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T4: Liquidation/
winding up
Court's discretion to grant time re established debt
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- Limited to considering whether the debt can be paid within a reasonable time
"[5]...The starting point, therefore, is that there is a debt due and owing of £57,563.83.
[6] That being so, I have been informed by Mr Brown that the company would be unable to pay that sum, or indeed any sum over £10,000, in less than a year. The position for this court, once a debt is established, is that its jurisdiction, if a petitioner asks for a winding-up order, is, in general terms, limited to considering whether the debt can be paid within a reasonable time. It is the normal approach that a time period of about a year for sums of the amounts we are talking about is never considered reasonable." (HMRC v. Nationwide Finance Ltd [2013] Lexis Citation 112, Registrar Jones)
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Winding up whilst appeal is pending
Winding up petition for debt disputed in good faith on substantial grounds will be dismissed
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"[36] The existing law is unsurprisingly not much in dispute between the parties. Both sides refer to a series of cases that endorse the long-established principle that there is a well-settled rule of practice that a winding-up petition based on a debt that is wholly disputed in good faith on substantial grounds will ordinarily be dismissed (see Mann v. Goldstein [1986] 1 WLR 1091 per Ungoed-Thomas J at pages 1098-9, Arena supra at paragraph 53, HMRC v. Rochdale Drinks Distributors Limited [2011] EWCA Civ 1116 at paragraphs 79-80 per Rimer LJ, and Re SED Essex Limited [2013] EWHC 1583 (Ch) at paragraph 4 per John Randall QC). The question of whether a winding-up order should be made or the petition should, in a particular case, be dismissed, is a matter for the discretion of the Companies court (see section 125(1) of the Insolvency Act 1986 and, for example, Lord Brightman in the Privy Council in Brinds Limited v. Offshore Oil N.L. [1986] 2 BCC 98,916 at page 98,921, and Lord Hoffmann in the Privy Council in Parmalat Capital Finance Limited v. Food Holdings Limited [2009] 1 BCLC 274 at paragraphs 9-11) ." (Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v HMRC [2015] EWCA Civ 29, Vos LJ - FTT had held that appeal was not “hopeless” in admitting a late appeal))
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Companies court does not have to defer to FTT
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"[71] For the reasons I have tried shortly to express, I think the judge was wrong to say that the Companies court must defer to the tax tribunal in a case of this kind. That does not mean that the tax tribunal will not normally be the appropriate forum to determine whether an appeal against a VAT assessment has a real prospect of success. Moreover, when the tax tribunal has reached a conclusion on such an issue, that decision is normally likely to be a compelling factor in the Companies court's exercise of discretion. That discretion is not, however, completely abrogated by the jurisdiction of the tax tribunal. It need not defer to the tax tribunal in every case, though it may often choose to do so.
[72] Here, the facts are quite exceptional, and in my judgment, the judge ought, after a full consideration, to have concluded that they showed that the debts represented by the dispatch assessments were not disputed by the company in good faith and on substantial grounds." (Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v HMRC [2015] EWCA Civ 29, Vos LJ)
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Discrepancies in evidence making company's position unsustainable
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"[57] To put the matter shortly, the discrepancies that HMRC has highlighted in relation to the supposed export transactions are simply too numerous and too clear to admit of any conclusion other than that the export did not take place as the company contends. There is, moreover, no real issue as to whether the company is implicated in the fraud, because it is the company that has put forward the evidence that, in my judgment, must be regarded as false. The company cannot say it does not know that the goods were not exported in the manner that it claims they were, because it has promulgated documents and evidence that can be shown to be simply unsustainable. In that situation, the principles enunciated in Teleos supra upon which the judge relied cannot avail the company.
