David Costley-Wood (acting as former joint administrator of Patisserie Holdings Plc ((in Liquidation)), Stonebeach Ltd (in CVL) and PTS Realisations Ltd (in CVL)) v Geoff Rowley
| Jurisdiction | England & Wales |
| Judge | Jones |
| Judgment Date | 03 December 2021 |
| Neutral Citation | [2021] EWHC 3205 (Ch) |
| Docket Number | Case Nos. CR-2021-000696 CR-2021-000698 |
| Court | Chancery Division |
[2021] EWHC 3205 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (CHD)
IN THE MATTER OF PATISSERIE HOLDINGS PLC (IN LIQUIDATION)
AND IN THE MATTER OF STONEBEACH LIMITED (IN CVL)
AND IN THE MATTER OF PTS REALISATIONS LIMITED (IN CVL)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
INSOLVENCY AND COMPANIES COURT JUDGE Jones
Case Nos. CR-2021-000696
CR-2021-000697
CR-2021-000698
Mr Richard Fisher Q.C. (instructed by Faegre Drinker Biddle & Reath LLP) for the Applicants
Mr James Couser (instructed by Mishcon de Reya LLP) for the Respondents
Hearing date: 23 November 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
CHJ 3/12/21
INSOLVENCY AND COMPANIES COURT JUDGE Jones
I.C.C. Judge
A) Introduction
I have before me applications by the former administrators (“the administrators”) of three companies now in liquidation. They have been joined together because of their common theme of concern, namely whether non-compliance with requirements of Schedule B1 to the Insolvency Act 1986 (“ Sch. B1” and “ the Act”) has affected the subsequent validity and/or conduct of the administrations and subsequent liquidations. They nevertheless present different concerns.
In the case of Patisserie Holdings Plc, the main problems result from what occurred after the creditors had decided not to approve the administrators' proposals made in accordance with paragraph 49 of Sch. B1. Rather than seek directions under paragraph 55 of Sch. B1 following the decision made under paragraph 53 of Sch B1, the administrators presented modified proposals to the creditors' committee and acted upon their approval of (amongst other proposals): an exit from the administration into creditors' voluntary liquidation with the Respondents (“Mr Rowley and Mr Allen” or “the liquidators”) to be the joint liquidators; and of payment of administrators' fees capped at £75,000.
There is no dispute that the creditors' committee had no such power of approval. However, the administrators in due course moved the company from administration into creditors' voluntary liquidation pursuant to paragraph 83 of Sch. B1. Even if that was a valid exercise of their existing powers, which is in issue, Mr Rowley and Mr Allen were not nominated by the creditors as a whole as required by paragraph 83(7) of Sch. B1 and Rule 3.60(6) of the Insolvency (England and Wales) Rules 2016 (“ the Rules”). In that circumstance paragraph 83(7)(b) of Sch. B1 provides that the administrator shall be the liquidator but in fact Mr Rowley and Mr Allen acted as joint liquidators. There was also the problem (to the extent that the creditors' committee's decisions can be relied upon) that although the creditors had decided to form a committee, no decision had been sought from them to determine the membership of the committee. This was a breach of Rule 17.5.
That summarised scenario gives rise to the following questions:
a) Did the rejection of the proposals and the fact that the administrators then implemented modified proposals approved by the creditors' committee and not the body of creditors as a whole affect the validity of their appointments?
b) Whether the validity of their appointments was affected or not, did the administrators have power to continue to conduct the administration as they did and in particular to cause the company to move from administration to creditors' voluntary liquidation pursuant to paragraph 83 of Sch. B1 as required by the proposals approved by the creditors' committee?
c) What are the consequences of Mr Rowley and Mr Allen having acted as joint liquidators in breach of paragraph 83(7)(b) of Sch. B1?
d) What are the consequences of the breach of Rule 17.5?
e) What are the consequences of the fact that the administrators did not seek directions from the Court under paragraph 55 of Sch. B1?
f) Should the administrators be liable for any of the liquidators' costs resulting from the defaults which occurred?
In the cases of Stonebeach Limited (“Stonebeach”) and PTS Realisations Limited (“PTS”), companies belonging to the same group, the breaches concerned the holding of physical meetings at which the creditors approved the respective proposals. There were: (i) a breach of the timing requirements of Rule 15.6(2) of the Rules; (ii) possibly a breach of Rule 15.6(8) concerning the calculation of value and number when deciding whether its 10% threshold for the requisitioning of a physical meeting was met, although that is the subject of argument; and (iii) a possible breach of the timing requirements of paragraph 51(2) of Sch. B1 for the decision approving the proposals.
