Clydesdale Financial Services Ltd & Others v Smailes
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE RICHARDS |
| Judgment Date | 18 June 2009 |
| Neutral Citation | [2009] EWHC 1745 (Ch),[2009] EWHC 3190 (Ch) |
| Docket Number | Case No: B7625176 |
| Court | Chancery Division |
| Date | 18 June 2009 |
[2009] EWHC 1745 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London
WC2A 2LL
Mr Justice Richards
Case No: B7625176
Mr G Bompas QC and Mr L Ife (instructed by Salans, Solicitors) appeared on behalf of the 1 st and 2 nd Claimants
Mr N Jones QC and Ms S McCann (instructed by Just Costs Solicitors) appeared on behalf of the 3 rd Claimant
Mr L Tamlyn (instructed by Colman Coyle, Solicitors) appeared on behalf of the 1 st, 2 nd and 5 th Defendants
Mr T Dutton QC and Ms B Lucas (instructed by Ozon, Solicitors) appeared on behalf of the 3 rd Defendants
There are before the Court a number of applications all arising out of the insolvency of a solicitors' practice which was carried on first by a firm with the name Alexander Samuel & Co and then from a time in about mid–2008 by a limited partnership called Alexander Samuel LLP. I will refer to them as the firm and LLP respectively. The prime mover behind both the firm and LLP was Joseph Denenza[?], a US citizen and a foreign-registered lawyer.
The practice comprised making and pursuing claims for damages for personal injuries arising out of road traffic accidents, which accounted for some 80% of its cases, and employers liabilities claims accounting for the balance. It was high volume low value work with all or virtually all clients being referred by claims handling companies. Cases were undertaken on a conditional fee basis and the practice was funded by lenders including the first claimant, Clydesdale Financial Services Limited (CFS), a subsidiary of Barclays Plc, and the second claimant, Justice Capital Limited (JCL). It is not in dispute that on the 2 nd April 2009 when LLP went into administration substantial amounts were due to CFS and to JCL from LLP and/or the firm. CFS claims to be owed some £3.6 million by LLP and some £4.7 million by the firm and JCL claims to be owed approximately £3 million by the firm.
On the 2 nd April 2009 a sale agreement was made or purportedly made under which LLP sold its work in progress and retainers, its rights in respect of disbursements and other assets for a total price of £1.9 million payable as to £150,000 on completion and as to the balance by 30 equal monthly instalments of £58,330 each starting on the 30 th April 2009. The bulk of the price was attributed by the contract to the work in progress and retainers (£1.2 million) and disbursements (£645,993). The purchaser was a newly-formed entity, Jiva Solicitors LLP (Jiva) established to purchase these assets and carry on the practice in succession to LLP.
Jiva was formed and is owned by Mohammed Hussain Jiva, a solicitor admitted in 1999. He has carried on a practice in Bolton since 1999, specialising in personal injury claims. He resigned from this practice on the 30 th March 2009 in order to pursue the proposed acquisition of cases from LLP. Since the 2 nd April 2009 Jiva has been carrying on the practice acquired from LLP from the same premises in London and with largely the same staff.
The sale agreement was signed by the parties immediately before LLP went into administration. The members of LLP appointed joint administrators under Schedule B1 to the Insolvency Act 1986, as applied to limited liability partnerships by the Limited Liability Partnership Regulations 2001 (as amended in 2005). The agreement provided for completion to occur immediately after the appointment of the administrators and provided also that the agreement would be null and void if the administrators were not appointed. The terms of the sale agreement had been negotiated in the preceding weeks with the active participation of the administrators.
The sale and the administration were therefore in substance a pre–pack administration, differing from the paradigm pre–pack administration only because the sale contract was made by LLP immediately before it went into administration rather than by LLP acting by its administrators immediately afterwards. As is notorious there has been widespread public concern in relation to pre–pack administrations in terms of whether they achieve the best outcome for creditors. This is not to say that in any particular case or even in the generality of cases they do not achieve the best outcome but the hallmarks of a lack of widespread marketing of the business, often combined with the involvement of the directors of the insolvent company in the purchaser, create the conditions in which the result may be called into question.