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[69] The judge described HMRC’s case as ‘prima facie formidable’. I agree. In my judgment, that should have led him to conclude that the dispatch assessments were not disputed in good faith on substantial grounds. Accordingly, he ought to have exercised his discretion to wind up the company" (Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v HMRC [2015] EWCA Civ 29, Vos LJ)
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Winding up is not indirect way of winning appeal
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"[40] It is true, as the judge said, that the adjudication on the correctness of a tax assessment has been entrusted by Parliament to a specialist tax tribunal. But that does not mean that the question that the Companies court has to decide is the same, or even substantially the same, as the one that faces the tax tribunal. The presentation of a petition to wind up a trader, which has appealed against a tax assessment, is not an indirect way of winning the appeal. The appeal will remain extant even if the trader is wound up. It is simply that there will be a process of collective execution in place that will allow the liquidator rather than the company's directors to decide whether to pursue the tax appeal. For that reason, the House of Lords' decision in Autologic is not applicable here." (Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v HMRC [2015] EWCA Civ 29, Vos LJ)
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Public interest winding up and tax avoidance
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Companies set up to promote tax avoidance that abuses insolvency legislation
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“PAG Management is an active and solvent business. That business involves the promotion of an NNDR mitigation scheme. Of itself the promotion of tax mitigation schemes is not an inherently objectionable activity. In the course of so doing it incidentally uses artificial leases having no commercial reality and containing some terms which are mere pretences; and on occasion having procured that its creature companies enter liquidation, it has delayed appointing new officeholders. These historic events would not of themselves be of sufficient weight to warrant a winding up. But PAG Management's business model involves a misuse of the insolvency legislation in the way I have described and the SoS has satisfied me that it is just and equitable to wind up the company that I ought to exercise the discretion conferred by 124A of the 1986 Act in that way: and I will so order.” (Secretary of State for BIS v. PAG management Services Ltd [2015] EWHC 2404 (Ch), §69 – the scheme relied on an exemption from business rates for companies in liquidation)
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Corporate reconstructions involving liquidating companies
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“Mr Chivers QC, who has great experience and high standing in this field, gave evidence from the Bar that many corporate reconstruction schemes involve the interposition of a company to receive assets and then to be wound up (perhaps for tax reasons or as a mechanism of distribution) and that it had never been suggested that this was improper; and that many schemes of very many sorts require directors to take steps which are wholly predetermined (in relation to which it was never contemplated that they would exercise independent judgment). Of such schemes I say nothing, save that if the liquidation is not genuinely a collection and distribution of assets then its propriety might need to be reconsidered. For me it is the use of the company in liquidation as an asset shelter and the inherent bias towards prolongation of the liquidation that is subversive of the true purpose and proper functioning of insolvency law. So I cannot accept Mr Chivers QCs submission that the operation of the scheme through the medium of insolvency is not commercially improper.” (Secretary of State for BIS v. PAG management Services Ltd [2015] EWHC 2404 (Ch), §67)
Tax during liquidation is an expense of the liquidation
"[42] I therefore respectfully adopt the simple approach of Brightman J in In re Mesco Properties Ltd [1979] 1 WLR 558, 561. The statute expressly enacts that a company is chargeable to corporation tax on profits or gains arising in the winding up. It follows that the tax is a post-liquidation liability which the liquidator is bound to discharge and it is therefore a "necessary disbursement" within the meaning of the Insolvency Rules." (Kahn v. CIR [2002] UKHL 6)
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HMRC seeking the appointment of a provisional liquidator
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- Not excused from requirement to provide cross-undertaking in damages if applying in capacity as creditor
"[30] Doubtless, HMRC hoped that, by presenting a winding-up petition against the Company and applying for the appointment of provisional liquidators, they would bring to an end the fraudulent abuse of the tax system that they perceived. However, they brought the proceedings in the capacity of creditors and applied for provisional liquidators for the purposes of "preserving … assets and securing … books and records" rather than to shut down the business. The petition was avowedly presented by HMRC as creditors, not as a "law enforcement agency". Nor is this merely a matter of form. On any view, HMRC were acting to recover, or to limit the extent to which they might lose, money. Unlike those at issue in, say, Hoffmann-La Roche, Sinaloa or Re Highfield Commodities Ltd [1985] 1 W.L.R. 149 (which concerned a petition presented by the Secretary of State on public interest grounds), the present proceedings were not aimed at preventing breaches of the law which could cause the public loss or damage independently of any suffered by an emanation of Government. In Hoffmann-La Roche, 90% of the relevant sales were to the National Health Service and so the Department of Health and Social Security had a substantial financial interest (see Lord Wilberforce at 356), but, even so, enforcement of the price limits for which the statutory instrument provided did not affect just the Government: Lord Diplock observed at 370 that the "sum involved in sales to private patients" could not be "brushed aside as de minimis" and Lord Cross spoke at 372 of "the special interest which the 10 per cent. of private purchasers have in seeing that this order is enforced".
