the application. The Judge in considering Section 234(2) observed that the administrators must show that the Company “appears to be entitled” to “property”. This would include contractual and any legal or equitable interest in respect of property. For Mr. Ezair various arguments were put forward as to why he should not be ordered to transfer the Properties back to the Company. Decision His Honour Judge Halliwell found that Mr. Ezair held the Properties on a bare trust for the Company pursuant to the earlier 1999 Agreement and that as such he was under an obligation to transfer the Properties to the Company. In the alternative the Company would in any event have been entitled to an order for specific performance of the 1999 and later 2003 Agreements. In reaching his decision the Judge recognised that relief under Section 234 is discretionary and that it does not confer jurisdiction on the Court to entertain pecuniary claims or claims to an account and damages. This being the case, the Court could not reach any decision concerning the rents. Mr. Ezair’s claim to be entitled to be indemnified out of the trust assets in respect of his expenses was also considered and rejected by the Judge as he was satisfied that the amounts Mr. Ezair -was entitled to by indemnity -did not exceed the rents collected by him in respect of the Properties. 2 Julian Dobson Solicitors 2019© Comment • Section 234 is a powerful tool available to both administrators and liquidators and covers not only property but books, papers, records and property to which the company appears to be entitled. This decision demonstrates that the Section can be used even where there is an alleged dispute as to ownership of property. • The Judge noted that at trial Mr. Ezair chose not to take the witness stand to give oral evidence thereby subjecting himself to cross-examination by the administrators’ Counsel. 3 Julian Dobson Solicitors 2019© Administration Green & Newman v SCL Group Limited [2019] EWHC 954 (Ch) Decision to place company into administration and appointment of administrator as liquidator Facts Cambridge Analytica (UK) Limited (‘Cambridge Analytica’) hit the headlines both in America and in the UK. It was accused, amongst other things of interfering in the US Presidential Elections in 2016.