Closegate Hotel Development (Durham) Ltd and Another v Joseph McLean and Others
| Jurisdiction | England & Wales |
| Judge | Richard Snowden |
| Judgment Date | 25 October 2013 |
| Neutral Citation | [2013] EWHC 3237 (Ch) |
| Docket Number | Case No: 7315 of 2013 |
| Court | Chancery Division |
| Date | 25 October 2013 |
[2013] EWHC 3237 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Rolls Building, Fetter Lane,
London EC4A 1NL
Mr Richard Snowden QC (sitting as a Deputy Judge of the High Court)
Case No: 7315 of 2013
Mark Phillips QC (instructed by Stewarts Law LLP) for the Applicants
Anthony Trace QC and Adam Smith (instructed by Speechly Bircham LLP) for the First and Second Respondents
Roger Masefield QC (instructed by Addleshaw Goddard LLP) for the Third Respondent
Hearing date: 21 October 2013
Richard Snowden QC:
Introduction
There is before me an application dated 16 October 2013 ("the Application") by Closegate Hotel Development (Durham) Limited and Closegate (Durham No.2) Ltd ("the Companies"). The Application seeks a Declaration that the purported appointment of Mr. Joseph McLean and Mr. David Dunckley of Grant Thornton (UK) LLP ("the Administrators") as joint administrators of each of the Companies by Barclays Bank plc ("the Bank") was invalid and of no effect
The Administrators were purportedly appointed on 11 October 2013 by the Bank as the holder of qualifying floating charges in respect of the property of the Companies pursuant to paragraph 14 of Schedule B1 to the Insolvency Act 1986. The Companies challenge the validity of those appointments on the basis that paragraph 16 of Schedule B1 to the 1986 Act prohibits the appointment of an administrator while a floating charge is not enforceable. The Companies contend that as at 11 October 2013 the floating charges were not enforceable because the Bank was estopped from making an immediate demand for repayment of the monies owing to it or from exercising any of the rights under its security,
The Application is supported by witness statements from the two directors of the Companies, Ms. Geraldine Hunt and Mr. Robert Bishop ("the directors"). Mr. Phillips QC, who appears for the Companies, seeks directions including a tight timetable for the filing of evidence in response from the Bank, disclosure and an expedited trial at which the witnesses can be cross-examined. Mr. Trace QC, who appears for the Administrators and Mr. Masefield QC, who appears for the Bank, oppose the Application and invite me to dispose of it summarily pursuant to CPR 24.2 on the basis that the Companies have no real prospect of establishing that there was an estoppel preventing the Bank from making a demand for the monies owing and appointing the Administrators.
The standing of the Companies to make the Application
Before turning to the facts and the question of estoppel, I should deal with a preliminary objection raised by Mr. Trace as to the standing of the Companies to make the Application. Mr Trace submitted that the appointment of the Administrators deprived the directors of the authority to cause the Companies to challenge the appointment of the Administrators; or that it did so unless the directors were prepared to offer an indemnity to the Companies in respect of the costs of the Application.
The basis for Mr. Trace's first argument was paragraph 64 of Schedule B1 to the Insolvency Act 1986 which provides that an officer of a company in administration may not exercise a management power without the consent of the administrator. 'Management power' is defined as a power which could be exercised so as to interfere with the exercise of the administrator's powers. Mr. Trace submitted that causing the Companies to challenge the appointment of the Administrators necessarily interfered with the exercise of the Administrators' powers.
I do not accept that submission. On the basic point of construction of Schedule B1, in common with Lord Glennie in the Scottish case of Stephen. Petitioner [2012] BCC 537, I think that the concept of a 'management power' as defined in paragraph 64 is primarily intended to catch powers which, if exercised by the directors, could impede the exercise of similar powers by the administrators. I do not think that paragraph 64 is intended to catch a power on the part of the directors to cause the company to make an application challenging the logically prior question of whether the administrators have any powers to exercise at all.
