White v Davenham Trust Ltd
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE FLOYD,Mr Justice Floyd |
| Judgment Date | 01 November 2010 |
| Neutral Citation | [2010] EWHC 2748 (Ch) |
| Docket Number | Case No: CH/2010/0315 |
| Court | Chancery Division |
| Date | 01 November 2010 |
[2010] EWHC 2748 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
ON APPEAL FROM MR DEPUTY REGISTRAR SCHAFFER
Before: The Hon Mr Justice Floyd
Case No: CH/2010/0315
Barry Isaacs (instructed by DWF LLP) for the Appellant
Kavan Gunaratna (instructed by Coyle White Devine) for the Applicant (Respondent to the Appeal)
Hearing dates: 19 th October 2010
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.
Mr Justice Floyd:
Introduction
This is an appeal, with the permission of Deputy Registrar Schaffer, from his decision dated 27 th April 2010 whereby he set aside a statutory demand in the sum of £958,387.93 served by the Appellant, Davenham Trust Limited (“Davenham”) on the Respondent, Mark White on 28 th October 2009. Mr White, a former director of the company St George's Property Services (London) Limited (“St George's”), was the guarantor of the obligations of St George's to Davenham under secured loan facility agreements. The Deputy Registrar set aside the statutory demand on the ground set out in 6.5(4)(d) of the Insolvency Rules 1986, which provides that a statutory demand may be set aside if the court is satisfied, on grounds other than those set out in sub-paragraphs (a) to (c), that the demand “ought to be set aside”.
Background
St George's was incorporated in April 2007. Mr White and a Mr Seamus Finnerty, a bank manager, were the directors. The company was incorporated for the purposes of buying, refurbishing and selling two properties in Fulham, London namely one at Ringmer Avenue (“Ringmer”) and another at Gowan Avenue (“Gowan”).
By a first facility agreement dated 27 th September 2007 (“the Ringmer agreement”) Davenham made £960,650 available to St George's for a period of nine months to purchase and redevelop Ringmer. Interest was payable at 1.5% per month. Davenham reserved the right to charge interest at 3% per month (the default rate) if the Company committed a breach of the Ringmer agreement. The monies owed were secured by a charge over Ringmer and by a fixed and floating charge over St George's property. Mr White entered into a guarantee dated 4 th October 2007 (“the Guarantee”) pursuant to which he guaranteed the payment or discharge to Davenham of “all moneys and liabilities which shall for the time being be owing or incurred by [St George's] to [Davenham]”.
By a further agreement dated 6 th December 2007 (“the Gowan agreement”) Davenham made a further £834,950 available to St George's for a period of 9 months for the purchase and redevelopment of Gowan. Interest was payable at 1.6% per month. Davenham again reserved the right to charge interest at a default rate of 3% per month. The monies owed were secured by a charge over Gowan. There is no dispute that the Guarantee applied to sums owing under the Gowan agreement.
Davenham's charge in respect of Ringmer was redeemed on 6 th February 2009 when alternative finance was provided by Barclays Bank plc. As a result of the refinancing, some £1.2 million remains owing by St George's to Barclays in respect of that property. The property is leased to tenants and the income exceeds the interest payments on the new loan.
Gowan was leased to tenants for three years on 2 nd March 2009. Mr White explains in his evidence that the downturn in the economy, and the impact upon the property market altered St George's original aim to refurbish and sell the properties. In the result, their aim was to await an improvement in the property market before seeking to sell. The properties were leased out in the interim to obtain an income pending an improvement in the market.
In relation to Gowan, the principal sum outstanding at the date of Mr White's witness statement was £935,334 of which, he said, £185,536 represented default interest. The rental income is not adequate to meet the repayments under the Gowan agreement at the default rate. Attempts to refinance have been unsuccessful.
On 18 th September 2009 St George's was placed into administration under the power contained in paragraph 14 of Schedule B(1) to the Insolvency Act 1986. Peter Clark and David Whitehouse, two insolvency practitioners, were appointed Joint Administrators.
