Kerry Underwood

INSOLVENCY ROUND-UP

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This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog.

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

Here I deal with a number of decisions concerning procedural issues of filing and service in relation to insolvency proceedings.

In particular the Court’s Electronic Filing System is a source of considerable confusion.

 

Extending Time for Service in Insolvency Litigation and Limitation

In

Bell and another v Ide and others [2020] EWHC 230 (Ch) (12 February 2020)

the High Court considered the requirements of rule 12.9(3) of the Insolvency (England and Wales) Rules 2016 to serve an application in insolvency proceedings at least 14 days before “the date fixed for its hearing”, holding that that referred to the date on which the application was actually heard, rather than any original, vacated, hearing date and declined to follow

Re HS Works Ltd [2018] EWHC 1405 (Ch)

which it held had been wrongly decided.

Here, this meant that the respondents to this claim, which concerned alleged preferences, transactions at an undervalue and transactions defrauding creditors, could not argue that the claim had been served out of time.

However, the court also considered, obiter, the effect if the claim had been served out of time.

It was common ground that claims in insolvency proceedings, unlike claims in general litigation, were not invalidated if served out of time – see rule 12.64 of the Insolvency Rules.

In insolvency proceedings, the court controls the time for service by setting the hearing date and service is a procedural, rather than substantive, step that could be cured, if defective, under rule 12.64 of the Insolvency (England and Wales) Rules 2016.

The court held that, as defective service did not automatically invalidate claims in insolvency proceedings, a court’s decision to extend time for service did not by itself rescue an otherwise defunct claim.

Further, as the claim’s validity did not solely depend on the court’s decision to extend time, a decision to extend time did not by itself deprive the respondents of a limitation defence that would apply if the proceedings had to be started with a new claim, and the decision to the contrary in

Re Kelcrown Homes Ltd (In Liquidation) [2017] EWHC 537 (Ch),

was wrong.

Insolvency legislation deals with service differently from the CPR.

While limitation periods do apply to claims in insolvency proceedings, they are unlikely to defeat a claim issued in time.

 

Defect in Electronic Filing and When Notice of Intention to Appoint Administrators Expires

In

Re Statebourne (Cryogenic) Limited [2020] EWHC 231 (Ch)

the High Court held that the identification in the Court’s Electronic Filing System of which Business and Property Court a Notice of Appointment of Administrators was to be filed in, was not a requirement of Schedule B1 to the Insolvency Act 1986  or of the Insolvency (England and Wales) Rules 2016.

Accordingly, a Notice of Appointment that specified a regional Business and Property Court that was not the same court to which court staff had allocated the preceding Notice of Intention to Appoint Administrators was, if it was defective at all, entitled to a waiver of any defect under CPR 3.10(b).

The court also held that the ten-business day period within which a Notice of Appointment could be filed following a preceding Notice of Intention should be calculated by including the day on which it was filed.  The decision to the contrary in

Re Keyworker Homes (North West) Limited [2019] EWHC 3499 (Ch)

was wrong.

Accordingly, a Notice of Intention filed on Friday 17 January expired at the end of Thursday 30 January 2020, and not at the end of Friday 31 January 2020, and here the Notice of Appointment had been filed out of time on 31 January 2020.

Nevertheless, no substantial injustice was caused by the appointment out of time, and the court granted orders under paragraph 104 of Schedule B1 and rule 12.64 of the Insolvency (England and Wales) Rules 2016 waiving the defect and declaring the administrators validly appointed from the time of filing of the Notice of Appointment on 31 January 2020.

 

Procedural Error When E-Filing Notice of Appointment of Administrator Curable by Court’s Powers Under CPR

In

Carter Moore Solicitors Ltd, Re [2020] EWHC 186 (Ch)

the High Court validated a directors’ Notice of Appointment of an Administrator that had been initially rejected by the court office when uploaded through the Court’s Electronic Filing System.

The Notice of Appointment had been rejected because the person filing it had erroneously tagged it as a “New Case” rather than “Existing Case” in the Court’s Electronic Filing System.

Following the rejection of the Notice of Appointment, it was filed again, correctly, though outside court hours.

It was then accepted by the court staff, but they subsequently referred it to the High Court Judge.

This referral was not strictly pursuant to the more recent guidance that Notice of Appointments purportedly filed through the Court’s Electronic Filing System outside court hours should be referred to a High Court Judge.

The court ultimately side-stepped the out-of-hours issue by only looking at whether to validate the first, in-hours, Notice of Appointment.

The court treated the first Notice of Appointment as having been validly filed, using its discretion under the Electronic Working Practice Direction to remedy procedural errors in Electronic Working (paragraph 5.3, CPR PD 51O).

This use of discretion was appropriate because there had been no breach of insolvency legislation given that the court was only looking at the first Notice of Appointment filing, made within court hours.