I also note, as did Lord Glennie, that there is long-standing authority to the effect that even after the appointment of a provisional liquidators, the board of directors of a company retains a residuary power to instruct lawyers to challenge the appointment of the provisional liquidator, to oppose the petition and, if a winding up order is made, to appeal against the making of that order: see In re Union Accident Insurance Co Limited [1972] 1 WLR 640. There are also numerous reported cases in which the directors of a company have caused the company to take proceedings to challenge the validity of the appointment of a receiver: see e.g. RA Cripps & Son Ltd v. Wickenden [1973] 1 WLR 944 arid Sheppard & Cooper Ltd v. TSB Bank plc (No.2) [1996] BCC 965. I see no reason in principle why the position should be any different as regards the appointment of an administrator by a qualifying charge-holder under paragraph 14 of Schedule B1.
It would, moreover, be to my mind an anomalous result if it were within the authority of the directors to cause the company to resist an application by a qualifying chargeholder to the court for the appointment of an administrator under paragraph 10 of Schedule B1, but that it was outside their authority to cause the company to challenge the validity of an appointment under paragraph 14 of Schedule B1.
Mr. Trace's second point as regards the provision of an indemnity in respect of costs raises more complex issues. Mr. Trace's submissions were based upon dicta of Shaw LJ in Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 at 819 and 821, and of Chadwick LJ in Sutton v GE Capital Commercial Finance Ltd [2004] 2 BCLC 662 at [45], Those cases both dealt with the question of whether directors could cause a company to bring proceedings against a third party after the appointment of a receiver.
In Newhart Shaw LJ said, at page 821,
"What, of course, the directors cannot do, and to this extent their powers are inhibited, is to dispose of the assets within the debenture charge without the assent or concurrence of the receiver, for it is his function to deal with the assets in the first place so as to provide the means of paying off the debenture holders' claims. But where there is a right of action which the board (though not the receiver) would wish to pursue, it does not seem to me that the rights or function of the receiver are affected if the company is indemnified against any liability for costs (as here). I see no principle of law or expediency which precludes the directors of a company, as a duly constituted board (and it is not suggested here that they were not a duly constituted board when they took the step of instituting this action) from seeking to enforce the claim, however ill-founded it may be, provided only, of course, that nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders."
In Sutton, Chadwick LJ referred to Newhart and added, at [51],
"We should make it clear that nothing that we have said should be taken to suggest that the costs of bringing the APL action should fall on assets which are charged to GE. It is, we suspect, a necessary feature of cases, such as this — where all the assets of the company are charged to the debenture holder, who does not consent to the action being brought — that the director will have to find outside funds. Further, nothing that we have said should be taken to suggest that the defendant would not be entitled to seek an order that the claimant company provide, from outside funds, security for its (the defendant's) costs. But those considerations do not lead to the conclusion that the action is not properly brought."
In my view, neither of these cases is authority for the proposition that the directors of a company lack authority to cause a company to commence proceedings against a third party after the appointment of a receiver, or that the existence of such authority is conditional upon an indemnity for costs being provided. Indeed, the reference to an indemnity may not be entirely apposite. As explained by Chadwick LJ, where all of the assets of a company are caught by a floating charge, the position is that as a practical matter the directors who cause a company to bring such proceedings are likely to have to find outside funds to provide assurance to the solicitors that they instruct to act on behalf of the company that their fees and disbursements will be paid from some source other than the charged assets (which will be in the hands of the receiver). Further, the defendant to such proceedings may be entitled to apply for security for his costs of the action on the footing that the charged assets in the hands of the receiver will not be available to meet any adverse costs order against the company.
It seems to me that similar considerations might apply in the case of an administration where the administrator is likely to be unwilling to agree to charged assets being used to fund an action in the name of the company of which he does not approve. I also cannot immediately see why payment of the solicitors instructed by the directors rather than by the administrators should qualify for payment as an administration expense under rule 2.67 of the Insolvency Rules 1986 or why a court could or should direct that any order for costs against the company in favour of the defendant must be paid as an...
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