The consequences for those breaches (insofar as they are established) are not specified by the Act or the Rules and, therefore, applying the approach approved in Re Zoom UK Distribution Ltd (In Admin) [2021] EWHC 800 (Ch), [2021] B.C.C. 735 raise the questions: What is the purpose of the requirement breached and what are the consequences of non-compliance applying the appropriate category of case? The categories being: (i) a fundamental breach; (ii) a breach which is not fundamental and causes no injustice, and (iii) a breach which was not fundamental but caused substantial injustice (applying Re Skeggs Beef Ltd [2019] EWHC 2607 (Ch); [2020] B.C.C. 43).
The same approach is to be taken when answering the questions identified for Patisserie Holdings Plc concerning the breach of duty to seek directions from the Court under paragraph 55 of Sch. B1 and the breach of Rule 17.5 (insofar as they are established) because the consequences of breach are not specified. The issue of non-compliance with paragraph 83(7)(b) of Sch. B1 and Rule 3.60(6) will also require that approach unless it is to be treated in the same manner as cases where there is no power to appoint and any appointment is, therefore, a nullity. However, as will be seen, the issue of validity is to be determined by the express provisions of Sch. B1.
I will deal first with the Patisserie Holdings Plc application. I make clear that in respect of each administration the administrators express their regret for the errors that have occurred and offer their apologies to the Court. I accept them. It is also to be noted from the beginning that the applications are advanced on the basis that the respective creditors have been kept informed of the problems and of this application and hearing. None have raised concern or complaint, none appear at the hearing and no prejudice to the creditors has been identified by them.
B) Patisserie Holdings Plc
B1) The Facts
The catalyst for the Patisserie Holdings Plc application was a hearing on 29 July 2020 of an application dated 20 June 2021 (“the Liquidators' Application”) made in the course of its voluntary liquidation at which the usual compulsory order was made. The Court at that hearing was only concerned with the validity of the appointment of the voluntary liquidators. A transcript shows that the position was rather vague and the Court was asked to make a retrospective compulsory winding up order pursuant to paragraph 55(2)(e) of Sch. B1 or one effective from the date of the hearing. The administrators were not a party, although they provided part of the evidence supporting the application.
The judgment identified the following errors from the evidence in support:
a) The failure to apply to the Court under paragraph 55 of Sch. B1 after rejection of the proposals by the creditors.
b) The administrators wrongly acting on the decision of the creditors' committee approving the modified proposals as though it was a decision of the creditors as a whole.
The usual compulsory order was made because although it could not be concluded at that hearing that the appointment of the voluntary liquidators was invalid, the fact that serious questions existed made it plain that course should be taken when there could be no doubt that the company should be in liquidation. In circumstances of the application not in fact being made under paragraph 55(2)(e) of Sch. B1 and in the context of the Court deciding not to validate previous acts, at least not at that stage, the order was made pursuant to the Court's inherent jurisdiction to wind up a company even though it does not have a petition before it, provided one or other of the circumstances within section 122 of the Insolvency Act 1986 exist (see Lancefield v Lancefield [2002] BPIR 1108).
Mr Richard Fisher QC, instructed on behalf of the applicant administrators, explained that the purpose of the administrators' application is to provide full information regarding the errors that occurred in the administrations and to address the Court as to the consequences of such errors. In particular, whether they undermine the validity of the appointment or actions of Mr Rowley and Mr Allen as voluntary liquidators or otherwise affect the validity of the acts taken by the administrators during the course of the administration. For that purpose the administrators have provided evidence and argument which presents matters in a different shade to...
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Insolvency Insight - Issue 8 | February 2022
...bore the legal and evidential burden of making good its claim. Costley-Wood & Ors v Rowley & Anor (Re Patisserie Holdings PLC & Ors) [2021] EWHC 3205 (Ch) The Court was asked to give retrospective approval to (i) the conduct of the administration of three companies in the Patisserie Valerie......
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Insolvency Insight - Issue 8 | February 2022
...bore the legal and evidential burden of making good its claim. Costley-Wood & Ors v Rowley & Anor (Re Patisserie Holdings PLC & Ors) [2021] EWHC 3205 (Ch) The Court was asked to give retrospective approval to (i) the conduct of the administration of three companies in the Patisserie Valerie......