To go some way to meeting this concern the Institute of Chartered Accountants in England and Wales issued Statement of Insolvency Practice 16 effective from the 1 st January 2009. It requires information detailed in the statement to be provided to creditors at an early stage of the administration.
The first notification of the sale to Jiva to any creditor of LLP was an email sent to CFS minutes before the contract was signed on the 2 nd April 2009, which was followed, as I have mentioned, immediately by the signing of the contract and the appointment of the administrators. CFS responded quickly, indicating its opposition to the sale. I will need to refer a little to the events of the 2 nd to 5 th April 2009, but at 7.45am on Monday 6 th April 2009 CFS, JCL and the third claimant in these proceedings, Focus Insurance Company Limited applied on short notice to Warren J. for interim relief in respect of the sale. No substantive order was made by Warren J except for an order for inspection of the files relating to the cases which had been funded by CFS and JCL. I should mention that this order has proved ineffective because it appears that clients were not required by the firm or LLP to sign client care letters evidencing their consent to inspection of their files by funders.
As completion of the contract had to a large extent occurred on the 2 nd April 2009 it was too late to obtain an injunction restraining completion which would have any significant effect. Instead by their application notice issued on the 7 th April 2009 the claimants sought, as the principal interim relief, an order that Jiva return to LLP the files relating to the cases funded by CFS and JCL and an order requiring the administrators to appoint a named solicitor or such other person as might be nominated by the Law Society, as practice manager of LLP for the purpose of managing the returned files pending a run off or disposal. In addition, the claimants sought an injunction against the administrators restraining them from taking any outstanding steps to sell or complete the sale of the business to Jiva.
At a hearing before Lewison J.on the 8 th April 2009 directions were given for the hearing of the claimant's application at a date to be fixed not before the 13 th May 2009. In the meantime Jiva gave undertakings the effect of which was to freeze all monies received by it in respect of disbursements and solicitors profit costs on each of the cases which had been funded by CFS or JCL up to the amount of the funding on each such case.
By the start of the hearing before me the scope of the relief sought by CFS and JCL had significantly narrowed. At a hearing before Proudman J. on the 21 st May 2009 they consented to the dismissal of the application so far is it sought the appointment of a named solicitor as practice manager although it remained open to them to seek the appointment of a different practice manager. In the skeleton argument of counsel for CFS and JCL served on the 5 th June 2009, they abandoned the application for the return of files and the appointment of any practice manager and instead stated that they would seek a continuation until trial of the undertakings given at the hearing before Lewison J., together with provision of certain disclosure and an undertaking by the administrators not to take any outstanding steps to complete the purchase. The administrators have indicated in their skeleton argument that they were content to give this latter undertaking principally because so little remained to be done.
Mr Bompas QC fully opened the application for relief against Jiva and Mr Dutton QC for Jiva responded fully to it. It was described before me as the main application. However, in the course of the hearing CFS, JCL and Jiva reached agreement on undertakings to be given by Jiva pending trial. They repeat the undertakings given to Lewison J. but provide that Jiva may deduct and retain sums in respect of overhead costs. It is therefore not necessary to consider the merits of the application by CFS and JCL against Jiva.
The third claimant, Focus Insurance Company Limited, is separately represented. It provided after the event and financial guarantee indemnity insurance in respect of the practice of the firm and LLP. It is content with the agreement reached by the other claimants with Jiva but in addition it seeks an order for inspection of the files on cases in respect of which it has issued policies. This is resisted by Jiva and I will deal with it later in this judgment.
The main issue now arising from the hearing relates to an order sought by CFS for the removal of the administrators and the appointment of a replacement administrator. If made, this would, of course, be a final not an interim order. The application is expressed as made either under paragraph 88 of schedule B1 for the removal of the administrators or under paragraph 74(4)(d) for their appointment as administrators to cease to have effect. The jurisdiction under paragraph 88 is expressed in very general terms, the paragraph providing simply that the court may by order remove an administrator from office. There must of course be...
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