Thomas Evan Cook v Mortgage Debenture Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice David Richards,Lord Justice McCombe,The Master of the Rolls |
| Judgment Date | 25 February 2016 |
| Neutral Citation | [2016] EWCA Civ 103 |
| Docket Number | Case No: A3/2013/1225 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 February 2016 |
[2016] EWCA Civ 103
The Master of the Rolls
Lord Justice McCombe
and
Lord Justice David Richards
Case No: A3/2013/1225
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE WAKSMAN QC
5CH50098
Royal Courts of Justice
Strand, London, WC2A 2LL
Raquel Agnello QC and Jack Rivett (instructed by Bishop & Co) for the Appellant
Sebastian Clegg (instructed by Mills & Reeve) for the Respondent
Hearing date: 9 February 2016
This appeal raises a point of construction of the provisions for a moratorium in connection with the administration of a company. Paragraph 43(6) of schedule B1 to the Insolvency Act 1986 provides that:
"No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except –
(a) with the consent of the administrator, or
(b) with the permission of the court."
This provision applies both from the time that a company enters administration and, by virtue of paragraph 44(4), from the time that a company or its directors file with the court a copy of notice of intention to appoint an administrator. The issue concerns the meaning in this context of the expression "legal process (including legal proceedings …) … against the company" and whether it applies to an application by an interested non-party to be joined as a defendant to proceedings commenced by the company before the moratorium and to an appeal from a refusal of such an application.
Before coming to the decision under appeal, I will summarise the background and procedural history.
In 1992 Philip and Patricia Chapman borrowed £9,000 secured by a charge on their house, from a company called Basdring Limited (Basdring). In 2003 Basdring granted a debenture in favour of National Westminster Bank, which included a charge on all its assets, including its entire loan book. The debenture was subsequently assigned by the bank to a Mr Nolan and by him to the appellant, Mortgage Debenture Limited (MDL). Basdring went into liquidation and its liquidator concluded negotiations with Mr and Mrs Chapman, in settlement of their claim that they had repaid the loan, whereby, in consideration for the payment by them of £9,000, the debt and the charge over their house was discharged. Mr and Mrs Chapman raised the finance by a loan from Nationwide Building Society (Nationwide), secured by a first legal charge on their property.
MDL, as assignee of Basdring's loan book, considered that there were grounds for challenging the agreement reached with Mr and Mrs Chapman. In 2005 it commenced proceedings against Mr and Mrs Chapman and Basdring, claiming to set aside the compromise and revive the debt and security. In 2011, Nationwide wrote to Kester Cunningham John (KCJ), its solicitors in the re-financing of the Chapmans' loan, putting them on notice that if Nationwide suffered any loss, it would consider potential claims against them and fully reserving its rights.
The proceedings brought by MDL were actively pursued and defended in 2006–2007 but little or no progress was made after that time. Neither Mr and Mrs Chapman nor Basdring took an active part after 2007. Basdring was later dissolved but was restored to the register of companies in February 2014.
On 17 April 2012, the respondent Thomas Evan Cook, a former partner in KCJ, who was supervising KCJ's defence of other proceedings brought against them by MDL, applied to be joined as a party to the proceedings against the Chapmans and Basdring as a representative of KCJ. The application was made under CPR 19.2 and 19.4 on the grounds of a direct financial interest in the determination of the claims made by MDL by reason of their impact on MDL's claim against KCJ and an indirect financial interest by reason of the potential claim by Nationwide against KCJ. The application was heard by DJ Obodai, in the Manchester District Registry of the High Court, on 17 July 2012 and she dismissed the application. Permission to appeal was granted by HHJ Pelling QC on the second ground but refused on the first ground.
The appeal came before HHJ Waksman QC on 18 April 2013. He allowed the appeal but the current appeal from him is not concerned with the merits of that decision.
On 12 April 2013 MDL filed a notice of intention to appoint an administrator at the Manchester District Registry in accordance with paragraph 27 of schedule B1 to the Insolvency Act 1986. By virtue of paragraph 44, this had the effect of bringing the moratorium provisions in paragraph 43 into effect. MDL went into administration with the appointment of an administrator on 13 June 2013.
Counsel instructed on behalf of the proposed administrator appeared before HHJ Waksman QC, not to contest the merits of the appeal on which no submissions were made, but to submit that, by reason of the statutory moratorium, the appeal could not proceed except with the permission of the court, for which no application had been made. The judge heard submissions from counsel for the proposed administrator and for Mr Cook and ruled on the question before proceeding to hear the appeal. He said:
"I am going to proceed with this appeal today. I do not consider that an appeal against the refusal to allow the mere joinder of this party as an additional defendant to argue against the company's claim itself amounts to legal process against the company within the meaning of paragraph 43(6) of Schedule B1 which is applied on an interim basis by virtue of paragraph 44 and the notice of intention to appoint administrators made on 12 th April.
