Oakley-Smith and Others v Greenberg and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice Rix,Lady Justice Arden |
| Judgment Date | 08 August 2002 |
| Neutral Citation | [2002] EWCA Civ 1217 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: 2001/2849 |
| Date | 08 August 2002 |
[2002] EWCA Civ 1217
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Pumfrey)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Chadwick
Lord Justice Rix and
Lady Justice Arden
Case No: 2001/2849
Mr J Brisby QC & Mr G Denton-Cox (instructed by Messrs Stockler Charity for the Appellants/Claimants)
Miss E Gloster QC & Mr J Nash (instructed by Messrs Hammond Suddard Edge for the Respondents/Defendants)
This is an appeal from an order made on 7 December 2001 by Mr Justice Pumfrey in proceedings brought by the joint administrators of TBL Realisations plc, formerly London Trust Bank plc. The joint administrators are also joint supervisors of a voluntary arrangement into which the company has entered under Part I of the Insolvency Act 1986. The appellants, to whom I shall refer as "the Greenbergs", are creditors of that company; but, unusually and as is now common ground, they are not bound by the voluntary arrangement. The short issue raised by the appeal is whether the judge was correct to make an order, in the administration under Part II of the Act, which had the effect of restricting the Greenbergs' ability to enforce their debt to an amount equal to the amount which they would have received if they had been bound by that arrangement.
The underlying facts
The underlying facts are not in dispute. On 28 September 2000 the Financial Services Authority gave notice of its intention to revoke the banking licence under which London Trust Bank Plc was authorised to carry on banking business. The directors applied under section 9 of the 1986 Act for an administration order. The order was made on 3 October 2000. The purposes for which joint administrators were appointed, as stated in the order, were those set out under paragraphs (a) and (d) of section 8(3) of the Act; that is to say, the survival of the company and the whole or any part of its undertaking as a going concern and a more advantageous realisation of its assets than would be effected on a winding up.
The intention to revoke the banking licence was confirmed on 25 October 2000. The revocation took effect on 4 November 2000. On 28 November 2000 the joint administrators wrote to the company's creditors, pursuant to section 23 of the 1986 Act, to invite consideration of their proposals for achieving the purposes for which the administration order had been made. There was annexed to the joint administrators' proposals, as required by rule 2.16 of the Insolvency Rules 1986, a statement of affairs and such information as the joint administrators thought necessary to enable creditors to decide whether or not to vote for the adoption of the proposals. The statement of affairs set out in the joint administrators' report disclosed estimated total assets available for non-preferential creditors of £31.4m; and an estimated deficiency as regards such creditors of £5.8m. The explanatory statement contained the following sentence by way of introduction:
"In formulating their proposals the Joint Administrators have considered the best way to realise the assets of [the company] to achieve maximum realisations and provide the simplest and most expeditious method of paying dividends on the claims of unsecured creditors"
There were then set out the advantages and disadvantages of the three options which the joint administrators had identified—that is to say compulsory liquidation, creditors' voluntary liquidation and company voluntary arrangement. The disadvantages of liquidation, whether compulsory or creditors' voluntary, were said to be the need to deposit all funds in the Insolvency Services Account, with the unattractive consequences of a lower than commercial rate of interest and a high ad valorem charge (estimated at £400,000). A company voluntary arrangement avoided those disadvantages; but the supervisor would have no investigatory powers, was not an officer of the court and could face difficulties of recognition in foreign jurisdictions. The explanatory statement continued in these terms:
"It is for these reasons that the Joint Administrators propose, as set out below, to continue the administration, primarily for the purpose of collecting the loan book, whilst at the same time implementing a CVA (or a scheme under section 425) to run in parallel to make distributions to creditors, without the necessity of paying funds into the ISA."
