Manolete Bulletin, 3 June 2021
Manolete Partners Plc v Hayward and Barrett Holdings Ltd.
Neutral Citation Number [2021] EWHC 1481 (Ch), A Catalyst for Reform?
By Mena Halton, Head of Legal
Since October 2015, when s.246ZD Insolvency Act 1986 enabled assignment of office holder claims, it has been the practice of Manolete to bring those assigned office holder claims, together with the related assigned company claims by way of Insolvency Act 1986 application notice in the Insolvency and Companies Court.
Typically, an antecedent transaction claim, such as a transaction at under value within the meaning of s.238 Insolvency Act 1986, will also give rise to a corresponding breach of duty claim against the director of the company under the provisions of the Companies Act 2006 and at common law. Both claims arise from the same factual matrix, from the same insolvency and are clearly within the sphere of ICC business. This sensible and proportionate approach has worked well and ensured that the application notice procedure applied to maximise returns to insolvent estates. There had been no objection to this practice from ICC Judges, nor from those acting for Respondents (and it must be said most Respondents would have no wish to make the litigation more expensive as, assuming the claim succeeds, they are the ultimate paying party).
The practice was challenged by the Respondents in the above case.
Judgment was handed down by Chief ICC Judge Briggs on 2 June 2021. With some reluctance, the judge held that the company claims should have been brought by way of a Part 7 claim. The judge ordered that the application notice continue (to include the assigned company claims in addition to the assigned office holder claims), subject to payment of an additional fee of £10,000.
The result of this judgment is that any party wishing to bring a company claim (whether that party is the office holder or an assignee) will have to issue a part 7 claim even in circumstances where there are related office holder claims in the same insolvency; in which case two sets of proceedings are required.
The penultimate paragraph of the judgment is notable:
“I reach these conclusions with regret. The criticisms of the procedure are well made by Mr Curl. They do not promote a convenient or sensible or economical use of court resource. In modern parlance the result fails to ensure that claims of this nature are dealt with expeditiously, allotting an appropriate share of the court’s resources. An office-holder and assignee of claims will be forced to issue claims arising from an insolvency using different procedures, in different lists within the Business and Property Courts, with a risk that without a transfer they will be case managed, at least, by different judges although the claims arise out of the same facts.“
Change is needed to the Insolvency Rules 2016 to cure this procedural anomaly and allow company claims in an insolvency to be brought by way of Insolvency Act 1986 application notice. This is in the interest of the insolvency profession as a whole and in the interests of creditors as returns are maximised when the claims are brought by one set of proceedings and by way of application notice. A consultation by the Insolvency Service is in progress until 30 June:
Manolete’s response to the consultation is that a way to achieve a more desirable uniformity (and to achieve the effect plainly thought desirable by Chief ICC Judge Briggs) would be to amend r. 1.35 to provide an additional rule (1.35(4)) to the effect that an application may be used to claim additional defined relief (misfeasance/breach of duty brought other than under s. 212 IA; or “any other relief arising out of or in connection with the administration or winding up of a company or the bankruptcy of an individual”); or, less ambitiously, something to the effect that such relief may be included in an insolvency application made seeking relief under Parts 1-11 IA. A further alternative would be to (re)define “insolvency proceedings” and allow any such proceedings to be brought by application notice. (This could equally take in a claim under s. 423 IA in an insolvency.)
We invite insolvency lawyers and IPs to respond to the consultation to bring about this rule change.
In the meantime, it is business as usual at Manolete. The requirement to pay an additional £10,000 court fee and to issue two sets of proceedings is not a deterrent to a listed company with strong financial backing. Where needed, we will issue a Part 7 claim and an application notice and immediately apply for transfer of the part 7 claim to the ICC and consolidation with the application notice. Chancery Masters and ICC Judges have already been receptive to such transfers and the prevailing trend on Manolete cases has been to treat the transferred part 7 claim as if commenced by way of application notice.
