Insolvency Overview – Issue 8 | February 2022

0

Kireeva vs. Bedzhamov [2022] EWCA Civil 35

Where a court recognizes a foreign bankruptcy order at common law, is the foreign trustee entitled to an order entrusting him or her with the bankrupt’s immovable property (a property in Belgrave Square)? This was the more interesting and significant of the two issues to be decided in this high-profile appeal of a decision by Judge Snowden in which he (i) recognized a foreign bankruptcy order despite the bankrupt’s claims that it was obtained by fraud, but (ii) held that under English law a foreign court had no jurisdiction to make orders relating to land in England and that there was no general power in the common law court to make an order vesting the property in the trustee, or ordering its transfer to it. The bankrupt’s appeal on the first point is allowed; the trustee’s cross-appeal was dismissed.

As Stuart-Smith LJ noted, in his brief judgment concurring with Newey LJ’s leading case, what was at issue in the cross-appeal was a “boundary dispute” between “modified universalism” and “rule of buildings”. By a majority of 2 to 1 (Arnold LJ dissenting), and in what can be seen as another retreat from the trend towards “modified universalism”, the Court of Appeal ruled that the “rule of immovable” – namely the rule that rights in immovable property are governed by the lex situs of the property – prevailed. While the principle of “modified universalism” is part of the common law, it is subject to English law (as explained by Lord Sumption in Singularis Holdings Ltd v. PWC [2014] UKPC 36) and the “immovable property rule” is “long-standing and entrenched”. Granting the remedy sought by the trustee would amount to creating a common law exception to this rule, which is strictly speaking within the jurisdiction of Parliament and not of the courts. It was further held that while it was possible for the English court to make a receivership order against the property of the bankrupt, who was resident in England, the jurisdiction to do so was not unlimited. and it would not be appropriate for the court to exercise this power to circumvent the “immoveables rule”. Under English law, the trustee had no interest in the property which could be protected by the grant of a receivership order.

Levi Solicitors LLP v. (1) Wilson (2) JKR Real Estate Development [2022] EWHC 24 (Ch)

In a judgment delivered on January 14, 2022, Judge Fancourt was faced with an unprecedented question, for which no authority apparently existed. In a request from a creditor of a company that has entered into a CVA, contesting the admission by the CVA supervisor of proof of debt from another creditor, who bears the burden of proof?

Claimant (“A”) was the principal creditor of a construction company and had made such a claim – under Article 7(3) IA 1986 and IR 1986, r.4.83(2) (that the creditors had agreed should apply to the CVA, with the necessary modifications) – ask the Court to order that the evidence of the second defendant (“R2”), another creditor, be rejected (it being alleged that the first defendant, the supervisor , was wrong to admit it). The parties disagreed on responsibility for establishing the claim. R2 argued that the onus was on A, who sought to interfere with a decision made by the Supervisor in a quasi-judicial capacity. A submits that the burden rests with R2, as a creditor seeking to have its evidence admitted. Judge Fancourt held that A had the better of the argument, given that (i) a claim under Rule 4.83(2) – or its successor in Rule 14.8(3) IR 2016 – proceeds as a rehearing and not as a review of the decision of the chargeholder, with the affected creditor’s claim reconsidered (see Re a Company (No. 004539 of 1993) [1995] BCC 116) – and (ii) therefore, it was not the correctness of that decision that was in issue, but rather whether the impugned evidence was established. He considered that, in the circumstances, the proving creditor – in this case R2 – had the legal and probative burden of asserting his claim.

Costley-Wood & Ors v Rowley & Anor (Re Patisserie Holdings PLC & Ors) [2021] EWHC 3205 (Ch)

The Court was asked to approve a posteriori (i) the conduct of the administration of three companies of the Pâtisserie Valérie group, notwithstanding the non-compliance by the administrators with the requirements of appendix B1 IA 1986, and (ii) the appointment of liquidators who had not been properly appointed accordingly.

Two problems arose. First, when the initial proposals of the directors of the holding company were rejected by an ad hoc creditors’ committee representing more than 50% of the company’s outstanding liabilities, the directors had not sought instructions from the court nor the approval of all the creditors, but had simply obtained the agreement of the ad hoc committee to move on to an amicable liquidation of the creditors and the appointment of liquidators. The validity of this approach, and therefore of the appointment of the liquidators, was therefore called into question. Secondly, with regard to the administration of two commercial entities within the Group, the requirements relating to the holding of physical meetings of creditors had not been respected. The question was whether these flaws invalidated the decisions made at these meetings.

In circumstances where the demands were not opposed by any of the creditors and were not likely to cause them prejudice, the Court took a pragmatic approach and held that the appointment of the liquidators was not invalid: the approved proposals are not a prerequisite for valid administration (About Stanleybet UK Investment Ltd [2012] BCC 550), and the procedural defect consisting in not obtaining the approval of the meeting of all the creditors for the appointment of the liquidators was a remediable defect (Re Zoom UK Distribution Ltd [2021] EWHC 800 (Ch) followed). Likewise, the defects in the calling of the meetings were purely “technical” and insufficient to invalidate otherwise valid decisions. This decision, while pragmatic, granted considerable leniency to office holders. Going forward, office holders would be well advised to ensure that they do not allow what might appear to be commercial common sense to override the letter of the law: it cannot be assumed that Court will always be so lenient.

Regarding West African Gas Pipeline Company Ltd [2021] EWHC 3360 (Ch)

The Court has authorized a company registered in Bermuda to call a meeting of its members for the purpose of considering a proposed plan of arrangement under the Companies Act 2006, Part 26.

Miles J noted that although a system such as the one proposed could generally be expected to take place in the country of incorporation, there were two reasons for making an exception here. One was very factual, namely that the affairs of the company were governed by a shareholders’ agreement under English law (which provided a sufficient connection with England and Wales to bind the: Re Drax Holdings ltd [2021] EWHC 2743 (Ch)). The other was that there was an interrelated and parallel pattern of foot arrangement in Bermuda. This last ground raises the interesting question of whether the ‘jurisdictional roadblock’ to an English statutory arrangement scheme of a non-UK company can now be circumvented by initiating parallel proceedings in the country of incorporation.

Doran v County Rentals Ltd (as Hunters) [2021] EWHC 3478 (Ch)

The Court considered the interpretation of subsection 5(3) of (former) Schedule 10 of the Corporate Insolvency and Governance Act of 2020 (CIGA), which was in force until the end of September 2021. This provided that the Court could not set up a company on the ground specified in section 123(1)(e) or (2) IA 1986 (“inability to pay debts”) if it is satisfied that the ground would apply “even if” the coronavirus had no financial effect on the company.

HHJ Cadwallader, sitting as a High Court judge, held that in terms of interpretation, the words ‘even if’ direct the Court to the financial effect of the pandemic on the business, not the applicability (or otherwise) of the relevant ground. In other words, it is not a question of answering the “coronavirus test” by considering the effect of the coronavirus on a company’s indebtedness, but rather by asking whether the company would have been unable to pay his debts even if the pandemic had not caused his financial situation to worsen.

Applying this test and reiterating the principle that the Court should be slow to infer an inability to pay from the mere fact of non-payment of a debt, the Court refused to overturn the dismissal of a liquidation petition against a company for non-payment of a debt incurred before the pandemic (which the company was currently unable to pay due to the pandemic) when there was a dispute as to whether the debt in question had been discharged and, if not, whether it resulted from an error on the part of the company.

Share.

About Author

Comments are closed.