Cotswold Company Ltd
| Jurisdiction | England & Wales |
| Judge | MR JULES SHER QC |
| Judgment Date | 07 April 2009 |
| Neutral Citation | [2009] EWHC 1151 (Ch) |
| Docket Number | GLC 11/09 |
| Court | Chancery Division |
| Date | 07 April 2009 |
[2009] EWHC 1151 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Before: Mr Jules Sher QC
(Sitting as a Deputy Judge of the High Court)
In The Matter of The Cotswold Company Limited (In Company Voluntary Arrangement) and in the Matter of the Insolvency Act 1986
GLC 11/09
MR S HORNETT (instructed by Addleshaw Goddard) appeared on behalf of the Applicant.
MISS R AGNELLO QC (instructed by Salans) appeared on behalf of the Respondent.
APPROVED JUDGMENT
I have before me an application under section 7(3) of the Insolvency Act 1986 by Threadneedle Pensions Limited (“the Landlord”) challenging the decision of the Supervisor of the Company Voluntary Arrangement of The Cotswold Company Limited (“the Company”) to reject as recoverable within the Company Voluntary Arrangement a claim for future rent and breach of other covenants under a lease dated 25 th April 2003.
The Company sold home wares and accessories by mail order and through a number of retail premises. One such was Unit 9 the Triangle, Bournemouth, Dorset (“the Premises”). The Company took a lease of the Premises for a term of 15 years from 7 th March 2003 at an initial rent of £100,000 per annum. The lease contained standard obligations on the part of the Company to pay rent and service charge and to keep the Premises in repair during and at the end of the term. On 21 st December 2006 the Company put forward proposals for a Compulsory Voluntary Arrangement under Part I of the Insolvency Act 1986 with an effective commencement date of 10 th December 2006, which it defined as the “Record Date”. The Landlord was not the original landlord under the lease, but by this time the reversion expectant upon the determination of the lease was vested in the Landlord.
The Company had vacated the Premises and there was no prospect of the Company continuing to trade from the Premises whilst in the CVA or indeed at all. There were accrued arrears of rent and service charge as at 10 th December 2006 of some £36,928.70.
On 21 st December 2006 the Landlord was given notice of the meeting of creditors to approve the arrangement to be held on 15 th January 2007. On that date, namely 15 th January 2007, the creditors approved the proposals for the voluntary arrangement pursuant to Part I of the Insolvency Act 1986, and the Supervisor was appointed as such. The Landlord did not attend and did not vote at that meeting.
The essence of the proposals was that there would be a purchase of 100% of the Company's share capital by an independent publicly listed company and that there would be a payment of £1.45 million to be made available to the Supervisor for distribution by way of dividend to the unsecured creditors in full and final settlement of their claims against the Company.
On 11 th June 2007 Messrs Addleshaw Goddard, acting for the Landlord, submitted a claim in the CVA for the purposes of proof and admission. It amounted to some £560,608.08. This sum included the full amount of the rent and service charges during an expected void period from December 2006 to March 2008, a year's rent at £100,000 representing a year's rent-free period which the Landlord expected it would have to offer in order to attract a new tenant, a claim for rent up to the end of the term in 2018 based on a discount of 20% of the passing rent, and legal costs, agents fees and refit costs. By a letter dated 21 st June 2007 a revised claim was submitted for a total sum of £572,526.12, which included, in addition to the above, a dilapidations claim.
There was no response to the claim by the Supervisor for many months. On 8 th April 2007 Addleshaw Goddard wrote saying that the Landlord had a duty to mitigate and could not re-let until there had been a surrender of the lease. On 19 th October 2007 the Company entered into a deed of surrender which put the Landlord into a position to enable it to re-let the Premises. The deed of surrender had been drafted by the Landlord or its advisers and had been sent to the Company via the Supervisor's office much earlier, namely on 29 th May 2007. The Supervisor was, however, not a party to the deed and he played no part in it. He did not review it, or even consider its contents.
Although there was a negotiation for a possible letting in prospect in early 2008, it did not come to fruition. The Premises have been and remain empty and have not been re-let even as of today's date. The Supervisor sought the advice of Messrs Salans who wrote to Addleshaw Goddard in May 2008 to the effect that the Landlord's claim should not be admitted in its entirety by reason of the surrender having extinguished the lease and all the covenants therein. The Supervisor has accepted those parts of the claim which relate to obligations under the lease accrued prior to the date of the deed of surrender, and he has allowed in this respect a total sum of £176,011.09 in respect of dilapidations, rent and service charges accrued before the date of the surrender.