[31] On top of that, winding-up proceedings were not the only option open to HMRC in the present case. They could, if they had wished, have issued an ordinary civil claim.
[32] In short, I agree with the Judge that this is "not 'a case of a public authority seeking to enforce the law by the only means available under the governing statute', as referred to in paragraph 36 of Lord Mance's judgment in Sinaloa, and they are not public law enforcement proceedings". In the circumstances, the Judge was right to insist on the provision of a cross-undertaking in damages." (HMRC v. Payroll & Pension Services (PPS Umbrella Company) Ltd [2024] EWCA Civ 995, Newey, Lewison, Lewis LJJ)
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Impeding a court appointed provisional liquidator (committal for contempt)
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“In the usual way the order appointing the provisional liquidator spelt out that Mr. Wilson had been appointed by the court as an officer of the court and that it was a contempt of court for any person to prevent or impede him in carrying out his duties. The order warned that if they did so they may be held to be in contempt of court and liable to be imprisoned, fined or have their assets seized. The order also contained a warning that anyone who did anything which helped or permitted a breach of the terms of the order would likewise be liable to be held in contempt of court.” (HMRC v. Munir [2015] EWHC 1366 (Ch), §2).
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Placing money out of reach
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“In these proceedings HMRC contend that the first payment, the second payment and the third payment [from the company account to an overseas company’s account] were each payments made in contempt of court.” (HMRC v. Munir [2015] EWHC 1366 (Ch), §7 – the defendants admitted that they had knowingly breached the court order).
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Sentence
Six months imprisonment each in HMRC v. Munir [2015] EWHC 1366 (Ch).
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LITIGATION DURING INSOLVENCY
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Expenses properly incurred in preparing/conducting legal proceedings are an expense of the winding up
"After the payment of any liabilities to which section 174A applies, all expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company’s assets in priority to all other claims." (IA 1986, s.115)
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[7.108] (1) All fees, costs, charges and other expenses incurred in the course of the winding up are to be treated as expenses of the winding up.
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(4) Subject as provided in paragraphs (5) and (6), rule 7.108A, and rules 7.112 to 7.116, the expenses are payable in the following order of priority—
(a) the following expenses, which rank equally in order of priority—
(i) expenses that are properly chargeable or incurred by the provisional liquidator in carrying out the functions conferred on the provisional liquidator by the court,
(ii) expenses that are properly chargeable or incurred by the official receiver or the liquidator in preserving, realising or getting in any of the assets of the company or otherwise in the preparation, conduct or assignment of any legal proceedings, arbitration or other dispute resolution procedures, which the official receiver or liquidator has power to bring in the official receiver's or liquidator's own name or bring or defend in the name of the company or in the preparation or conduct of any negotiations intended to lead or leading to a settlement or compromise of any legal action or dispute to which the proceedings or procedures relate,..." (Insolvency Rules 2016)
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Legal proceedings
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“legal proceedings” means—
(a) proceedings under sections 212, 213, 214 M79, 238, 239, 244 and 423 and any arbitration or other dispute resolution proceedings invoked for purposes corresponding to those to which the sections relate and any other proceedings, including arbitration or other dispute resolution procedures, which a liquidator has power to bring in the liquidator's own name for the purpose of preserving, realising, or getting in any of the assets of the company;
(b) legal actions and proceedings, arbitration or any other dispute resolution procedures which a liquidator has power to bring or defend in the name of the company; and
(c) negotiations intended to lead or leading to a settlement or compromise of any action, proceeding or procedure to which sub-paragraphs (a) or (b) relate;" (Insolvency Rules 2016, r.7.111)
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Priority for payment over preferential debts
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"In a winding up the company’s preferential debts shall be paid in priority to all other debts after the payment of—
(a) any liabilities to which section 174A applies, and
(b) expenses of the winding up." (IA 1986, s.175)
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Priority for payment over floating charges
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"(1)The expenses of winding up in England and Wales, so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over any claims to property comprised in or subject to any floating charge created by the company and shall be paid out of any such property accordingly." (IA 1986, s.176ZA)
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Requirement for permission from floating charge holders
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See Insolvency Rules 2016, r.7.113
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Power of court to adjust priority of expenses of winding up inter se
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"The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the winding up in such order of priority as the court thinks just." (IA 1986, s.156)
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"[7.110] (1) The priorities laid down by rules 7.108 and 7.109 are subject to the power of the court to make orders under section 156, where the assets are insufficient to satisfy the liabilities.
