Safe Business Solutions Ltd ((in Liquidation)) v Malcolm Cohen and Another
| Jurisdiction | England & Wales |
| Judge | Mr Registrar Briggs |
| Judgment Date | 13 January 2017 |
| Neutral Citation | [2017] EWHC 145 (Ch) |
| Court | Chancery Division |
| Date | 13 January 2017 |
| Docket Number | Case No: 8407 OF 2008 |
[2017] EWHC 145 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr. Registrar Briggs
Case No: 8407 OF 2008
Mr Jeffrey Bacon (instructed by RIAA Barker Gillette LLP) for the Applicant
Christopher Brockman (instructed by Isadore Goldman) for the Respondents
Hearing dates: 12 January 2017
Judgment Approved
By an application dated 16 June 2016 the Applicant, Safe Business Services Limited (in liquidation) ("SBS") seeks an order pursuant to paragraph 43 of Schedule B1 to the Insolvency Act 1986 to commence legal proceedings against Algrave Limited and 726 other companies in administration (the "Companies").
At the hearing on 12 January 2017 I gave permission to commence proceedings upon certain conditions. What follows is the reasoning for the permission.
Background in brief
The Companies were managed by Managed Service Companies ("MSC") set up for the purpose of facilitating the supply of self-employed consultant services. A company known as Safe Solutions International Limited ("SSIL") provided accounting, administration and payroll services to each MSC. The corporate structure used for the self-employed was designed to reduce taxation but in April 2007 a change in legislation eradicated or reduced the advantages. On 29 September 2008 Saphire Blue Directors Limited (the corporate director of SBS) obtained an administration order in respect of the Companies and, Mr Cohen and Mr Newgate were appointed joint administrators (the "Administrators"). The evidence in support of application for the administration order informed the court that the Administrators would prepare accounts and demonstrate that less tax was liable in respect of each of the Companies.
The Administrators' first report to creditors dated 18 November 2008, explained that the 'financial statements of the Companies have not been updated for a significant period', £4,05,741.09 had been collected in, investigations were to be carried out regarding VAT liability due to HMRC, and:
"Prior to the Court application for the Administration of the 728 companies I provisionally agreed my remuneration with the major creditor which we estimated to be £1,750 plus VAT per company inclusive of disbursements"
By a claim form dated 3 June 2015 issued in the Queen's Bench Division, SBS (through the joint liquidators) claim that the Administrators, acting in their personal capacity entered into a contract to pay SBS £500 plus VAT to produce financial statements or accounts for each of the Companies. The Administrators deny that there was a personal contract for services and have asserted that if there was such a contract at all it would have been formed between the Companies and SBS. The claim was transferred to the Chancery Division and listed for a costs and case management conference. Master Teverson ordered that the Companies be joined to the proceedings and an amended particulars of claim be filed and served subject to permission to lift the moratorium pursuant to paragraph 46 of Schedule B1 to the Insolvency Act 1986. The case was subsequently transferred to the Companies Court.
The rival contentions
Mr Cohen has produced a witness statement specifically dealing with the application to lift the moratorium. He states that "we are essentially neutral on the Application and should not be taken to arguing against permission." The major creditor (HMRC) was on notice of the application and chose not to attend or be represented at the hearing. Mr Cohen explains:
"Our position is…we never entered into any agreement, whether with SSIL [owner and controller of SBS] or SBS, for the work to be undertaken."
He says that even if there was a contract it was not performed. Mr Brockman, acting on behalf of the Administrators, submitted that only one set of accounts for one company had ever been produced to the Administrators. He says any contract was subject to SBS producing sample accounts for 10 of the Companies. The samples would be subjected to some scrutiny after which the Administrators would be at liberty to engage or not engage SBS to carry out the work for the remaining Companies.
Mr Brockman submitted that if he was wrong and a contract had been formed with between SBS and the Companies the application to lift the moratorium has not been made promptly. The delay would cause prejudice to creditors. The prejudice was not identified other than the Administrators would not be able to exit the administration as soon as they had hoped.
Mr Bacon on behalf of SBS submits that there is an obvious dispute and the court should not conduct a mini trial to determine whether or not a contract was formed. Mr Bacon was pushed on some of the finer aspects of the contractual relations and he adeptly explained that his case had alternative arguments. He argued that SBS had made considerable losses as a result of the Administrators failure to pay in accordance with either the pleaded contract or, a reasonable price for work done (an unjust enrichment claim). He argued that SBS engaged personnel in England and India to carry out the work as there was a time pressure. He argues that the Administrators knew and allowed SBS to engage third parties in the knowledge that expenditure would be incurred.
Mr Katz as liquidator of SBS did not cover the issue of delay. Mr Bacon has explained the best he can, the reasons for the delay during oral argument. SBS sought to agree the position in 2009/10 with the Administrators but it entered into administration and matters were halted until proceedings were issued in 2015. He says that in the period after administration SBS was dissolved and had to be restored to the register. It then entered into insolvent liquidation. The liquidators entered into correspondence and sought to agree the position with the Administrators.
Lifting the moratorium
By paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 no legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except with the consent of the administrator or with the permission of the court. Although there have been a number of cases dealing with the moratorium since the introduction of administrations by the Insolvency Act 1986, streamlined by the Enterprise Act 2002, the decision of Lord Justice Nicholls (as he was) in Re Atlantic Computer Systems Plc [1992] Ch 505 is seminal. As such extracts are worth repeating. He said (at 542)
"…so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when the administration order was made in lieu of a winding up order…the underlying principle…is that an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent"
The Court of Appeal took the opportunity to provide guidelines on the exercise of discretion (I shall set out the relevant guidelines in summary only):
(1) It is for the person seeking leave to make out a case for him to be given leave.
(2) The purpose of the prohibition is to enable or assist the company to achieve the purpose of the administration, and the purpose of the power to give leave is to enable the court to relax the prohibition where it would be inequitable for the prohibition to apply;
(3) In all other cases the court will have to carry out a balancing exercise, balancing the legitimate interests of the party seeking permission (leave) and the legitimate interests of the other creditors of the company. This is particularly so where the applicant has a proprietary interest to protect or realise;
(4) permission should normally be given if refusal would cause significant loss to a party holding a proprietary interest. This loss should be balanced against any loss suffered by anyone else as a result of the permission;
(5) the court will consider matters such as: the financial position of the company, its ability to pay the rental arrears and continuing rentals, the purpose of the administration, the period for which the administration order has already been in force and is expected to remain in force, the effect on the administration if permission were given, the effect on the applicant if permission is refused, and the history of the administration;
(6) These factors are important not only to the question of whether or not permission should be granted but to any conditions that may be attached.
It is worthy of note that the High Court has found that there is jurisdiction to lift the moratorium after an administration has come to an end. In Gaardsoe v Optimal Wealth Management Limited [2013] Ch 298, [2013] BPIR 59 John Martin QC considered paragraph 43 of Schedule B1, and retrospective permission after the cessation of the administration. He reasoned:
"In my view there is jurisdiction to do so. The paragraph applies to a company in administration, as precluding the grant of permission once the administration has ceased. It seems to me, however, that those words do no more that set out the ambit of the paragraph. Indeed, without them it would not be clear that the para 43(6) inhibition applies only in administration. Paragraph 43(6) does not...
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