Corporate insolvency – administration – moratorium – defensive steps – paragraph 44 of Sch B1
The defendant, MDL, brought a claim to set aside a compromise entered into with two individuals. Mr Cook, a solicitor supervising his firm’s defence of other proceedings against MDL, applied to be joined as a defendant to the claim. The application was refused by the district judge but Mr Cook obtained permission to appeal that decision to a circuit judge.
By the time of the hearing before the circuit judge, MDL had filed a notice of intention to appoint an administrator so that MDL was protected by a moratorium pursuant to paragraph 44(4) of Schedule B1 to the Insolvency Act 1986. The proposed administrator sought to prevent the hearing before the circuit judge from proceeding on the basis that Mr Cook’s appeal fell within the scope of the moratorium and no application had been made for permission to continue that appeal. The circuit judge held that Mr Cook’s application to be joined as a defendant to MDL’s claim did not fall within the scope of the moratorium and so he proceeded to hear and allow Mr Cook’s appeal.
On a second appeal, the Court of Appeal considered the scope of the moratorium which applies in administration under Schedule B1. After analysing a number of English and Australian authorities, the Court of Appeal upheld the circuit judge’s decision and determined that Mr Cook’s application fell outside of the scope of the moratorium.
The court considered that a person is entitled to take defensive steps in proceedings initiated by the insolvent company without engaging the moratorium, otherwise the company would be entitled to pursue its claims whilst the defendants to any such claims would be hampered in their efforts to defend themselves. For example, a defendant is entitled to file a defence or apply for security for costs in proceedings brought by a company in administration or liquidation. Mr Cook’s application was, in substance, a defensive step taken to protect his own position and therefore it fell outside of the scope of the moratorium. Moreover, any costs order made in Mr Cook’s favour would also fall outside of the scope of the moratorium since it was incidental to or consequential upon Mr Cook’s joinder application and not a separate application. MDL’s appeal was therefore dismissed.
This judgment indicates the court will not regard defensive steps taken by defendants (or persons wishing to be joined as defendants) in proceedings initiated by an insolvent company as falling within the scope of the statutory moratorium.