(2) Nothing in those rules—
(a)applies to or affects the power of any court, in proceedings by or against the company, to order costs to be paid by the company, or the liquidator; or
(b)affects the rights of any person to whom such costs are ordered to be paid." (Insolvency Rules 2016)
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"[19]...As Lord Hoffmann pointed out, the primacy of a court order as to costs was set out in London Metallurgical Co and preserved by r 4.220(2). S 156 is concerned with re-ordering the priorities of expenses in the liquidation, meaning the definitive list of expenses contained in r 4.218(1). That view is also consistent with the view expressed by the Court of Appeal in Lewis v Commissioner of Inland Revenue [2001] 3 All ER 499 paragraph 41. Costs which are payable as a result of a court order made against liquidators who engage in litigation are not "expenses incurred in the winding up". It follows that, even if minded to do so, it would not be open to me to use ss 112 and 156 to change the normal precedence afforded to costs made payable by court order." (Re MT Realisations Ltd [2003] EWHC 2895 (Ch), Laddie J)
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Previous position: costs of unsuccessful claims or claims arising only as a result of liquidation not expenses of liquidation
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"[36] The Deputy Judge held that the costs would not fall within para. (a) if the proceedings were unsuccessful. The correctness of that conclusion was confirmed in Mond and is not challenged by Mrs. Giret. We therefore need say no more about it..." (Lewis v. IRC [2001] 3 All ER 499)
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"Paragraph (a) of rule 4.218(1) of the Insolvency Rules 1986 includes “expenses properly chargeable or incurred by the official receiver or the liquidator in preserving, realising or getting in any of the assets of the company”. Mr Justice Millett held, in In re M C Bacon Limited (No 2) , for the reasons which he gave at page 613e–j, that that paragraph could have no application to the costs of an unsuccessful attempt to recover assets. I respectfully agree with that conclusion and with the reasoning upon which it is based. I agree, also, with his conclusion that there is no other paragraph under rule 4.218 (1) which could be said to encompass the costs of unsuccessful litigation. I do not find that surprising. It would be remarkable if the rules did give to the liquidator an unfettered right to recoup his costs of unsuccessful litigation. It must be kept in mind that a liquidator may bring or defend proceedings in his own name without first obtaining sanction; and it is necessary that the court should retain some control over his right to recoup the costs of such proceedings where the liquidator is unsuccessful. It follows also, in my view, that rule 4.218(1) can have no application to the costs of an unsuccessful attempt to retain an asset to which another is held to be entitled." (Mond v. Hammond Suddards [2000] Ch 40)
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"Thus a right of action against directors for misfeasance which the liquidator (amongst others) can enforce under s.212 of the 1986 Act and the fruits of such an action are property of the company capable of being charged by a debenture, because the right of action arose and was available to the company prior to the winding up. But with this can be contrasted the right of action by a liquidator, and the fruits of such an action, for fraudulent preference or fraudulent or wrongful trading, which are not the property of the company and are not caught by a debenture (see Gough, Company Charges, 2nd ed. (1996), 122).
Such a distinction is supported by a number of authorities." (Ward v. Aitken [1998] Ch 170)
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Wording now extended to specifically include properly incurred litigation expenses
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- Liquidator being unsuccessful does not mean expenses not properly incurred
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"[65] I have to determine whether the costs and expenses in relation to which the receivers seek an indemnity were reasonable sums properly incurred. It is clear that if a receiver litigates and is not successful that fact does not necessarily mean that the costs of the litigation were not reasonable sums properly incurred: see Lewin paragraph 21-52 in relation to the position of a trustee. Further, the receivers are officers of the court and I am not minded to be hyper-critical of their conduct...