I do at the moment consider that the making or the enforcement of any adverse costs order would fall within that paragraph but that is a separate matter that I can deal with later and as you are here merely representing the intended administrator and not the company, the fact is that this appeal will proceed without the company attending and, as is the case with any hearing where one party does not attend, there is the right at least to apply to set aside any adverse decision and ask for the hearing to be re-fixed providing that good grounds can be shown and that is the ultimate safeguard for the company.
Of course, if the company should decide through the administrator, assuming the administration order is made hereafter, that it is not going to continue with these proceedings in any event, then the appeal will be rendered academic but I am not in a position to know that today."
Permission to appeal on the interpretation of paragraph 43(6) was granted by Lewison LJ.
Administration as an insolvency procedure was introduced by the Insolvency Act 1986, but a moratorium has long been a feature of a compulsory liquidation. Section 130(2) of the Insolvency Act 1986, reflecting similar provisions in earlier legislation, provides:
"When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose."
A similar provision exists as regards bankruptcy of individuals: see section 285 of the Insolvency Act 1986. There is no automatic moratorium in the case of a creditors' voluntary winding-up but the liquidator may obtain a stay of any action or proceeding against the company by an application to the court under section 112.
In the case of liquidation and bankruptcy, the purpose of these provisions is essentially twofold. First, given that the property of the company or individual stands under the statute to be realised and distributed, subject to any existing interests, among the creditors on a pari passu basis, the moratorium prevents any creditor from obtaining priority and thereby undermining the pari passu basis of distribution. Second, given that both a liquidation and bankruptcy contain provisions for the adjudication of claims by persons claiming to be creditors, the moratorium protects those procedures and prevents unnecessary and potentially expensive litigation. In circumstances where the potential liability of the company or bankrupt is best determined in ordinary legal proceedings, as for example is often the case with a personal injuries claim, the court will give permission for proceedings to be commenced or continued, but usually on terms that no judgment against the company or individual can be enforced against the assets of the estate.
In the case of an administration, this is not a sufficient description of the purposes of the moratorium in paragraph 43(6). An administration may be a prelude to a liquidation or, once an administrator gives notice of an intention to make distributions to creditors, may become a substitute for a liquidation. In such circumstances, the purposes described above apply also to the moratorium in the case of an administration. But before that point is reached, the principal purpose of an administration is either to rescue the company itself as a going concern or to preserve its business or such parts of its business as may be viable. The purpose of the moratorium is to assist in the achievement of those purposes. The moratorium on legal process against the property of the company best preserves the opportunity to save the company or its business by preventing the dismemberment of its assets through execution or distress. The moratorium on legal proceedings serves the same purpose by...
To continue reading
Request your trial
-
The Financial Conduct Authority v Carillion Plc ((in Liquidation))
...reflects their ordinary and natural meaning and accords with the purposes of the legislation.” 48. In Mortgage Debenture Ltd v Chapman [2016] EWCA Civ 103 ( Chapman) David Richards LJ (with whom Lord Dyson MR and McCombe LJ agreed) compared the purposes of the liquidation (or bankruptcy) a......
-
Ince Gordon Dadds LLP and Others v Mrs J Tunstall & 7 Others
...of the Court (paragraph 5 Schedule B1), and (iii) was contrary to the purpose of paragraph 46 (see Mortgage Debenture Ltd v Chapman 2016 1 WLR 3048). G 24. As for the Claimant’s argument in response, that it would have been open to her to claims against the individually named Respondents al......
-
Adenium Energy Capital, Ltd
...FSD 111 of 2018 (RMJ) 25 th February 2021 17 Ibid, paragraphs 36 -39 18 Ibid, paragraph 77 19 Ibid, paragraph 89 20 1891 1 Ch 305 21 2016 EWCA Civ. 103 22 Ibid, paragraph 13 23 Ibid, paragraph 17 24 1901 85 LT 141 25 Ibid, paragraph 24 26 Ibid, paragraphs 29 and 30 27 2004 2 A.C. 298 28 2......
-
The Companies Act (2020 Revision) and Adenium Energy Capital, Ltd (in Official Liquidation)
...FSD 111 of 2018 (RMJ) 25th February 2021 17 Ibid, paragraphs 36 – 39 18 Ibid, paragraph 77 19 Ibid, paragraph 89 20 1891 1 Ch 305 21 2016 EWCA Civ. 103 22 Ibid, paragraph 13 23 Ibid, paragraph 17 24 1901 85 LT 141 25 Ibid, paragraph 24 26 Ibid, paragraphs 29 and 30 27 2004 2 A.C. 298 28 2......