Michael Johnathan Christopher Oldham v (1) Stephen Katz (acting as joint liquidator of MK Airlines)

JurisdictionEngland & Wales
CourtChancery Division
JudgeMs Sarah Worthington
Judgment Date16 Mar 2018
Neutral Citation[2018] EWHC 540 (Ch)
Docket NumberCase No: CH-2016-000259

[2018] EWHC 540 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sarah Worthington QC (Hon)

sitting as a deputy High Court Judge

Case No: CH-2016-000259

In the Matter of MK Airlines Limited (In Liquidation)

And in the Matter of the Insolvency Act 1986

Between:
Michael Johnathan Christopher Oldham
Appellant
and
(1) Stephen Katz (acting as joint liquidator of MK Airlines)
(2) Carl Bowles (acting as joint liquidator of MK Airlines)
Respondents

Ms Tina Kyriakides (instructed by Addleshaw Goddard LLP) for the Appellant on 18 and 19 July 2017

And the Appellant as a Litigant in Person on 30 November 2017

Mr Matthew Abraham (instructed by Stephenson Harwood LLP) for the Respondents

Hearing dates: 18 and 19 July 2017 and 30 November 2017

Judgment Approved

Ms Sarah Worthington QC (Hon):

1

Introduction

1

This appeal is against orders made following successful misfeasance claims brought by the joint liquidators of an insolvent company against one of its former administrators. The misfeasance claim was brought under Schedule B1 of the Insolvency Act 1986 (“ IA 1986”), para 75(2). The administrator's misfeasance, as found by the lower court, consisted in paying out company funds in breach of the priority rules set down by the Insolvency Rules 1986 (“IR 1986”) r.2.67, and thus leaving an unacceptable shortfall in payments to the administration expense creditors.

2

In this court the judgment of the lower court was challenged by way of appeal on three broad grounds (although neither side put the matters in quite this way): first, that the funds used in this way were not company funds, but were derived from a third party indemnity arrangement set up for precisely that purpose; secondly, and only if that first argument failed, that even if the funds used were company funds, their use did not constitute a misfeasance in the circumstances; and, finally, if that argument also failed, then the misfeasance was not one warranting the order for repayment made by the lower court. The detail is of course more complicated, as appears later.

3

Turning to specifics, the order made by Registrar Derrett in the lower court (the “Derrett Order”, made pursuant to IA 1986 Schedule B1 para 75(4)) provided that the Appellant, Michael Oldham, a former administrator of MK Airlines Ltd (“MKA”), pay to the Respondents, Stephen Katz and Carl Bowles, as joint liquidators of MKA:

“the sum of £1,035,326.28 comprising of:

(1) £853,905.10 being the remuneration and disbursements drawn down contrary to r.2.67(1) of the Insolvency Rules 1986 plus interest at 2.25% (current base rate plus 2%) from 09 March 2009 to 05 October 2016;

(2) £25,745.59 plus VAT being the payments made to Salans pre-administration plus interest at 2.25% (current base rate plus 2%) from 30 June 2008 to 05 October 2016.

by 4 pm on 19 October 2016 together with interest pursuant to section 17(1) of the Judgements Act 1838 on the outstanding balance of such sum, such interest to run from the date of this order until payment.”

The order also made provisions for costs and other related and consequential matters, and stayed execution of the order until determination of an application for permission to appeal. For the avoidance of confusion, I refer throughout (even in the context of considering the hearing in the lower court) to the Appellant (the former administrator) and the Respondents (the joint liquidators) as they appeared before me, even though, in the lower court, they were the Respondent and the Applicants, respectively.

4

This judgment addresses the issues in this order:

1. Introduction

2. History of the earlier proceeding

3. Facts

4. Judgment of the lower court

5. Summary of the grounds of appeal

6. Preliminary procedural issues

7. Determination of the grounds of appeal

8. General comments

9. Conclusions

5

In the hearing before me it became evident that both parties are determined to take every point open to them. The issues are important for both sides. I therefore attempt here to be comprehensive in my coverage of the matters raised before me. The result is a judgment that is long, and may well seem excessively so, especially given my early findings on the fundamental issues raised on appeal.

