News
On 22 April 2014, court fees payable in the High Court and County Court for insolvency relating applications and filings increased, sometimes substantially. For example, the petition fee for an administration order has increased to £280 and the court fee for an application within existing insolvency proceedings has increased to £155.
On 6 April 2014, HMRC announced that it would maintain the VAT registration of an insolvent business until all trading has ceased and all assets are realised. This means that insolvency practitioners must file VAT returns and make appropriate for payment, if any, for each VAT period until the registration ceases. For more information see HMRC: Revenue & Customs Brief 13/14 and VAT Notice 700/56 (Insolvency) (April 2014).
Recent Cases
In Holgate and Another –v- Reid and Another 2014, the High Court dismissed the challenge made by a creditor relating to the conduct of administrators brought under paragraph 74 of schedule B1 Insolvency Act 1986. The judgment was actually made in February 2014 but has only recently become publically available.
The court held that the creditor’s application was barred by Paragraph 74(6) Schedule B1 Insolvency Act 1986. The court found that if the order was made, it would impede the implementation of the administration proposals, which had been approved more than 28 days before the creditor made the application.
By way of background, within eight weeks of his appointment an administrator must circulate proposals for the conduct of the administration to creditors of the insolvent company and must then obtain creditor’s approval for the proposals.
If the company has sufficient assets to make a return to unsecured creditors, the administrator must obtain approval for his proposals at a meeting of the unsecured creditors. Paragraph 74 of Schedule B1 Insolvency Act 1986 allows creditors of an insolvent company to challenge the conduct of the company’s administrator on the grounds that the administrator’s conduct unfairly harms creditor interests.
The High Court’s decision confirmed that the bar on the challenges to an administrator’s conduct in Paragraph 74(6) applies to proposals deemed approved by Rule 2.33(5) Insolvency Rules 1986. The approach of the court seems to be that it will not interfere readily with an Administrator’s commercial judgment; at least where the Administrator demonstrates that there is a potential detriment to creditors from changing the way they handle the administration.
In Hocking and Others –v- Marsden and Another (2014), the court again considered the meaning of ‘unfair harm’ within the context of Paragraph 74, Schedule B1 Insolvency Act 1986. In this case, Administrators had refused to assign a cause of action to a creditor in respect of the claim the company had against its bankers (because the Administrators decided not to issue proceedings themselves on behalf of the company). The court held that the refusal caused unfair harm to both the individual creditor and the creditors as a whole because the assignment represented the only way creditors could receive any value from the cause of action and it was unfair to deprive them of that opportunity. This was despite the fact that the creditor in this case was unable to demonstrate that the Administrators had treated it in an unequal way or in a way that was different from other creditors in this class. The decision appears to be a rare example of the court interfering with what is, in essence, a commercial decision of the Administrators. The decision differs from other authorities and what constitutes unfair harm in the context of paragraph 74 and therefore this case should be viewed as an example of an exception rather than the rule.
The case of Cooper –v- Bank of Scotland Plc (2013) provides a cautionary tale for trustees in bankruptcy. In this case, the Claimant was made bankrupt sometime after having issued proceedings. He did not comply with an order for directions relating to service of witness evidence and did not apply for relief from sanctions until more than a year after the deadline for service and more than three months after the trustee in bankruptcy had assigned the claim to him.
The High Court dismissed an appeal against a District Judge’s refusal to grant relief from sanctions.
There had been some confusion on the part of the claimant’s solicitor as to whether the proceedings had been stayed as a result of the bankruptcy order. The High Court made it clear that the Claimant’s trustee in bankruptcy should have applied for a stay of the proceedings. It was not open to the Claimant to invite the court to ignore the delay that resulted while the claim was vested in the trustee.
This decision is in line with the court’s new tough approach to compliance with the procedural rules and orders as demonstrated in a large number of decisions on similar applications for relief from sanctions.
The case highlights that Insolvency Practitioners must closely monitor progress in any actual or potential litigation to ensure that all orders are complied with or if there is any uncertainty as to whether the litigation should continue, at the very least a stay should be applied for.
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