Whitehouse v Wilson & Anor [2006] EWCA Civ 1688

Case No A2/2005/2862

[2006] EWCA Civ 1688

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue LEEDS DISTRICT REGISTRY

(HIS HONOUR JUDGE LANGAN QC)

No 540 of 2004 (4C-00540)

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Thursday 7 th December 2006

Before

LORD JUSTICE CHADWICK

LORD JUSTICE WILSON

MR JUSTICE LINDSAY

Between

CHRISTOPHER WHITEHOUSEAppellant

(1) DAVID FREDERICK WILSONRespondents

(2) ANDREW MUNRORespondent

(Transcript of the Handed Down Judgment of

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Mr Nigel Dougherty (instructed by Nicholsons Solicitors of 23 Alexandra Road, Lowestoft, NR32 1PP) for Appellant

Ms Eleanor Temple (instructed by Carrick Read Insolvency of Twelve Park Place, Leeds LS1 2RU) for first Respondent, the liquidator of Vol-Mec Limited

Mr Stephen Davies QC and Mr Jeremy Bamford (instructed by hlwcommerciallawyers LLP of Princess House, 122 Queen Street, Sheffield, S1 2DW) for second respondent

Judgment

Lord Justice Chadwick :

[1]This is an appeal from an order made on 2 December 2005 by His Honour Judge Langan QC, sitting as a Judge of the High Court in the Leeds District Registry of the Chancery Division in proceedings brought in the liquidation of Vol-Mec Limited by the liquidator of that company, Mr David Wilson. The respondents to those proceedings were two shareholders in the company, Mr Andrew Munro and Mr Christopher Whitehouse. Permission to appeal was granted by this Court (Lord Justice Waller and Lord Justice Lloyd) on 13 March 2006.

The underlying facts

[2]Vol-Mec Limited (“the company”) was incorporated in 1981. Until 1984 the shares in the company were owned by Mr Munro and members of his family. The company traded in heavy plant and machinery; in particular, in Volvo earth-moving equipment. Outside investors (Mr Dudley Simms and Mr Whitehouse) subscribed for 50% of the share capital under a subscription agreement dated 5 April 1984. They did so in order to take advantage of the tax incentives available under the Finance Act 1983 in respect of business expansion schemes. In September 1989 Mr Munro acquired the shares held by Mr Simms; and in 1996 (on the break-up of his marriage) he acquired the shares held by his wife. Thereafter the shares were held as to 25% by Mr Whitehouse, as to 73.75% by Mr Munro and as to the remaining 1.25% by the general manager of the company, Mr Corbett. Mr Whitehouse, it seems, took little or no part in the management of the company’s business and affairs. He was not a director of the company.

[3]In or about 1997 Mr Munro indicated to Mr Whitehouse that he would like to buy out the latter’s minority holding. It was in that context that Mr Whitehouse was sent the accounts for past years. He took the view that those accounts disclosed that Mr Munro had breached restrictions in the subscription agreement. His concerns led to distrust; and, by 1999, the relationship between the two substantial shareholders had broken down. By letters dated 15 October and 22 November 1999 Mr Munro made formal offers to purchase the shares held by Mr Whitehouse; but those offers were rejected. The company ceased to trade. Mr Munro caused the company to transfer its business and assets to Vol-Mec (UK) Limited (“Vol-Mec UK”).

[4]In June 2000 Mr Whitehouse sought to appoint himself a director of the company under the terms of the subscription agreement. Mr Munro’s response was to put the company into members’ voluntary liquidation. He made a declaration of solvency (disclosing an estimated surplus for distribution to members of £144,339). A resolution to wind up was passed at a general meeting held on 18 August 2000. Mr Michael Chamberlain, an insolvency practitioner, was appointed liquidator.

[5]On 24 January 2002, on an application made by Mr Chamberlain, an order was made in the Leeds District Registry confirming his appointment as liquidator and sanctioning the appointment of accountants, Messrs Bentley Jennison, to produce a report as to(a) the remuneration and benefits in kind drawn by Mr Munro from the company (including payments to persons connected with him) and whether the same were justified and

(b) whether there had been any diversion by Mr Munro of business opportunities to the detriment of the company and the advantage of other companies in which he was interested.

