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Hardy v McLoughlin and another

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Hardy v McLoughlin and another

Written by Calum Haswell

Tuesday, 12 May 2009

Abstract

Executor and administrator – Administrator. Chancery Division: Application for the setting aside of an order made releasing administrators from liability dismissed on the facts.

Catchwords

Executor and administrator – Administrator – Fraud and false accounting – Administrators holding third party funds – Order given releasing administrators – Applicant alleging fraud and false accounting against the administrators – Whether order obtained by fraud and false accounting.

Citation [2009] All ER (D) 84 (May)

Alternative Citations [2009] EWHC 944 (Ch)

Hearing Date 6 May 2009

CourtChancery Division, Companies Court

JudgeBernard Livesey QC (sitting as a deputy judge of the High Court)

RepresentationThe applicant appeared in person.David Allison (instructed by Eversheds, Nottingham) for the administrators.

Summary

The judgment is available at: [2009] EWHC 944 (Ch)

By an administration order made in January 2002, the respondents were appointed administrators of NMG plc and each of the 16 or so companies within the group. At the time, the group had been indebted to its financing bank in the sum of approximately £10.45m. The group's indebtedness had been secured by debentures and unlimited cross guarantees across the group. In June, a company voluntary arrangement (CVA) was proposed by the administrators in relation to NMG plc and two of its subsidiaries with a view to enabling those companies to continue to trade. In July, a conditional share offer was sent to shareholders inviting them to apply for shares in NMG plc. In April 2004, the administration order was discharged under s 18 of the Insolvency Act 1968 and the administrators were released from liability under s 20 of the 1968 Act. In May, NMG plc entered members' voluntary liquidation. Subsequently, the joint liquidators entered into a reconstruction agreement under s 110 of the 1968 Act whereby the entirety of NMG plc's assets, and certain liabilities, were transferred to TE plc in consideration of the issue of shares in TE plc to the shareholders of NMG plc. In January 2005, the applicant contended that he had been appointed to represent TE plc under a power of attorney. No resolution of the board was produced to support his claims. In May, NMG plc entered creditors' voluntary liquidation as the joint liquidators had formed the opinion that NMG plc had been unable to meet its liabilities within the time set out in the statutory declaration of solvency. The administrators were left holding third party funds amounting to £506,130 which were subject to competing claims by a number of parties including the liquidators of NMG plc. The applicant contended that the sum held by the administrators should have been in escrow and returned to the companies that had purchased shares pursuant to the CVA. In order to resolve the competing claims the administrators issued an application to the court seeking, inter alia, a declaration as to the entitlement of the third party companies to the return of their funds. The applicant did not appeal. In February 2008, the applicant applied to set aside the judgment of 17 July 2007, alleging that it had been secured by fraud and perjury on the part of the administrators and their solicitor. The application was dismissed. In June, the applicant unsuccessfully issued proceedings against, inter alia, the administrators claiming damages and an account of the escrow monies. In October, the applicant served a statutory demand on the administrator's employer demanding payment of sums the employer had obtained for the administrators' services and an order restraining the applicant from presenting a winding up petition against the employer. In January 2009, in face of an application by the administrators for a civil restraint order, the applicant agreed an undertaking not to make any application in any civil court in England and Wales 'in relation to or connection with the administration' without the permission of the court. Subsequently, the applicant claimed for compensation and damages against the administrators asserting that the claim was personal and promulgated on behalf of the company. He further sought: (i) to set aside or vary an order made releasing the administrators from liability as administrators; and (ii) an order for an inquiry into damages allegedly caused to him by the administrators during the time they had acted as administrators of NMG plc.

The application was sought on the grounds that the order for the release of the administrators had been obtained by fraud and false accounting. He further argued that they owed him damages for breach of duty.

The application would be dismissed.

The court had no power to set aside an order for the discharge and release of administrators pursuant to s 18 and 20 of the Insolvency Act 1986 provided that the application had been brought by a person with the appropriate locus standi, who advanced a strong case, supported by credible evidence either that the administration was itself conducted fraudulently or that the original orders of discharge and release had been obtained by fraud. It was not enough for an applicant to demonstrate merely that there had been or might have been an irregularity during the conduct of the administration or an inaccurate statement in the application for discharge (see [31] of the judgment).

Although there had been some evidence that there might have been an irregularity in relation to the performance of the CVA proposal, in the instant case, there had been no evidence whatsoever to suggest that any irregularity had been fraudulent in intention or effect. Further, there had not been any evidence to suggest that the administrators had secured their discharge and release by any fraudulent or other misrepresentations to the court. In any event, in so far as the administrators might have dealt irregularly with the funds in escrow, that could not be regarded as constituting a breach of duty to the applicant. In the instant case, the respondents had not made a single misrepresentation to the claimant person to person. The attempt to impose on them, after they had been discharged from acting as administrators, liability for representations implied by him from their conduct was illegitimate and hopeless. Further, on the facts, the applicant was not a person with appropriate locus standi to bring the matter before the court (see [32]-[34], [37], and [40]-[42] of the judgment).

Avneet Baryan Barrister.