I turn to the relevant parts of the proposals for the CVA and to the relevant parts of the deed of surrender. The relevant part of clause 1.1 of the standard conditions of the proposals is as follows:
“1. Satisfaction of creditors' claims.
1.1 Notwithstanding the terms of any other documentation or agreements, all creditors of the Company will grant it a composition under which funds provided by the Company will be distributed to the Moratorium Creditors, so as to allow a dividend to be distributed to the unsecured creditors, and to preferential creditors who will be paid in full in accordance with the amounts of their claims ascertained by the Supervisor as at the time when such claims become actual claims and fall due for payment, in full and final settlement of the Pre-Approval Debts and Preferential Debts…”
I stop there in mid-sentence; it is unnecessary to read out the rest of the clause.
Pre-approval debts are defined in Appendix 5 to the proposals as follows:
“all present, future, actual, prospective and contingent liabilities of the Company incurred before the Record Date other than
(1) preferential debts;
(2) secured liabilities; and
(3) expenses.”
The “Record Date” there referred to is the commencement date I have referred to earlier in this judgment, namely 10 th December 2006. The proposals go on to set out the procedure for submission of a claim and admission by the Supervisor to proof of such a claim for dividend purposes under the CVA. That procedure has now been gone through and the Supervisor has rejected part of the Landlord's claim submitted for proof. A dissatisfied creditor is entitled to apply to the court under section 7(3) of the Insolvency Act 1986 for that decision to be reversed or varied, and that is the reason for this application before me.
To complete my citation from the proposals, Clause 1.5 of the standard conditions reads as follows:
“Moratorium Creditors' claims in respect of Pre-Record Date Debts which, at the date of the creditors' meeting to consider these Proposals, are contingent or unliquidated claims, will be admitted to vote for such estimated minimum value as the Chairman of the meeting decides.”
Clause 7.1 of the standard conditions reads as follows:
“Future claims, contingent claims and other unliquidated or unascertained claims will be paid, to the extent they are payable under the terms of these Proposals, as and when they fall due to be paid, subject to claims being made to the Supervisor and being admitted in accordance with Condition 1 above. Upon such claim being due and being admitted, it shall be treated as follows…”
I need read no more.
The estimated statement of affairs required to be delivered to the nominee (who became the Supervisor on approval by the creditors' meeting) was dated the same date as the proposals themselves, i.e. 21 st December 2006, and was incorporated within the proposals as Appendix 1 thereto. It was signed by two directors of the Company and contained the following note numbered (6) and headed “Contingent creditor”:
“The Company has recently vacated the Bournemouth retail outlet. The Landlord may be entitled to claim dilapidations and the balance of the rent to be paid under the terms of the lease. However, the Landlord is required to mitigate its losses, and accordingly I have allowed an amount of £200,000 as a contingent liability.”
The first person singular in that paragraph is strongly suggestive that this was a note written by the Supervisor, who I would have expected to have played a part in the drafting and whose report on the progress of the arrangement dated 14 th March 2008 (more than a year later) echoes the content of that note numbered (6). One difference between note (6) and the report of 14 th March 2008 is that the latter report unequivocally states that the Landlord was entitled to claim the balance of the rent to be paid during the term, whereas note (6) records that the Landlord “may” be so entitled. Although Miss Agnello QC for the Supervisor sought to make something of this distinction I do not think it is of any real significance on the issue before me.
Before I look at that issue, it would be convenient to record the essence of the deed of surrender. It was made between the Landlord and the Company and recorded in recital (A) that the unexpired residue of the term remained vested in the tenant, and in recital (B) that the reversion...
To continue reading
Request your trial
-
Discovery (Northampton) Ltd v Debenhams Retail Ltd
...as correctly decided in Re Sweatfield [1997] BCC 744, Re T & N Ltd [2006] 1 WLR 728, Chittenden v Pepper [2007] BCC 195 and Re Cotswold [2010] BCC 812. But it is right to note what was said in Thomas v Ken Thomas Ltd [2007] Bus LR 56 That case concerned the interrelationship between a volun......