[6]Bentley Jennison made an interim report on 16 August 2002. Copies were sent to the shareholders (as appears from the liquidator’s letter of 10 October 2002). By 30 April 2003 the accountants had completed their investigation and (as they informed the liquidator) had “identified a number of situations which give rise to possible misfeasance claims . . . and a number of possible contractual claims”. But Bentley Jennison were unwilling to sign off their report until their fees had been paid; and the liquidator was not in funds from which he could make that payment.

[7]Mr Chamberlain invited offers from Mr Munro to settle the claims against him and his companies and from Mr Whitehouse to purchase those claims. But little progress was made in that respect; unsurprisingly, perhaps, in the circumstances that the invitees did not know what claims Bentley Jennison had identified, nor the material upon which those claims were said to be based. Nevertheless, some payments were made to the liquidator by Mr Munro and Vol-Mec UK in respect of monies acknowledged to be due.

[8]In January 2004 counsel, on the instructions of the liquidator, prepared draft points of claim in misfeasance proceedings to be brought against Mr Munro and Quarry & Mining Limited (Q&M) (a company with which he was associated) if the court so directed. The amount of the claim against each respondent was put at £607,921.09. Copies of the draft points of claim were sent by the liquidator’s solicitors to Mr Munro and Mr Whitehouse with a further invitation to submit offers.

[9]On 24 May 2004 Mr Whitehouse lodged a proof of debt in the amount of £415,612. His claim (as appears from the particulars set out in the proof) was, in form, for damages for alleged breach of the 1984 subscriber agreement; but, in substance, the claim was for 25% of the loss which, it was said, had been caused to the company by the acts of Mr Munro.

[10]Both Mr Munro and Mr Whitehouse responded to the further invitation to submit offers. In June 2004 Mr Chamberlain indicated that he was minded to accept Mr Whitehouse’s offer. We were not told the terms of that offer. In November 2004, an application made by Mr Munro to His Honour Judge McGonigal, sitting in Leeds, to restrain Mr Chamberlain from handing over books and records of the company (and books and records of Vol-Mec UK and Q&M) to Mr Whitehouse was successful. Thereafter, for whatever reason, the assignment of the company’s claims to Mr Whitehouse pursuant to the June 2004 offer did not proceed.

[11]On 10 February 2005 Mr Chamberlain reached the conclusion that the company was unable to pay its debts in full and called a creditors’ meeting. On 21 February 2005 the creditors resolved to place the company in creditors’ winding up and appointed Mr Wilson as liquidator.

[12]The new liquidator wrote to Mr Munro and Mr Whitehouse on 28 October 2005. After referring to the earlier invitations to submit offers, to the fact that the proposed assignment to Mr Whitehouse had not been pursued to completion and to the change of liquidator, the letter continued:

“This letter should be taken as formal notice to you that the Liquidator invites you to make an offer for the assignment of all rights title and interest in, but not limited to; a) all debts tangible and any other assets of the company due which are currently unallocated or not yet realised and all rights of action in relation thereto; and b) the rights to recover property or money earned or deriving therefrom and the benefit of any other rights of action which are vested in the company deriving but not limited to: i) the drawing or payment of excess and/or unauthorised remuneration or benefits including any unauthorised pension contributions. ii) The making of any unauthorised or illegal loans or the unauthorised or illegal appropriation of property or money of the Company including any unauthorised personal expenditure of the Company’s directors. iii) The use of Company funds or property for the purchase and/or improvement of property owned otherwise than by the Company to include any land, buildings or shares acquired with funds diverted from the Company. iv) The payment of excessive and/or unauthorised rents for the use and occupation of property by the Company. v) Claims for compensation for improvements under the Landlord and Tenant Act 1927 or for any other claim which the Company may be entitled to make in respect of the vacation of any premises occupied by the Company and/or the surrender of any lease or tenancy of such premises. vi) The diversion of business opportunities, funds or assets from the Company (including sales at an undervalue and/or purchases at overvalue) and/or costs incurred or paid by the Company which should probably have been paid by others. vii) The recovery of any property or assets (including any part of the goodwill) of the Company to include any tangible assets belonging to the Company or in the possession of other companies; and viii) Negligence/misfeasance on the part of the Company’s auditors, accountants or other professional advisers or individuals. Would you please note that any assignment will be strictly on the terms of the attached draft Deed and your offer should therefore take into account the terms of that Deed. No alteration to the terms of the Deed will be agreed and its contents are not negotiable. Offers are invited to be received within 7 days of this letter. The deadline will not be extended. If two competing offers are received it is the intention of the Liquidator to seek directions from the court as to which to accept if a balanced consideration of the offers does not provide confirmation as to which offer should be accepted in the interests of the Company.”

