Case law update

IPA Insolvency Practitioner newsletter, September 2021

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An insolvency case law update prepared by Andrew Cawkwell of Manolete Partners PLC.

Sands v Dyer & Ors: Neutral Citation Number: [2021] EWHC 2124 (Ch)

On 21 October 2019, an insolvency application was filed on behalf the joint trustees in bankruptcy of Mr Richard Rufus. It sought relief pursuant to sections 339 and/or 423 of the Insolvency Act 1986.

The insolvency application was listed for its first hearing on 11 March 2020. 

Rule 12.9 of the Insolvency Rules 2016 (“Rule 12.9” and “IR 2016” respectively) concerning its service provides amongst other things that a sealed copy of the application must be served, or notice of the application and venue must be delivered, at least 14 days before the date fixed for its hearing unless an exception as listed applies.

In this case the application was not served before the 11 March 2020 hearing.

On 24 May 2021, the court heard the Respondents’ application for a strike out of the proceedings on the basis that (amongst other things), the joint trustees had not served the application notice in accordance with the Insolvency Rules and that limitation had now expired.

The 6 year limitation for statutory office holder actions had expired on 25 February 2020.

The court considered that the starting point is that the Trustees not only breached Rule 12.9 but they have also failed to establish and do not try to establish: (i) that they took all reasonable steps to comply with its service provision but were unable to do so; and (ii) any good reason for not having served in accordance with Rule 12.9. conduct. The Trustees by their evidence refer to the application notice having been issued as a protective measure, to the hampering of their investigations and to delays obtaining after the event insurance. However, they did not present a detailed explanation for the failure to comply with Rule 12.9.

The joint trustees’ only ground for opposing the Strike Out Application and/or for the granting of an extension of the time is the Third Respondent’s submission to the jurisdiction by engagement with the proceedings. The joint trustees relied upon the Third Respondent’s representations by conduct through his participation in the proceedings to establish a representation that he would proceed to trial.

ICC Judge Jones stated:

“Notwithstanding all the legal arguments and law addressed, this is a simple case of waiver resulting in submission to the jurisdiction. That submission means that the Strike Out Application must be dismissed and that no order need be made in respect of either the 9 March Application to extend time or the Cross-Application. 

The only matters that remain are: (i) The omission of a CPR r.23.9(3) statement but that is a technical failing and rightly has not been pursued to sustain the Strike Out Application; (ii) The observation that an application notice having been used for a s.423 IA claim it will be necessary for the Trustees to address the decision of Manolete Partners Plc v Hayward and Barrett Holdings Limited [2021] EWHC 1481 (Ch) when judgment is handed down; and (iii) The further directions required for trial.”

Commentary: It seems that the basics of complying with the Insolvency Rules was overlooked here by the office holders as they grappled with preserving limitation by issuing proceedings as a protective measure and delays in securing after the event insurance. They were able to keep the claim alive because the Respondents took part in the proceedings thereafter and submitted to the jurisdiction. The reference to the s423 claim by way of application notice in the context of Manolete Partners Plc v Hayward and Barrett Holdings Limited [2021] EWHC 1481 (Ch) will likely necessitate a Part 7 claim form and particulars of claim being required for the s423 claim.

Re A company A v B[2021] EWHC 2289 (Ch), [2021] All ER (D) 37 (Aug)

The court dismissed a creditor’s winding-up petition because they had not provided the required evidence to satisfy the second stage of the test prescribed by paragraph 8 of the Insolvency Practice Direction (IPD) relating to the Corporate Insolvency and Governance Act 2020 (CIGA 2020).

The court considered the two-stage approach to the coronavirus test.

• The debtor company had to show that COVID-19 had had a financial effect on it before the winding-up petition was presented. On the facts of this case, this first stage was satisfied by an increase in the company’s debtors and difficulties with its workers self-isolating, leading to project delays, cash-flow consequences and a fall in turnover. The court accepted that the company’s inability to pay the petition debt was clearly linked to the financial effect of COVID-19.

• The creditor must demonstrate that the company would still be insolvent (within the meaning of section 123(1)(e) or 123(2) of the IA 1986) if the COVID-19 financial effect was ignored. On the facts, the court was not prepared to accept that the creditor comparing the company’s debt levels with those from earlier years was enough.

The court held that the creditor had not satisfied the second stage of the coronavirus test. CIGA 2020 therefore applied to restrict its ability to make a winding-up order.

Content courtesy of IPA corporate partner Manolete Partners PLC.