James Patrick Lavin and Others v William Clive Swindell
| Jurisdiction | England & Wales |
| Judge | Judge Behrens |
| Judgment Date | 23 August 2012 |
| Neutral Citation | [2012] EWHC 2398 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 1863 of 2011 |
| Date | 23 August 2012 |
[2012] EWHC 2398 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
IN THE MATTER OF BTR (UK) LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
The Court House
Oxford Row
Leeds LS1 3BG
His Honour Judge Behrens sitting as a Judge of the High Court in Leeds
Case No: 1863 of 2011
Marc Brown (instructed by Lewis Onions) for the Applicants
Hugo Groves (instructed by Gordons) for the Respondent
Hearing date: 15 August 2012
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.
Introduction
BTR (UK) Ltd ("BTR") is insolvent. The Statement of Affairs revealed assets of only £56,726 and an estimated deficiency of £464,194. On 16 th December 2011 an Administration order was made by this Court and Mr Swindell was appointed as the Administrator.
On 27 th January 2012 the Administrator completed a sale of some of the assets ("SPA") of BTR to ITAS Global Ltd ("ITAS") for £31,000 payable as to £5,000 on completion, 5 monthly instalments of £2,000 and a final payment of £16,000 on 10 th July 2012. The payments were supported by personal guarantees from 4 former employees of BTR.
On 6 th February 2012 the Administrator sent out his proposals to creditors. In them he envisaged that there would be insufficient funds to pay unsecured creditors and he proposed to dispense with the initial meeting of creditors. However a meeting was requested by more than 10% of the creditors and the meeting was duly convened.
The meeting initially took place on 13 th March 2012. It was adjourned until 27 th March 2012. More than 50% of the creditors rejected the Administrator's proposals. It is also clear that more than 50% of the creditors purported to vote for a resolution requiring the Administrator to petition for a compulsory winding up of BTR.
The Administrator reported the result of the meeting to the Court but declined to apply for the compulsory winding up of BTR or to make an application to court for directions. It was his case that he is not obliged to apply to the Court and that he does not have sufficient funds to petition for a compulsory liquidation of BTR. It is in addition his view that an immediate application for a compulsory liquidation would be prejudicial to preferential creditors because of the ad valorem duty payable on realisations in a compulsory liquidation.
This is an application by 8 creditors of BTR who are concerned at events which took place immediately before the events leading to the administration. They suspect that assets which should have belonged to BTR have been transferred to ITAS. They are seeking an order that the Administrator petition for a compulsory winding up of BTR in order that the liquidator can carry out a proper investigation.
The application was initially opposed by the Administrator on the grounds summarised above. In addition reliance was placed on the fact that the final payment under the SPA was due on 10 th July 2012 and there was no reason for any liquidation to take place before then.
The application came before the Court on 18 th May 2012 when directions were given to enable a hearing to take place on 15 th June 2012. Regrettably it was not possible to accommodate the case on that date and it was re-listed for 15 th August 2012.
Only £2,000 of the £16,000 due under the SPA was paid on 10 th July 2012. On 1 st August 2012 the Administrator issued a cross application asking for directions as to whether to allow the administration to expire by effluxion of time on 16 th December 2012 or whether he ought to petition for the winding up of BTR. If so he applied for a direction that the creditors should indemnify him as to the costs and expenses associated with the petition.
The applications accordingly raise questions concerning the duty of the Administrator in cases where there are limited funds and his proposals have been rejected by the creditors. It also raises questions as to the power of the Court in such situations. As will appear later the authors of two leading text books have expressed different views and the authorities are not wholly consistent.
At the outset it is right that I should acknowledge with thanks the very considerable assistance I have received from Counsel in their very clear skeleton arguments and oral submissions.
The facts
BTR
BTR was incorporated on 23 rd February 2000. The share capital consists of 46,194 ordinary £1 shares and 31,522 £1 preference shares. Mr Reid holds 58.8% of the ordinary shares. The balance is held by Mr Hall (35.3%) and Mr Firth (5.9%). The preference shares are equally divided between Mr Hirst and Mr Firth. Mr Reid was the sole director after 28 th February 2011.