The letters were sent with a draft deed of assignment under which the property to be assigned to whomever might be named in the deed as “The Assignee” was described in the same, or substantially the same, terms as in the letters. i) the drawing or payment of excess and/or unauthorised remuneration or benefits including any unauthorised pension contributions. ii) The making of any unauthorised or illegal loans or the unauthorised or illegal appropriation of property or money of the Company including any unauthorised personal expenditure of the Company’s directors. iii) The use of Company funds or property for the purchase and/or improvement of property owned otherwise than by the Company to include any land, buildings or shares acquired with funds diverted from the Company. iv) The payment of excessive and/or unauthorised rents for the use and occupation of property by the Company. v) Claims for compensation for improvements under the Landlord and Tenant Act 1927 or for any other claim which the Company may be entitled to make in respect of the vacation of any premises occupied by the Company and/or the surrender of any lease or tenancy of such premises. vi) The diversion of business opportunities, funds or assets from the Company (including sales at an undervalue and/or purchases at overvalue) and/or costs incurred or paid by the Company which should probably have been paid by others. vii) The recovery of any property or assets (including any part of the goodwill) of the Company to include any tangible assets belonging to the Company or in the possession of other companies; and viii) Negligence/misfeasance on the part of the Company’s auditors, accountants or other professional advisers or individuals.

[13]On 4 November 2005 the liquidator received an offer letter from solicitors on behalf of Mr Munro. The offer was in these terms:

“. . . Our client is willing to offer the sum of £110,000.00 to take an assignment of the rights, title and interests set out in your letter of 28 October 2005 and in full and final settlement of all claims the Liquidator of the Company may have against Mr Munro, Vol-Mec (UK) Ltd, Quarry & Mining Limited and any other companies in which our client has an interest. The above payment would be paid by one lump sum payment of £110,000.00 within 30 days of completion of the requisite Deed of Assignment.”

That offer was expressed to be open for acceptance until 4.00 pm on 18 November 2005.

[14]On 7 November 2005 Mr Whitehouse sent an e-mail to the liquidator in these terms:

“Further to your invitation to make a proposal for the assignment of debts and rights of action belonging to the Company, I submit my proposed wording for insertion into the draft Deed of Assignment that you have prepared. This constitutes my offer:- (2) Christopher Francis Whitehouse . . . (“The Assignee”) The Assignee agrees to guarantee the settlement of all the outstanding expenses of the liquidation within 3 years of the date of this assignment save for those claimed by Bentley Jennison (excepting those necessary to secure Christopher Makin’s signature on his report) and save for the sum of £19,582.75 (re adverse costs to Munro to be deducted from the fees claimed by Michael Chamberlain) and save that this guarantee does not apply to other sums due to Michael Chamberlain unless he assigns to the Assignee/Liquidator before 3rd February 2006 the benefit of the Deed of Indemnity that he holds between Andrew Munro and Michael Chamberlain dated September 2000. For the Debts and Rights of action to be assigned pursuant to this Agreement.”