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The position in relation to the AP Family is more straightforward. I think it is unfortunate that costs have been incurred as a result of the AP Family being caught up in this application. However, I do not consider it would be right to disallow any sum recoverable by the receivers pursuant to their indemnity in relation to those costs." (Wood v. Gorbunova [2013] EWHC 1935 (Ch), Morgan J)
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- But may not be properly incurred if conduct was sufficiently unwise
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"[65] ... I have to bear in mind that the receivers found themselves in difficulties prior to the making of the present application. They considered, I think for good reason, that the receivership had stalled and something major needed to be done to enable it to make progress. However, I think that some of the decisions made by the receivers were unwise and were sufficiently unwise to justify the court in partially withholding a right of indemnity in relation to the costs which have now been run up. I consider that the receivers did not sufficiently acknowledge the substance of the points being made by AG. The receivers persuaded themselves that AG were being recalcitrant. It was unwise to try to obtain the wide ranging orders put before the court on 10th June 2013. It was, in addition, unwise to seek those orders without making AG a respondent." (Wood v. Gorbunova [2013] EWHC 1935 (Ch), Morgan J)
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- Or litigation inappropriately handled
"[68] As to the receivers' own costs, I consider that these will have been increased above a reasonable and proper amount as a result of the way in which this application has been inappropriately handled. However, as I have indicated, I would wish to be realistic as to the difficulties the receivers found themselves in and their proper desire to get the receivership moving. Further, they are entitled to a large part of the costs which would have been incurred in any event. I consider that the right response to all the relevant factors is to allow the receivers to recover 85% of their own costs in relation to this application." (Wood v. Gorbunova [2013] EWHC 1935 (Ch), Morgan J)
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Costs ordered to be paid by a company in liquidation are payable in priority to other claims (including liquidator's own costs)
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"[7.110] (1) The priorities laid down by rules 7.108 and 7.109 are subject to the power of the court to make orders under section 156, where the assets are insufficient to satisfy the liabilities.
(2) Nothing in those rules—
(a) applies to or affects the power of any court, in proceedings by or against the company, to order costs to be paid by the company, or the liquidator; or
(b) affects the rights of any person to whom such costs are ordered to be paid." (Insolvency Rules 2016)
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"[15] In In re London Metallurgical Co [1895] 1 Ch 758, decided soon after the first rules had been made, it was noted that the list said nothing about the costs of litigation incurred by the liquidator or awarded against him. Under the pre-1890 practice, costs awarded to a successful litigant had been recoverable in priority to the general costs of the liquidation. Vaughan-Williams J said that rule 31 of the 1890 rules did not change this practice. But he did not say that this was because the rule was not intended to be a complete statement of the law. He said that the practice on costs was preserved by the words "subject to any order of the court." When the 1890 Rules were replaced by the Companies Winding-up Rules 1903, it was specifically provided in rule 170(3) that-
"Nothing contained in this rule shall apply to or affect costs which, in the course of legal proceedings by or against a company which is being wound up by the court, are ordered by the court in which such proceedings are pending or a judge thereof to be paid by the company or the liquidator, or the rights of the person to whom such costs are payable."
[16] This provision is now rule 4.220(2) of the 1986 Rules. No head of liquidation expense not mentioned in the rules has been discovered since the London Metallurgical Co case [1895] 1 Ch 758. And the general provision that the rules are "subject to any order of the court" has gone. The only power reserved to the court is that conferred by section 156 of the 1986 Act, which gives it a discretion to rearrange the priorities of the listed expenses inter se. This power is expressly reserved by rule 4.220(1)." (Kahn v. CIR [2002] UKHL 6)
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"...It is in my view clear that the costs ordered to be paid by a company in liquidation to a successful defendant are payable out of the net assets in the hands of the liquidator, in priority to other claims, including that of the liquidator for his own costs: see In re Pacific Coast Syndicate Ltd. [1913] 2 Ch. 26 and In re Movitex Ltd. [1990] B.C.L.C. 785. In re M.C. Bacon (No. 2) [1990] B.C.C. 430 upon which Mr. Jackson relied, deals with a different question, namely whether costs incurred by a liquidator (either directly or in consequence of being ordered to pay the costs of another party) are "expenses… incurred by the … liquidator in preserving, realising or getting in any of the assets of the company" within the meaning of rule 4.218(1)(a) of the Insolvency Rules 1986 (S.I. 1986 No. 1925). Millett J. held (rightly or wrongly) that costs incurred in litigation which realised no assets did not qualify for priority under this head. But the right of a successful defendant to an action brought or adopted by a company in liquidation to be paid out of the assets in the hands of the liquidator is not parasitic on the liquidator's right to recover such costs. It is enforceable directly against the company by virtue of the order for costs. I therefore think that the Court of Appeal were correct in assuming that the defendants, if successful, would not have to compete with preliquidation creditors for payment of their costs." (Norglen Ltd (In liquidation) v. Zuken-Redac (UK) Ltd [1999] 2 AC 1 at 20)
