XXIV Insolvency Judgments – November 2012

Insolvency Judgments

Produced in conjunction with Cork Gully

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This report is the third of our quarterly publications prepared in conjunction with speacialist insolvency lawyers at Cork Gully, summarising some of the important insolvency decisions of the last 3 months. Since this report was drafted, there has been a further update, whereby the Supreme Court has handed down its much-awaited decision in Eurofinance v Rubin which has clarified the law on enforcement of foreign judgments in an insolvency context.

Although the summer is traditionally a quiet time for the Courts, there have a number of interesting decisions, including cases considering the hot topic of defects in the appointment of out of court administrators. The first is Re Eco Link Resources, decided in Birmingham by His Honour Judge David Cooke. That case adopted the logic of Arnold J in Re Ceart Risk Services in giving a purposive construction to the statutory provision which had been breached. However the Judge held that failure to give notice of intention to appoint administrators to a prior floating charge holder was an incurable defect and he refused to uphold the purported appointment. A week later, also in Birmingham His Honour Judge Purle QC decided Re BXL Services, giving paragraph 26(2) of Schedule B1 a purposive construction, again following Ceart, but came to the conclusion that failure to give notice to the company did not invalidate the appointment. HHJ Purle QC said that the law was settled by Ceart in which Arnold J had considered all the relevant principles and authorities and reconciled the inconsistent earlier decisions in Virtualpurple and NatWest v Msaada which had been decided on the same day last December in London by Norris J and Warren J respectively.

It might be optimistic to accept the Judge’s view that the law in this area is settled, given the differing views of the members of the judiciary in London and Birmingham. Indeed one of the most recent cases is Re Euromaster, in which Norris J did not echo HHJ Purle QC’s view that the law is settled, but he did follow essentially the same approach. If the law is not settled, than at least it appears to be converging.

In the depths of August, Globespan Airways went to the Court of Appeal which overturned the decision of Briggs J and held that the conversion of an administration into CVL occurs only when the requisite notice is actually registered (not merely received) by Companies House, but that in that event the administration is automatically extended until the date of conversion.

The Court of Appeal also decided, in Joddrell v Peaktone, that the new provision in the 2006 Companies Act concerning restoration to the register has assimilated the two different procedures which had been in place in the 1985 Act (and before). The new provision has the effect of retrospectively validating proceedings commenced against dissolved companies if they are later restored to the register.

Other cases summarised in this edition include Wedgwood Museum Trust which illustrates the dangers of office holders running up unnecessary legal costs.

Asegaai Consultants, Wood v Mistry is a rare case of liquidators bringing a claim for disqualification against a former liquidator, who was found to have siphoned money out of 43 companies of which he was liquidator into his own offshore accounts.

In Relfo Ltd (In liquidation) v Varsani a liquidator succeeded in his claim for knowing receipt against a former director; it reminds us of the availability of traditional equitable remedies as tools for office holders seeking to recover assets or damages suffered by the company at the hands of its former controllers, in addition to the familiar provisions of the Insolvency Act itself.

Finally, in Re BTR (UK) Ltd; Lavin v Swindell, a Judge in Leeds held that an administrator whose proposals have been rejected by the creditors must apply to the Court to wind the company up, and if he does not the court will hear an aggrieved creditor and can then wind up a company without a petition having been presented.