Kerry Underwood

INSOLVENCY ROUND-UP: 4 CASES

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Underwoods Solicitors are solicitors for the Joint Liquidators of The Cambridge Analytica Group of Companies.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

Application to Discharge Receivership Order Refused On Grounds Of Abuse Of Process And Issue Estoppel

In

JSC VTB Bank v Skurikhin and others [2019] EWHC 1407 (Comm) (12 June 2019)

the Commercial Court dismissed a Liechtenstein foundation’s application to discharge an order appointing a receiver by way of equitable execution over the membership shares and interests in an English LLP.

The doctrines of abuse of process and issue estoppel apply to interim orders, and a party cannot seek to discharge an order in reliance on a “material change in circumstances” that it has itself brought about.

The claimant held judgments against the first defendant and in 2015, sought and obtained the receivership order on the basis that the first defendant was to be treated as beneficial owner of the fourth respondent’s assets, including the second defendant membership interests.

The fourth respondent did not attend the hearing. Its grounds for seeking to discharge the receivership order included that the first defendant had no interest in, or right to, the fourth respondent’s assets.

The court held that seeking to discharge the receivership order using evidence and arguments which could have been deployed in 2015 was an abuse of process; the fourth respondent was estopped from arguing issues on which specific findings were made, as well as issues that could have been, but were not, raised then.

Although the receivership order was “inherently temporary” and made on an interim application, it did not follow that the court’s factual findings regarding the first defendant’s beneficial ownership were only provisional.

The claimant asked the court to determine beneficial ownership and appoint receivers with a power of sale; the court could not have made the receivership order unless satisfied on the ownership issue, and its terms were consistent with a final determination of beneficial ownership.

The evidence as to the fourth respondent’s justification for not advancing its arguments in 2015  ,lack of futds for representation, was “unpersuasive”, and the court found that the fourth respondent had chosen not to attend the 2015 hearing and rejected the fourth respondent’s alternative argument that the first defendant’s irrevocable exclusion as a beneficiary of the fourth respondent constituted a “material change in circumstances” justifying discharge of the receivership order.

The fourth respondent could not rely on a change of circumstances it had brought about itself

It was an abuse of process to seek to reopen the receivership order by treating the first defendant’s exclusion as a “material change” when it was wholly within the fourth respondent’s control.

 

English/Welsh Court Has Jurisdiction Over Claims By Insolvent Company Against Scottish Law Firm

In

Holgate v Addleshaw Goddard (Scotland) LLP [2019] EWHC 1793 (Ch) (16 July 2019)

the High Court held that it has jurisdiction over a claim by an insolvent English company against a Scottish law firm in relation to the claimant’s claim for breach of fiduciary duty, breach of contract and negligence.

Jurisdiction as between the constituent parts of the UK in this case, is governed by Schedule 4 to the Civil Jurisdiction and Judgments Act 1982, which contains a “modified” version of the jurisdiction rules contained in the Recast Brussels Regulation.

The court rejected the defendant’s argument that the Regulation and therefore the Civil Jurisdiction and Judgments Act 1982 did not apply because the claim fell within the insolvency exception to the Regulation.

The claim was not closely linked to the administration of the claimant, because the defendant’s role was limited to acting on the administrators’ instructions.

Nor did the claim fall outside the Civil Jurisdiction and Judgments Act 1982 because of the exclusion in Schedule 5 of proceedings by which jurisdiction is conferred on the court having winding-up jurisdiction; in order for this exclusion to apply, the claim must be capable of being brought in the Insolvency and Companies List.

Applying the provisions of Schedule 4, the court held that it had jurisdiction by virtue of a related “anchor claim” in England for misfeasance, even though by the time the present proceedings were issued, the claimant had only applied for permission to bring the misfeasance claim, and had not yet issued that claim. and because the place of performance of the relevant obligation of the law firm was England.

Although the natural persons to whom the obligation was owed ,namely the joint administrators, were predominantly in Scotland, they received the defendant’s advice as agents for the claimant, and therefore the obligation was performed in England and Wales.

The judgment addresses a number of points regarding the allocation of jurisdiction as between constituent parts of the UK.

 

Administrators Granted Section 234 Application To Compel Transfer Of Property; Sub-Buyer Under Non-Completed Contract Can Assert Proprietary Rights Against Head Seller

In

Conn and another v Ezair; Re Charlotte Street Properties Ltd [2019] EWHC 1722 (Ch) (4 July 2019)

the High Court Judge held that a sub-buyer who had contracted to buy various properties and provided full consideration had a beneficial interest in those properties that was enforceable against the head seller.

This was despite the fact that there was no privity of contract between the two parties and that neither the head sale nor the sub-sale contracts had been completed, so no transfer of legal title had occurred.

The court granted an application under section 234 of the Insolvency Act 1986 brought by the administrators of the sub-buyer to compel the head seller to execute transfers of the legal title in favour of the sub-buyer.

In its findings, the court distinguished the Supreme Court decision in

Scott v Southern Pacific Mortgages Ltd (Re North East Property Buyers Litigation) [2014] UKSC 52,

which stated that the buyer of land cannot create a proprietary interest in the land, which is capable of being an overriding interest, until the buyer’s contract has been completed.

The court considered that Scott did not prevent the buyer of land from obtaining an existing beneficial interest, as opposed to creating a new beneficial interest, before the contract was completed.

The court then deployed various equitable principles to deem the transfer of the intermediate buyer’s beneficial interest to have been transferred to the sub-buyer.

It held that the head seller held the relevant properties on constructive trust for the sub-buyer and was estopped by his conduct from denying that the sub-buyer had taken over the intermediate buyer’s beneficial interest in the properties;

in any event, the sub-buyer could demand specific performance under its contract with the intermediate buyer and require the intermediate buyer to demand specific performance of the head contract, namely, transfer of the legal title to the intermediate buyer and on to the sub-buyer.

 

CPR 44 Applied to Reduce Costs Awarded To Trustee In Bankruptcy Of Surplus Estate

In

Ardawa v Uppal and another [2019] EWHC 1663 (Ch) (28 June 2019)

the High Court held that the general Civil Procedure Rules about costs in CPR 44 applied to a costs order awarded to a trustee in bankruptcy made payable out of the bankrupt’s surplus estate.

It held that the court that heard and determined an appeal in insolvency proceedings also had jurisdiction to address the amount of costs it awarded, either by directing a detailed assessment or by a summary assessment where appropriate.

In most circumstances, including on the facts of this case, a summary assessment was appropriate as it aligned most closely with the CPR objectives.

Outside formal insolvency proceedings, and where there is an anticipated surplus of funds in the bankrupt’s estate, a bankrupt may challenge his trustee in bankruptcy’s excessive remuneration or expenses under rule 18.35 of the Insolvency (England and Wales) Rules 2016.

If the challenge is well-founded, the court must make an order reducing costs under rule 18.36(4) of the Insolvency (England and Wales) Rules 2016.

Rule 12.1 of the Insolvency (England and Wales) Rules 2016 confirms that the CPR apply to insolvency proceedings, unless disapplied or inconsistent with the Insolvency (England and Wales) Rules 2016.

Further, rule 12.41 of the Insolvency (England and Wales) Rules 2016 specifically applies CPR 44 to costs of insolvency proceedings.

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Written by kerryunderwood

August 1, 2019 at 8:11 am

Posted in Uncategorized

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