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Query whether this applies to all the costs or only the costs of proceedings continued after liquidation
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"Finally, Mr. Jackson said that such priority would attach only to costs incurred after the date of liquidation. Pre-liquidation costs would be ordinary pre-liquidation debts. I do not think that this is right. If the company in liquidation is liable for any costs at all, as is accepted by the liquidator, it is because it adopted the action: it resisted the order for security for costs, applied for substitution and appeared both in the Court of Appeal and your Lordships' House. And if it adopted the action, there is clear authority, including a decision of your Lordships' House (Boynton v. Boynton (1879) 4 App.Cas. 733 and In re London Drapery Stores [1898] 2 Ch. 684) for the proposition that the company adopts the action as a whole and makes itself liable for all costs previously incurred." (Norglen Ltd (In liquidation) v. Zuken-Redac (UK) Ltd [1999] 2 AC 1 at 20)
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But see the different approach to trustees in bankruptcy: BPE Solicitors v. Gabriel [2015] UKSC 39
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Correct identity of claimant/defendant
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- Generally the claim must be brought in the name of the company (liquidator is agent)
"[12] What is the position? First of all I am quite satisfied that under paragraph four of part two of schedule four of the Insolvency Act 1986 the liquidators have power to bring an action in the name and on behalf of the company. Mr Couser ingeniously suggests that now does not preclude a right to bring a claim in their own names. I disagree. Liquidators are creatures of statute, they can only do what they are empowered to do by the statute. They do not, therefore, have a choice to do something that they are not empowered to do by the statute. I am, I think, fortified in that conclusion by dicta in the decision of re Southern Pacific Personal Loans where the role of the liquidator in connection with Data Protection, was considered by Mr Justice David Richards. In paragraph 33, the learned judge said, ‘Unlike directors, they are not acting in the interests of the company as a separate entity or in the interests of its members. In an insolvent winding up they are primarily acting in the interests of creditors…As the authorities establish, he does so’, that is the liquidator does so, ‘As agent for the company, in whose ownership the property remains vested, albeit not for the benefit of the company but in order to give effect to the statutory scheme.’ Therefore the liquidator is acting as agent, the agent cannot bring a claim in his own name, the claim must be brought in the name of his principal." (Kitzpatrick v. Snoozebox Limited 2014 WL 2530812, Master Leslie)
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Attempt to bring in liquidator's name to avoid security for costs
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"[7] It is true that under rule 25.13 the defendants would have been entitled to security for costs had the matters been brought in the name of the company because, there is reason to believe that the company would be unable to pay the defendant's costs within rule 25.13(2)(c) of the CPR . As I have said the claimants have been candid and very clear that that is why they put the claim in their own name." (Kitzpatrick v. Snoozebox Limited 2014 WL 2530812, Master Leslie)
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- Certain statutory claims brought in liquidator's own name(s)
"[10]...Other than those claims which are authorised by the Insolvency Act various sections (including 212, 214, 238, 423) and specific ones of that nature, are liquidators entitled to bring a claim in their own name? This claim is not, in my judgment, such a claim. It was at one time suggested by Mr Couser that this might be a claim under Section 234, 234(2) but, in my judgment, that is wrong." (Kitzpatrick v. Snoozebox Limited 2014 WL 2530812, Master Leslie)
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- Suing person/being sued in representative form does not avoid personal liability
"[46] True it is that Mr Morris was sued as Administrator of the companies, but the combined researches of both leading counsel fail to unearth any authority which limits the liability of a Defendant sued in representative form so that he is not personally liable on a judgment against him. There is no authority on what suing someone as Administrator means in this context. The assertion by Judge Cooke that naming a Defendant as an individual "as Administrator of X Limited" recognises that he is sued as an agent rather than in a personal capacity is unsupported by any authority. Nor can I accept Judge Cooke's view that it would be necessary for a Claimant to plead specifically that personal liability was alleged, if that be the case. Paragraphs 8.1 and 8.2 of PD 16 do not require this, nor was there any obligation upon the Appellant to raise the matter in its Reply beyond joinder of issue. In my judgment, Judge Cooke was wrong to use these matters as a basis for his finding that Judge Brown's order was against the companies and not Mr Morris personally.
