Insolvency Bulletin: October 2016
In this October 2016 edition of the XXIV Old Buildings Insolvency Bulletin, we catch up with decisions handed down shortly before and during the English court’s summer vacation. Building on XXIV Old Buildings’ offshore expertise, this bulletin also draws practitioners’ attention to relevant insolvency decisions from across the common law world.
There has been a flurry of decisions abroad, and in England, dealing with issues relating to costs and expenses incurred as part of contentious and non-contentious insolvency work. In May 2016, in Re Caledonian Securities Limited, the Cayman court considered the circumstances in which liquidators can recover their fees and expenses from trust property in the context of the collapse of a fiduciary and custodian business. The case is a useful modern exposition of the principles and, in its affirmation of the right to recover, welcome relief for liquidators of trust companies and other similar entities.
In Bank of Baroda v The liquidators of Super Speed the Hong Kong court considered third party costs orders against liquidators and concluded, after noting possible inconsistencies in the English authorities, that the test in Hong Kong for such orders was more stringent. The issues highlighted in the English case law await resolution at an appellate level.
In Re Ralls Builders Limited the English High Court considered whether liquidators could recover as losses in a wrongful trading claim their own time costs of investigating and preparing the claim (which substantially failed, see the case note for Grant v Ralls in the May 2016 Bulletin). Unsurprisingly, this ambitious argument was dispatched but the judgment provides a useful review of the circumstances in which office-holders’ time costs are recoverable in litigation.
Costs issues also came before the High Court in Re Brian Cooke, where it was held that the court had jurisdiction to order that a bankrupt pay personally the costs of his unsuccessful appeal of the bankruptcy order. The costs were not simply an expense of the bankruptcy. Given it was unclear how the bankrupt in this case would satisfy such an order, it remains to be seen how useful this power will be in practice.
Finally, in Hosking v Slaughter & May the Court of Appeal settled the debate (at least in relation to the old Insolvency Rules) about whether, and how, liquidators could challenge legal fees incurred and agreed by former administrators.
Since the last bulletin, the bankruptcy courts have addressed some novel points of principle decisions. In Hinton v Wotherspoon the High Court considered the circumstances in which trustees in bankruptcy could claim assets held in SIPPs for the bankruptcy estate. This is the latest in a line of cases we’ve reported on in which the courts have grappled with the difficulties pensions cause for office-holders. Whilst this decision is usefully clear, the clear conflict in the authorities now requires attention from an appellate court.
In Schlosberg v Avonwick Holdings Limited the High Court helpfully clarified the circumstances in which a trustee in bankruptcy will succeed to legal professional privilege enjoyed by the bankrupt. This is likely to be an important decision, and sounds a note of caution for those lawyers acting for both creditors and trustees engaged in litigation against a bankrupt.
The High Court reviewed the principles applicable to sales of the bankrupt’s marital home in Grant v Baker. The decision shows the weight given to the interests of creditors as against the interests of those who reside in the marital home notwithstanding, in this case, the unusual and exceptional circumstances that might have justified a lengthy postponement of any sale.
The long running litigation in relation to the affairs of Glenn Maud, which has been a regular feature of these bulletins, continued in Libyan Investment Authority v Maud and Maud v AABAR Block Sarl. In the former, the Court of Appeal overturned the earlier setting aside of a statutory demand served on Mr Maud (see the August 2015 bulletin), holding that the recovery of debts owed by him was not barred by the Libyan sanctions regime. In the latter, Mr Maud succeeded on an appeal of a bankruptcy order said to have been pursued for an ancillary purpose (see the February 2016 Bulletin). This litigation continues to generate interesting decisions for insolvency practitioners.
Turning to the world of corporate insolvency, the High Court in Rowntree Ventures Ltd v Oak Property Partners Ltd unusually declined to grant an administration order, despite the company probably being insolvent and administration being likely to achieve a statutory purpose. The case highlights the sort of circumstances that will justify such an exercise of the court’s discretion.
Also considering the test for entry into insolvency, the Court of Appeal in Evans v Jones took the opportunity to clarify how contingent assets are to be treated for the purposes of determining whether a company is able to pay its debts. The decision is welcome for its clear and commercially realistic approach to the insolvency test.
In a number of cases the English courts have examined issues relating to pre-insolvency dispositions (both intentional and unintentional) prejudicing the body of creditors as a whole. In Burnden Holdings (UK) Limited v Fielding the Court of Appeal read the Limitation Act 1980 liberally, so as to prevent directors who had in practice benefited from pre-insolvency unlawful distributions from retaining the benefit.
In Re Ahmed the High Court permitted liquidators to claim compensation from a third party who had received a post-petition transfer of assets and had delayed in returning them to the office-holder by which time the asset had diminished in value. The case shows the width of remedies available to make good losses to the bankruptcy estate caused by void dispositions.
The Court of Appeal in Express Electrical Distributors Ltd v Beavis reviewed in detail the authorities on validation orders and clarified that, even where payments are made in good faith and in the course of business, the court may still refuse retrospective validation where the payments prejudiced the creditors as a whole.
For those engaged in jurisdiction disputes involving multiple insolvencies, the Cayman court’s decision in Re Ardent Harmony Fund Inc is an example of a robust decision of the jurisdiction where insolvency proceedings were originally opened granting an antisuit injunction to prevent creditors opening separate, and futile, insolvency proceedings in other jurisdictions.
Finally, insolvency practitioners may find interesting the Supreme Court’s decision in Bailey v Angove’s Pty Ltd. The Supreme Court clarified the circumstances in which the insolvency of an agent will terminate its authority to act on its principal’s behalf. As the facts of this case showed, the issues can affect whether or not liquidators of agents can collect (and make available for the agent’s creditors) significant sums that would have been collected for the principal alone.