On 12 th November 2009 the Administrators served a Report and Statement of proposals to Creditors. That report revealed St George's indebtedness to Barclays of £1.2 million and other indebtedness to non-preferential creditors of £800,255. The Administrators stated that they were continuing to review the prospects of an action under section 244 of the Insolvency Act (which concerns extortionate credit transactions – see below). They also stated that they were continuing to review whether the first objective of administration, namely rescuing the company as a going concern, was possible. They pointed out that the only material assets of St George's were Gowan and Ringmer, and that it was anticipated that there would be insufficient realisations to enable a distribution to non-preferential creditors.
On 4 th April 2010 Mr White and his co-guarantor applied under paragraph 88 of Schedule B1 for an order to remove the Administrators and to appoint another insolvency practitioner in their place. The grounds of the application were that the existing Administrators were not pursuing an application under section 244 designed to establish that the interest rates were part of an extortionate credit transaction. The application came before Registrar Derrett who refused it. An appeal was allowed by the Chancellor on 14 th October 2010. He held that there was an inadequate link between the complaint of the Guarantors (not pursuing the section 244 application) and the remedy sought (appointment of new administrators), see Re St George's Property Services (London) Limited (in administration): Clark and another v Finnerty and another [2010] EWHC 2539 (Ch). That decision is obviously subsequent to the decision from which this appeal lies.
Rule 6.5(4)(d)
On an application to set aside a statutory demand, rule 6.5(4) of the Insolvency Rules 1986 provides that:
“the court may grant the application if—
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or
(b) the debt is disputed on grounds which appear to the court to be substantial;
(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt;
(d) the court is satisfied, on other grounds, that the demand ought to be set aside.
In contrast to grounds (a) to (c), which identify specific facts which must be established, ground (d) gives the court a broad residual discretion. In Budge v A. F. Budge (Contractors) Ltd (In receivership and liquidation) [1997] BPIR 366 Peter Gibson LJ put the test under paragraph (d) in this way:
“The real question …. is whether the [the applicant] can show a substantial reason, comparable to the sort of reason one sees in paras (a), (b) and (c) of r6.5(4), why the demand ought to be set aside.”
In Remblance v Octagon Assets Limited [2009] EWCA Civ 581; [2010] 1 BCLC 10, the majority of the Court of Appeal set aside, under paragraph (d), a statutory demand against a guarantor in a case where it was common ground that the principal debtor had an arguable counterclaim or cross-claim which equalled or exceeded the amount claimed against it. Dyson LJ said this at [33]
“The discretion to set aside a statutory demand under r 6.5(4)(d) is a residual discretion which will normally be exercised in “circumstances which would make it unjust for the statutory demand to give rise to [bankruptcy] consequences in the particular case. The court's intervention is called for to prevent that injustice”: see per Nicholls LJ in Re a Debtor (No 1 of 1987, Lancaster), ex p the debtor v Royal Bank of Scotland plc. [1989] 2 All ER 46 at 50, [1989] 1 WLR 271 at 276. Nicholls LJ went on to say that this approach to sub-para (d) is in line with the particular grounds specified in sub-paras (a)-(c) of r 6.5(4). As he said (with reference to sub-para (a)), it would normally be unjust that a person should be regarded as unable to pay a debt if he has a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt.”
That passage forms an important part of the appeal in the present case, as it is said that the combination of arguments under paragraphs (a) or (b) of the sub-rule in combination with the existence of security under the Gowan agreement would have given St George's an answer to a statutory demand. “In line” with that, it would be unjust to enforce the demand against Mr White. I have no doubt that in some cases that may be the position; but in each case the question is whether the circumstances make it unjust to do so.
The decision of the Deputy Registrar
Before the Deputy Registrar, Mr White sought to set aside service of the demand on four grounds. One ground, concerned with service of the demand, was not pursued, leaving the following grounds which the Deputy Registrar summarised in paragraph 5 of his judgment as follows:
“5.2 Davenham holds security in respect of the debt;
5.3 The facility agreements were extortionate credit bargains within the meaning of Section 244 of the Insolvency Act 1986;
5.4 The default interest sought by Davenham is...
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