BTR traded as a secure data remover and recycler of electronic equipment. In 2011 it suffered from cash flow problems. Mr Swindell was first approached by BTR on 10 th October 2011 to provide advice on its solvency. He assisted in the preparation of the Statement of Affairs and advised that it be placed into creditors' voluntary liquidation.
On 8 th November 2011 a Board Meeting attended by Mr Reid, Mr Fawcett and Mr Swindell resolved that BTR appeared to be insolvent and instructed Mr Swindell to arrange the necessary meetings under sections 98, 100 and 101 of the Insolvency Act 1986 ("the 1986 Act") with a view to placing the company into creditors' voluntary liquidation ("CVL").
On 15 th November 2011 before any of the proposed meetings were held a petition was presented by a creditor in the Warrington County Court for the compulsory winding up of BTR. It was due for hearing on 16 th December 2011.
ITAS
At this stage very little is known about the constitution of ITAS. In the proposals submitted by the Administrator it is described as an associated company taken over by a consortium of the employees of the business. In his second witness statement Mr Lavin asserts that ITAS was incorporated in 2006 and owned by Mr Aycliffe who was the sole director until 30 th December 2011.
Mr Lavin is a former director of BTR. For the purpose of these proceedings it is accepted that he is a creditor in the sum of £10,000. On 16 th November 2011 he discovered that BTR's website had been changed and described BTR as a trading name of ITAS.
When asked for an explanation BTR stated that ITAS had made an offer for BTR but this was subject to ratification and that the web site changes were presumptive.
In his witness statement Mr Lavin makes a number of allegations as to events that occurred in October and November 2011. The sales for November and December were invoiced through ITAS; all of the staff had been transferred to ITAS by the end of October under "TUPE", invoices contained ITAS's bank details and VAT number.
In the course of the hearing I was shown a number of e-mails relating to these matters including:
1. An e-mail from Mr Lavin to Mr Swindell (copied to Mr Hall and Mr Hirst) dated 30 th December 2011 which refers to possible misfeasance in relation to ITAS and asks for Mr Swindell's early response.
2. A response from Mr Swindell dated 3 rd January 2012 in which he states that
"I am in the process of undoing the involvement of ITAS with BTR. At this stage, I would describe their involvement as premature and naïve as against misfeasance."
3. A long e-mail from Mr Lavin to Mr Swindell dated 7 th February 2012 (on receipt of the pack containing the proposals). This email asks for an update of the amount ITAS owes to BTR and what action has been taken in recovering any sum. The e-mail refers to the events of October and November 2011 and asserts that a significant amount of cash and other assets belonging to BTR is held by ITAS.
It is common ground that I cannot in this hearing make any findings as regards any of the allegations of misfeasance but it was accepted by Mr Groves on behalf of the Administrator that those allegations were serious and merited proper investigation.
The shareholders' meeting
The meeting of members eventually took place on 30 th November 2011. There are no formal minutes but there is a detailed note of the discussions. It is not necessary to go into detail. Mr Hall refused to agree to a CVL until he had seen the paperwork relating to the proposed sale agreements. He believed there was more value to be found for BTR. In the absence of Mr Hall's agreement the relevant resolution could not be passed. The meeting was adjourned for 14 days.
The Administration Application
By 8 th December 2011 Mr Swindell had become aware of the petition in the Warrington County Court for compulsory liquidation. On that date Mr Reid, as sole director, presented an application to this Court for an Administration Order. Mr Swindell signed the statement that he thought that the purpose of the administration was reasonably likely to be achieved. On the same day he e-mailed all the members and creditors who attended the first meeting informing them of the application which would be heard sometime in the week commencing 12 th December 2011.
On 15 th December 2011 Mr Hall sent an e-mail to Mr Swindell (copied to M Hirst, Mr Reid and the solicitor acting for BTR) asking for details about the application and whether the High Court was aware that little or no effort had been made by the directors to sell the assets of the company other than to a close friend of the Director.
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