[47] I will conclude by observing that the companies could only have been parties to the action before the court with the consent of the Administrator or by order of the court. Neither of those two steps was taken. Moreover, had the companies truly been Defendants in the proceedings, they should have been described as "Marketbalance Limited (in Administration) and Phoenix Insurance Management Limited (in Administration)"." (Wright Hassall LLP v. Morris [2012] EWCA Civ 1472)
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Liquidator personally liable for costs order for claims brought in own name
Failed claim against former directors
"I am bound to say that I find myself unable to accept counsel for the liquidator's submissions. I think that a review of the authorities does disclose that a clear dichotomy between the case where the liquidator is sued and the case where the liquidator initiates proceedings, is established, and indeed it seems me to be a perfectly reasonable one. I cannot at the moment see why it should be contended that a liquidator who takes it on himself to institute proceedings, to bring parties before the court, to subject them to costs, and as against whom it is quite clearly established that no order for security can be made, should then be entitled to plead that he is not responsible beyond the extent of the assets in his hands. I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other litigants. A trustee or a personal representative who institutes proceedings no doubt has a right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk and so, in my judgment, it should be with the liquidator, and the authorities which point that way seem to me, if I may say so respectfully, to be completely reasonable." (Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285, Oliver J)
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And discontinued claim
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"[45] In my judgment, the judge below has, with respect, articulated no proper reason why the liquidator should not pay the appellant's costs as the price of his discontinuing his action. The order made below was, in my opinion, frankly unjust." (Walker v. Walker [2005] EWCA Civ 247)​
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- Query whether not personally liable for costs of defending claim against liquidator personally
"I can quite see that there may be very powerful reasons of policy for a rule that a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled to defend himself without being subjected to the risk of having costs awarded against him personally, because of course he cannot protect himself against claims being made. Unless there were some such rule it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies. It seems to me that it is quite a different matter where the liquidator himself takes it on himself to institute proceedings, whether they be proceedings in the winding-up or otherwise. In fact of course any other proceedings would be proceedings in the name of the company where, in the ordinary way, the litigant on the other side could get security for costs under the provisions of the Companies Act." (Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285, Oliver J)
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Liquidator not personally liable for adverse costs order where claim in company's name
"The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. If he does so in his own name, he is personally liable for the costs in the ordinary way, though he may be entitled to an indemnity out of the assets of the company. If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay his costs as well as his own if the proceedings fail. It may be commercially unwise to institute proceedings without the means to provide any security for costs which may be ordered, since this will only lead to the dismissal of the proceedings; but it is not improper to do so. Nor (if he considers only the interests of the company, as he is entitled to do) is it necessarily unreasonable. The defendant may offer to settle; he may not apply for security; and if he does the Court may not order it to be given, particularly if such an order would stifle a meritorious claim." (Metalloy Supplies Limited (in liquidation) v. M A (UK) Limited [1996] EWCA Civ 671)
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- Non-party costs order against liquidator if impropriety
"I think (as the Judge decided and as I read the notes the District Judge also decided) that there is jurisdiction to order a liquidator as a non-party to pay the costs personally; but it will only be in exceptional cases that the jurisdiction will be exercised, and impropriety will be a necessary ingredient, particularly having regard to the fact that the normal remedy of obtaining an order for security for costs is available; the caution necessary in all cases where an attempt is being made to render a non-party liable for costs will be the greater in the case of a liquidator having regard to the public policy considerations.
The learned Judge, as I see it, went wrong in the following respects. First, there is no indication that he considered that this was an exceptional case or that he had in mind the need for caution, particularly considering the public policy considerations. Second, he applied a test of "unreasonable" and did not consider whether there had been any impropriety in the conduct of the liquidator. Third, he considered that it was unreasonable to continue litigation when there were insufficient funds to cover the costs of the Defendants if they should win. But the remedy of security for costs, if that can be justified, is available to cover that precise situation. If by chance an application for security fails, then a fortiori, it cannot be unreasonable for a liquidator to continue with an action in which he, bona fide, believes there is some prospect of recovery, whether by trial or settlement prior to trial. Fourthly, the Judge did not appear to take any account of the lack of warning that the liquidator had in relation to the seeking of a costs order against him personally." (Metalloy Supplies Limited (in liquidation) v. M A (UK) Limited [1996] EWCA Civ 671)​
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- Non-party costs order: impropriety/unreasonableness not necessarily required
"[66] Impropriety or unreasonableness are elements in the discretion, and there is no conflict between this decision and what was said by Lord Brown in Dymocks (at [33]):
" … The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against a non-party, its absence does not preclude the making of such an order."