The mistake in the first filing was inadvertent and not an attempt to pay a smaller filing fee, and indeed resulted in a higher fee being due.

It had been clear that the first Notice of Appointment was part of an existing case from the documents filed with it.

The mistake was corrected within minutes of it having been notified to the filing party.

No third party would be prejudiced by the validation of the first Notice of Appointment.

Indeed, the second Notice of Appointment would probably have been out of time due to the expiry of the preceding notice of intention to appoint.

The court raised, but did not explore, the debate over how to calculate when it expired, but that issue has since been dealt with in the case of

Re Statebourne (Cryogenic) Limited [2020] EWHC 231 (Ch) 

– see above

The court also used separate common law powers to declare that the administrators’ appointment was valid as a result of its CPR order.

The court also stated that, pending new legislation, practitioners should avoid e-filing out-of-hours’ Notice of Appointments.

 

Effect of Out-Of-Hours E-Filing of Notices of Appointment

In

Re Symm & Company Ltd [2020] EWHC 317 (Ch) (5 February 2020)

the High Court validated a Notice of Appointment of Administrators that had been electronically filed by the insolvent company’s directors outside court hours at 5.36pm.

The court deemed the Notice of Appointment to take effect at 10am on the next working day.

This was because the out-of-hours filing was a defect that was simply an irregularity and caused no substantial injustice and so could be cured under rule 12.64 of the Insolvency (England and Wales) Rules 2016.

It was appropriate that a Notice of Appointment filed by directors should be deemed only to take effect when the court next opened, rather than at the out-of-hours time at which it was originally filed.

By contrast, if a Notice of Appointment was filed outside court hours by a Qualifying Floating Charge Holder, it could be appropriate that the Notice of Appointment be deemed to be filed at the time it was originally submitted.

This was because the Insolvency (England and Wales) Rules 2016 and Insolvency Rules 1986 had long permitted Qualifying Floating Charge Holders, and only Qualifying Floating Charge Holders, to file outside court hours.

The intended meaning of paragraph 8.1 of the Practice Direction on Insolvency Proceedings is to prevent any Notice of Appointment from being filed electronically outside court hours.

The remaining method of filing outside court hours through the email and fax process in the Insolvency (England and Wales) Rules 2016 had always been intended solely for Qualifying Floating Charge Holders, to compensate them for the loss of the 24-hour ability to appoint administrative receivers.

Although rule 1.46 of the Insolvency (England and Wales) Rules 2016 contemplated electronic delivery of court documents, this only reflected the expectation of a then future pilot scheme on electronic filing of court documents generally and did not reflect a policy change on Notice of Appointments.

This is the first reported decision following the recent High Court guidance on the process for dealing with out-of-hours Notice of Appointments in which the court has directly engaged with the relevant legal questions.

Earlier cases have been decided on other grounds.

Note: For those of you under 60, fax was a sort of very early email system which fell into disuse in about 1995.

 

Recognition of Foreign Insolvency Proceedings Under Cross-Border Insolvency Regulations 2006 Notwithstanding the Dissolution of The Debtor

In

Mendonca v KPMG Corporate Finance Sao Paulo, Brazil [2020] EWHC 351 (Ch)

the High Court ordered that Brazilian bankruptcy proceedings of an English limited liability partnership be recognised as foreign main insolvency proceedings under the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) even though the debtor had been dissolved before the Brazilian bankruptcy order had been made.

The court considered whether the company was a “debtor” for the purposes of the Cross-Border Insolvency Regulations 2006 (SI 2006/1030).

Definitions used in the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) of “foreign proceeding”, “foreign representative”, and “foreign main proceeding” were each predicated upon there being a debtor.

The court held that under sections 221(5) and 225 of the Insolvency Act 1986, it was able to wind up a dissolved unregistered company: this had been the case, for example, in

Re Eurodis Electron plc [2011] EWHC 1025 (Ch)

It also noted that in

Re Consumer Trust and others [2009] EWHC 2129 (Ch)

the High Court had recognised as foreign main proceedings US bankruptcy proceedings in respect of a US trust that had no legal personality for English law purposes.

It was consistent with the aims and purposes for which the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) had been introduced that recognition should be granted, and to order otherwise would, in the light of the operation of sections 22(5) and 225 of the Insolvency Act 1986, be perverse.

The fact that the company’s assets had become bona vacantia under English law, however, led the court to refuse to make an order entrusting the assets of the company to the foreign representatives and it stated that the company should be restored to the register.

It permitted the foreign representatives to apply for such an order.

The court observed that, should similar circumstances arise in the future, notice of the recognition application should be served on the relevant bona vacantia authority which was determined by the debtor’s registered office location, and in this case was the Bona Vacantia Division of the Treasury Solicitor in good time before the hearing.

Written by kerryunderwood

March 26, 2020 at 12:47 pm

Posted in Uncategorized

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