2

History of the earlier proceedings

6

Proceedings leading to this appeal were commenced in 2014. Their detail provides important context. Initial applications were filed by the Respondents on 8 July 2014, then amended on 18 September 2014 to exclude reference to the two administrators who had been appointed jointly with the Appellant. The necessary permission to make the application (see Schedule B1, para 75(6)) was granted by Registrar Derrett on 28 July 2015, with a final hearing on 5 July 2016, and a hand down hearing on 5 October 2016. At the hand down hearing the Registrar also dealt with quantifying the Salans sums to appear in the order, finding in favour of the Respondents' submissions, not the Appellant's.

7

The Derrett Order refused permission to appeal, but stayed execution until determination of any application for permission to appeal. That application was granted by Nugee J on 29 October 2016, and the Derrett Order again stayed pending determination of the appeal or further order. Nugee J also ordered that the Appellant's application to adduce further evidence should be heard with the appeal.

8

This appeal was heard on 18 and 19 July 2017, with a further half day on 30 November 2017 for reasons explained below at paras 81–83 (“the Quistclose point”). This judgment deals with the substance of the Appellant's appeal. It also deals with the Appellant's application to amend the grounds of appeal and both parties' applications to adduce further evidence, and notes the Respondents' oral application on the first day of hearing for an adjournment if new evidence was to be allowed, in order to enable the submission of new evidence in response.

9

The Respondents stress that the Appellant's arguments have changed at each stage of the proceedings. Some changes are matters of style, but others are matters of substance, as noted below. This tracks changes in the Appellant's legal representation. During the initial stages, including the permission hearing, the Appellant was represented by counsel appointed on a direct access basis. Just prior to the final hearing, the Appellant changed his legal representatives, appointing lawyers who instructed new counsel. The day before the hand down hearing, counsel was dis-instructed and Ms Tina Kyriakides appointed. For the purposes of this appeal hearing, the Appellant was represented by different lawyers, Addleshaw Goddard LLP, and Ms Tina Kyriakides of Counsel. The Appellant appeared as a litigant in person for the additional half day hearing on the Quistclose point, although his counsel had made earlier written submissions.

3

Facts

10

MK Airlines Ltd (“MKA”) was incorporated in 1990. It carried on business as a cargo airline from premises in East Sussex, flying principally between Europe and Africa. Over a 28 month period between 2008 and 2010 it went into two successive administrations, emerged successfully, and then 15 months later went into insolvency, with the evidence suggesting it then had debts of over US$100 million.

11

The detailed chronology, so far as relevant, is as follows:

i) On 10th June 2008 the directors of MKA appointed Mr Michael Oldham (the Appellant) and two of the then partners of Bridge Business Recovery LLP (“BBR”, referred to as such despite some name changes) as joint administrators of the failing MKA (the “Bridge Administrators”). The Appellant was a consultant to BBR, full-time for the period of the Bridge Administration, not a partner.

ii) Later that month negotiations began for a proposed sale of MKA to Transatlantic Aviation Ltd (“TAA”), a purchaser who had a particular desire to maintain MKA as a going concern in order to benefit from its valuable Civil Aviation Authority (“CAA”) Air Operator Certificate (“AOC”).

iii) To facilitate that objective, TAA agreed to provide funding of up to US$18 million (the “Facility”) to ensure that MKA could trade during the period of Administration. It also agreed to provide US$750,000 by way of lump sum funding to pay certain pre-administration creditors and support the implementation of a CVA. The goal was to rescue MKA and enable it to resume operations as a solvent company.

iv) A Deed of Indemnity dated 20 June 2008 (the “Deed”) setting out the terms of the Facility was entered into between TAA, MKA, the Bridge Administrators, other companies in the MK group and certain other parties. The Deed provided that if the CVA was implemented, the shares in MKA would be transferred by their owner (MK Investments Ltd) to TAA for US$1 (one US dollar), and the Facility arrangements would be implemented. If the CVA was rejected, TAA's alternative proposal was simply to purchase the fixed assets of MKA and another company in the MK group for US$2 million.

v) On 26 November 2008, the creditors of MKA approved the CVA. However, the CAA was unwilling to transfer the AOC and, to maintain operations, the Bridge Administrators continued to trade under the banner of administration.

vi) During the Bridge Administration, sums drawn down from the Facility were received into MKA's USD bank accounts and were not segregated from other sums that were paid into those accounts.

vii) The Bridge Administrators drew various amounts from the accounts of MKA during the period of their administration, of which £853,905.10 (net of VAT) was used to pay their remuneration and disbursements.

viii) In March 2009, with the Bridge Administration incurring losses, the CAA still unwilling to transfer the AOC, and TAA refusing to accept requests for further advances under the...

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