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[74] My conclusion on this aspect is that the Chancellor properly applied the "exceptional circumstance" test by considering whether this action was out of the ordinary run of cases, and ultimately (in conjunction with the other factors) whether it was just to make the order. I agree with him that this case was an entirely normal case of receivers seeking to enforce a contractual right forming part of the security." (Mills v. Birchall [2008] EWCA Civ 385)
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Liquidator may be personally liable for costs if incurred without obtaining necessary consent
"It is particularly important that the committee of inspection should receive the unbiased advice of the liquidator before sanctioning the exercise of any power conferred by s 245(1). If a liquidator appoints a solicitor without first obtaining the sanction of the court or the committee of inspection, pursuant to s 245(1), the liquidator will be personally liable to the solicitor for breach of an implied warranty of authority that the necessary sanction had been obtained. Thus in the present case the liquidator would have to meet the solicitors' bill." (Re Associated Travel Leisure and Services Ltd [1978] 2 All ER 273 at 275)
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Potential liability of shareholders/directors controlling/funding litigation by insolvent company
"[32] In Goodwood Rix LJ summarised his conclusion as follows (§ 59):
"Where a non-party director can be described as the "real party", seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances. It may also be noted that in Lord Brown's comments at para 33 of his opinion "the pursuit of speculative litigation" is put into the same category as "impropriety"."
[33] It is to be noted that controlling on the one hand and funding on the other are separated by "and/or". Thus it is not the case that both elements need to be present. This is exactly what Longmore LJ had said in Petromec. Likewise it is notable that Rix LJ does not refer to insolvency of the party itself during the pendency of the litigation; although plainly if the party against whom costs have been ordered is in a position to pay them there will seldom be any need for a non-party costs order.
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[48] Looking at the case in the round, it had the following features. SDT was controlled by Mr Sharif. He was the owner of 90 per cent of its share capital. He and WEPS were its largest creditors. They left their money in SDT until its eventual collapse. The dispute was triggered by Mr Sharif's actions and his dishonest explanation for his actions. He personally drafted SDT's defence and counterclaim. The counterclaim claimed a loss that the judge described as "at best fanciful". At best it was speculative litigation; at worst it was a trumped up counterclaim. The sole witness of fact on the question of liability was Mr Sharif himself. His evidence was entirely disbelieved. He supported SDT's case with bogus documents. The judge characterised the counterclaim as "without merit and without justification". In my judgment these factors, taken cumulatively, justified the judge's decision to make a non-party costs order against Mr Sharif. I do not consider that such error as he made in characterising one of the ways in which he thought the case against Mr Sharif was put entitles this court to interfere with his exercise of a statutory discretion. I would dismiss the appeal against the judge's decision to make a non-party costs order against Mr Sharif." (Systemcare (UK) Limited v. Services Design Technology Limited)
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"[10] In these circumstances it is not necessary to discuss the authorities at any length. I would only observe that, although funding took place in most of the reported cases, it is not, in my view, essential, in the sense of being a jurisdictional pre-requisite to the exercise of the court's discretion. If the evidence is that a respondent (whether director or shareholder or controller of a relevant company) has effectively controlled the proceedings and has sought to derive potential benefit from them, that will be enough to establish the jurisdiction. Whether such jurisdiction should be exercised is, of course, another matter entirely and the extent to which a respondent has, in fact, funded any proceedings may be very relevant to the exercise of discretion. In the present case, however, the judge rightly drew no distinction between the pre- and post-October 2003 proceedings because the reality was that Mr Efromovich was funding them throughout." (Petromec Inc v. Petroleo Barsileiro SA Petrobras [2006] EWCA Civ 1038)
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- Leaving money in that could be taken out may count as funding
"[35] Thus the action of Mr Efromovich in leaving money in Petromec which he could have taken out, even though he was not the source of the money, counted as funding the proceedings. The fact that the money belonged to other companies rather than to Mr Efromovich personally did not matter." (Systemcare (UK) Limited v. Services Design Technology Limited)
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