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Citation[2008] All ER (D) 319 (Oct)
Alternative Citations[2008] EWHC 2607 (Ch)
Hearing Date31 October 2008
CourtChancery Division
Judge Lewison J
Representation Louis Doyle (instructed by Brooke North LLP) for the appellant.Steven Thompson (instructed by Gardner Austin LLP) for the first respondent.Niall McCulloch (instructed by Clarke Wilmott) for the second and third respondents.
Abstract
Company – Winding up. Chancery Division: The applicant's appeal, pursuant to r 4.70 of the Insolvency Rules 1986, SI 1986/1925, against a judge's decision to uphold a chairman's decision taken at a creditors' meeting to allow the creditor company's vote and to appoint its nominees as liquidators was dismissed on the basis that such an appeal had no real prospect of success.
Catchwords
Company – Winding up – Meeting to ascertain wishes of creditors or contributories – Company summoning meeting of creditors – Applicant sole director acting as chairman of meeting – Creditors voting in favour of appointment of major creditor's nominees as joint liquidators – Applicant subsequently seeking to set aside vote of major creditor – Applicant seeking further meeting of creditors – Judge striking out applicant's application – Whether judge erring – Insolvency Rules 1986, SI 1986/1925.
Summary
Rule 4.70 of the Insolvency Rules 1986/1925 provide, so far as material: '(1) At any creditors' meeting the chairman has power to admit or reject a creditors' proof for the purpose of his entitlement to vote; and the power is exercisable with respect to the whole or any part of the proof... (2) The chairman's decision under this Rule, or in respect of any matter arising under Rule 4.67, is subject to appeal to the court by any creditor or contributory... (3) If the chairman is in doubt whether a proof should be admitted or rejected, he shall mark it as objected to and allow the creditor to vote, subject to his vote being subsequently declared invalid if the objection to the proof is sustained... (4) If on an appeal the chairman's decision is reversed or varied, or a creditor's vote is declared invalid, the court may order that another meeting be summoned, or make such other order as it thinks just.
'The applicant was the sole director of PB Ltd (the company). Its main client was PE Ltd (PEL), of which the applicant was also the managing director. The company ran into financial difficulties and it was decided that it could no longer carry on trading. In those circumstances, pursuant to s 98 of the Insolvency Act 1986, the company was required to cause a meeting of its creditors to be summoned. Section 99 of the 1986 Act required the directors of the company to lay a statement of affairs before the creditors' meeting; and s 99(1)(c) required a director of the company to be appointed to preside at that meeting. Since the applicant was the sole director of the company, the creditors' meeting was chaired by him. The meeting was held at the offices of B, whom the applicant had proposed as liquidator. At the meeting, B announced that nominations had been received for the appointment of L and H as joint liquidators. On B's advice, the applicant as chairman of the meeting, admitted the proofs of all creditors for voting purposes, with the exception of the proof of PEL. He marked that claim as objected to, but allowed PEL to vote for the full extent of its claim. All the other creditors, including PEL, voted in favour of the appointment of L and H, who were thereby appointed as joint liquidators. The applicant subsequently applied for an order pursuant to r 4.70 of the Insolvency Rules 1986, SI 1986/1925 (the Rules), that: (i) the vote of PEL be disallowed on the basis that PEL was not a creditor of the company; and (ii) a further meeting of creditors be convened to decide who should be appointed liquidator of the company, without any regard to any claim of PEL. The judge acceded to a subsequent application by PEL to have that application struck out. The applicant appealed. The respondents to the appeal were PEL, L and H.
The applicant submitted that the result of allowing PEL's vote was that PEL's nominees, L and H, had been appointed as liquidators, and that if PEL's vote had been disallowed, the decision of the meeting would have been different. It was for that reason that the applicant wanted a further meeting of creditors to be convened.
The appeal would be dismissed.
(1) The creditors' meeting rules in r 4.70 of the Rules was quite clear. The chairman had power to admit or reject a creditor's proof and his decision was subject to appeal. If in doubt, he should mark the vote as objected to and allow the creditor to vote. Rule 4.70 (2) was the mechanism by which an objection to a proof might be tested. What was at issue at that stage was the validity of the proof for the purposes of voting. The task of a court on an appeal pursuant to r 4.70(4) of the Rules was simply to examine the evidence placed before it on the matter and arrive at a conclusion whether, on balance, the claim against the company was established and, if so, in what amount. In considering the matter, the court was not confined to the evidence that had been before the chairman at the time he had made his decision, but was entitled to consider whatever admissible evidence on the issue the parties to the appeal chose to place before the court.
(2) A liquidator should not be a person, nor be the choice of a person, who had a duty or purpose which conflicted with the duties of the liquidator. More specifically, the liquidator should not be the nominee of a person against whom the company had hostile or conflicting claims or whose conduct in relation to the affairs of the company was under investigation.
On the facts of the instant case, even if PEL's vote was eliminated entirely, the outcome of the meeting would not have been affected. That was a strong reason for not summoning a new meeting. The applicant's assertion that if PEL's vote had been disallowed, the decision of the meeting would have been different was manifestly wrong. It followed that the basis on which the applicant had supported his application was manifestly without foundation. Further, the applicant's purpose in seeking to persuade creditors to appoint a liquidator of his own choice went against the principles that governed the choice of a liquidator and conflicted with the duties of the liquidator, which were to minimise both his own liabilities for the debts of the company, and to defend his own conduct vis-a-vis the company. The applicant was a person against whom the company had hostile claims, and a person whose conduct in relation to the affairs of the company was under investigation. In those circumstances, it would be wrong if the liquidator was to be a person chosen by the applicant. Accordingly, there was no real prospect of the court ordering a new meeting to be summoned (see [28] of the judgment).
The judge had been entitled to strike out the application as serving no useful purpose, and as having no real prospect of success.Debtor, a (No 222 of 1990), Re, ex p Bank of Ireland [1992] BCLC 137 considered; Company, a (No 004539 of 1993), Re [1995] 1 BCLC 459 considered; Assico Engineering Ltd, Re [2001] All ER (D) 44 (Feb) considered; Fielding v Seery [2004] BCC 315 considered; Shruth Ltd, Re [2005] All ER (D) 275 (Jun) doubted.
Neneh Munu Barrister.
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