As a necessary step towards the implementation of their proposals the joint administrators proposed an application to the court under section 18 of the 1986 Act to include, as additional purposes of the administration, the approval of a voluntary arrangement under Part I of the Act and the sanctioning under section 425 of the Companies Act 1985 of a compromise or arrangement between the company and its creditors. Notice was given that the meeting under section 23 of the 1986 Act was to take place on 19 December 2000. An order under section 18(4) of the Act was made on 13 December 2000.
The Greenbergs, who are based in the United States of America, had commenced proceedings against London Trust Bank Plc in the Queen's Bench Division of the High Court some months earlier, in January 2000. Their claim was for damages which, as alleged, they had sustained as majority stockholders of the Rocky Mountain Undergarment Co Inc as a result of the issue of stock in that company to a third party. It was said that they, and their company, had entered into the transaction in reliance on credit references given by London Trust Bank. By an order made on 10 November 2000 in the administration Court the Greenbergs were given leave, under section 11(3)(d) of the 1986 Act, to continue those proceedings, notwithstanding the administration order. By December 2000 pleadings had been served and the claim was expected to come to trial in the following year.
In response to the notice of meeting under section 23 of the 1986 Act solicitors acting for the Greenbergs sent to the joint administrators a statement of their clients' claims in the administration. Their letter, dated 14 December 2000, enclosed a proxy form and a nomination of a representative to serve on the creditors' committee. The letter contained the following paragraphs:
"4. As you know, our clients' claims are to be dealt with in the action against London Trust Bank Plc in the High Court of Justice under Action No HQ 0000460.
5. We accept that the Schedule of Claims is in respect of an unliquidated amount but we would ask the Chairman to agree an estimated minimum sum for the purpose of allowing our clients the entitlement to vote at a sum of £1,500,000.
6. We confirm that the fact that the Chairman and/or the Administrators admit our clients' claim for the purposes of voting and for attending on the creditors' committee will not be construed as an admission of liability in relation to the High Court proceedings."
The form of proxy sent with that letter instructed the proxy to vote for acceptance of the joint administrators' proposals as circulated.
The joint administrators' proposals for achieving the purposes for which the administration order had been made were approved by the meeting on 19 December 2000. The Greenbergs attended that meeting by their proxy but were not permitted to vote. As I have said, had they been permitted to do so, their proxy was mandated to vote in favour of the proposals.
Proposals for a voluntary arrangement were sent to creditors shortly thereafter. A meeting of creditors, under section 3 of the 1986 Act, was summoned for 25 January 2001. The Greenbergs' solicitors responded, on 24 January 2001, by sending a statement of their claim in the proposed company voluntary arrangement, with supporting schedules, and a "two-way" proxy form.
Rule 1.17(1) of the Insolvency Rules 1986 provides that every creditor who has been given notice of a creditors' meeting summoned under section 3 of the Act is entitled to vote at that meeting. But that is subject to the provisions of rules 1.17(3) and (4). Sub-rule (3) provides that a creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman of the meeting agrees to put upon the debt an estimated minimum value for the purpose of entitlement to vote; and sub-rule (4) gives the chairman power to admit or reject a creditor's claim for the purposes of his entitlement to vote. Rule 1.17(6) provides that if the chairman is in doubt whether a claim should be admitted or rejected, he should mark it as objected to, and allow the creditor to vote, subject to his vote being subsequently declared invalid if the objection to the claim is sustained.
The Greenbergs attended the meeting of 25 January 2001 by their proxy, Mr Brian Robson, a solicitor; but he did not vote on the proposals. His understanding was that he was not permitted to vote because the Greenbergs' claim had been rejected. The solicitors for the joint administrators took the view that the true position was that the claim had not been rejected; but accepted that the chairman of the meeting had put no value on it for the purpose of entitlement to vote. The chairman was Mr Christopher Oakley Smith of PricewaterhouseCoopers, a licensed insolvency practitioner. His account of what had occurred at the meeting on 25 January 2001 was subsequently set out in a witness statement which he made on 21 February 2001:
"… I was aware that the CVA Proposals would be passed at the CVA Meeting on Chairman's proxies, together with...
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