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Citation [2009] All ER (D) 14 (Jun)
Alternative Citations [2009] EWHC 1093 (Ch)
Hearing Date 20 May 2009
Court Chancery Division
Judge Peter Smith J
Representation
Peter Shaw (instructed by Moon Beever) for the applicants.George Bompas QC (instructed by Wedlake Bell) for the respondents.
Abstract
Company – Compulsory winding up. Chancery Division: The court had power under its supervisory role of compulsory winding up and bankruptcy to make orders the effect of which was to grant retrospective sanction under for the bringing of proceedings by a liquidator under the Insolvency Act 1986 despite the requirements not being made out in the original application. Sanction would not be granted in the instant case, however.
Catchwords
Company – Compulsory winding up – Liquidator – Application by liquidator for sanction to bring proceedings – Application erroneously seeking prospective rather than retrospective sanction – Whether prospective sanction should be granted – Whether court having power retrospectively to grant sanction – Whether power should be exercised – Insolvency Act 1986, Sch 4, Pts I, II
Summary
The applicant company was compulsorily wound up by the court in May 2003. Until its liquidation it had traded in the business of wholesale distribution of alcoholic and soft drinks. Originating application proceedings were issued in May 2007 (the first application) against the respondents, seeking relief arising out of three separate transactions in the two years prior to the liquidation. The proceedings were brought in the name of both the liquidator and the applicant. It was common ground that no sanction was obtained before the commencement of the first application from the liquidation committee, the Secretary of State or the court, as required by the Insolvency Act 1986. Subsequently, a second application was made to the three-member liquidation committee. No retrospective sanction was sought. A response was requested by May 2007. Two members of the committee resigned in July 2007, leaving only be one member in the committee. The committee was therefore not quorate and was hence incapable of acting. Accordingly, sanction was required from the Secretary of State on whom the committee's functions devolved, as per s 141(5) of the 1986 Act. The liquidator made an application to the Secretary of State in August 2007. At that point, the first application had been issued for nearly three months. No mention of that fact was made in the second application; the Secretary of State thought he was considering an application for a prospective commencement of proceedings. In August 2007, the Secretary of State gave sanction for the commencement of legal proceedings for the specific purposes as set out in the liquidator's application. The Secretary of State therefore did not give retrospective sanction for the commencement of the proceedings. The instant application arose out of accidental omissions that had been made by the liquidator in applying to the Secretary of State for the grant of sanction. The issue concerned the fate of the sanction given in the light of the failure on the part of the liquidator to indicate that she needed retrospective sanction for the proceedings. A second question arose as to whether, if the sanction was not effective retrospectively, it was effective prospectively and if so what it covered.
The applicants sought declarations that the sanction granted by the Secretary of State in August 2007 to the liquidator for the bringing of legal proceedings as specified in that sanction had been valid and that the liquidator would be entitled to an indemnity out of the assets of the company in respect to costs and adverse costs orders in respect of those claims. In the alternative, the applicants sought an order that the court sanction the claims pursuant to s 167(1)(a) of and Sch 3 to the 1986 Act, and the liquidator would consequently be entitled to like indemnity. Finally, the applicants sought an order sanctioning fresh claims with a like claim for indemnity in respect of them.
The court ruled:
(1) On the existing authorities, the court had power under its supervisory role of compulsory winding up and bankruptcy to make orders the effect of which was to grant retrospective sanction despite the requirements not being made out. It was essential that the court retain a residual power of control in such areas where it could in appropriate circumstances overcome non-compliance with the statutory requirements (see [64]-[66] of the judgment).
In the instant case, the sanction of the Secretary of State granted in August 2007 had not been effective at all. First, what had been needed at the time was a retrospective sanction which had not been made. Second, if a prospective sanction had been sought when a retrospective sanction was what was required, a prospective sanction could not be re-read as a retrospective sanction. One could not pick out of a sanction a different sanction as a justification for protection as regard costs prospectively to be incurred in an action which had already been issued. That was because the Secretary of State had believed that he was giving a prospective sanction. Depending on the sanction originally obtained, it would be open to the liquidator to make subsequent applications for fresh prospective sanctions if the circumstances so justified (see [64], [70] and [72] of the judgment).
Sanction was granted pursuant to the instant application to cover all costs that were to be incurred from the date the application had been made. The liquidator would be granted a prospective sanction for all claims that she now sought to bring, but not retrospective sanction.
London Metallurgical Co, Re [1897] 2 Ch 262 considered; Debtor, a (No 26A of 1975), Re [1984] 3 All ER 995 considered; Phillips v Symes (sub nom Phillips v Nussberger) [2008] 1 All ER (Comm) 918 considered; Donaldson v O'Sullivan [2009] 1 All ER 1087 considered.
(2) On the facts, even if the original application had been for retrospective sanction, the statutory requirements had not been made out and the application would therefore, have been rejected. It had been important to appreciate that the period ran from the time when the originating application was issued which set the urgency and then the need to act with proper dispatch from that date.
Sanction would therefore not be granted for any costs incurred in the proceedings prior to the date that the instant application had been made.
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