That offer was said to be open for acceptance by 17 November 2005. The Assignee agrees to guarantee the settlement of all the outstanding expenses of the liquidation within 3 years of the date of this assignment save for those claimed by Bentley Jennison (excepting those necessary to secure Christopher Makin’s signature on his report) and save for the sum of £19,582.75 (re adverse costs to Munro to be deducted from the fees claimed by Michael Chamberlain) and save that this guarantee does not apply to other sums due to Michael Chamberlain unless he assigns to the Assignee/Liquidator before 3rd February 2006 the benefit of the Deed of Indemnity that he holds between Andrew Munro and Michael Chamberlain dated September 2000.

[15]On the following day, 8 November 2005, the liquidator received a second e-mail, sent by Mr Whitehouse on behalf of CF Whitehouse Ltd, a company registered in the Dominican Republic. That letter referred to a draft deed of assignment; which (as the letter acknowledged) differed in some respects from the draft deed sent with the letters of 28 October 2005. Clause 2 of the new draft deed (“Sums payable by the Assignee”) was in these terms:

“The Assignee agrees to pay to the Liquidator within three years of the date of this Deed of assignment such sums as will enable the Liquidator to pay all outstanding expenses of the liquidation save for the sum of £19,582.75 (which should be deducted from such sums otherwise payable to Michael Chamberlain) and save for any amount in respect of the past work of Bentley Jennison/Christopher Makin beyond that required to procure his signature on his report (the draft of which was produced around 30th April 2003), For the Debts and Rights of Action to be assigned pursuant to this Assignment.”

The final paragraph of the e-mail of 8 November 2005 suggested that “the essential difference between [the CF Whitehouse Ltd] offer and Mr Whitehouse’s offer concerns the fees of Michael Chamberlain”. It said that:

“Mr Whitehouse’s offer seeks not to guarantee the payment of Chamberlain’s fees unless Chamberlain assigns the deed of indemnity that he holds from Munro. Our offer undertakes to provide the funds to pay such fees. (However that is not to say that we would not seek to have them reduced or cancelled by the application of counterclaim and set off or negotiation).”

For the Debts and Rights of Action to be assigned pursuant to this Assignment.”

[16]On 11 November 2005 the liquidator wrote to both Mr Munro and Mr Whitehouse. He acknowledged the two offers which he had received prior to “the deadline of Monday 7 November 2005 at 5.00 pm”. He went on:

“As liquidator, I have reviewed the offers received and have reached a reasoned decision having looked at the merits and substance of each of the offers and given all due consideration to the advantages and disadvantages of the same on those bases. I am minded to accept on a commercial basis the offer received from Mr Munro. However, given the history of each of the parties in this matter and the potential ramifications on the parties and creditors of the liquidation by accepting one offer over the other, it is my intention as liquidator to seek the directions of the Court. . . .”

The statutory framework

[17]Powers exercisable in a creditors’ voluntary winding up are conferred on the liquidator by section 165 of the Insolvency Act 1986. Section 165(2)(b) empowers the liquidator to exercise any of the powers specified in Part I of Schedule 4 to that Act with the sanction of the court – or (which is not material in the present context) with the sanction of the liquidation committee or a meeting of creditors. Section 165(3) empowers the liquidator to exercise, without sanction, either of the powers specified in Part II of Schedule 4 or any of the general powers specified in Part III of that schedule.

[18]The powers in Part I of Schedule 4 (Powers exercisable with sanction) include, at paragraph 3(b), power to compromise, on such terms as may be agreed, “all questions in any way relating to or affecting the assets . . . of the company”. The powers in Part III of the schedule include, at paragraph 6, power “to sell any of the company’s property by public auction or private contract . . .”; and, at paragraph 13, power “to do all such other things as may be necessary for winding up the company’s affairs and distributing its assets”.

[19]Section 112 of the 1986 Act enables a liquidator in a voluntary winding up to apply to the court “to determine any question arising in the winding up of a company, or to exercise . . . all or any of the powers which the court might exercise if the company were being wound up by the court”. It is clear that section 112 (read, if necessary, with section 168(3) of the Act) enables the liquidator in a creditors’ voluntary winding up to seek the directions of the court in relation to the exercise of powers under Part III of Schedule 4; notwithstanding that the liquidator could exercise those powers without obtaining sanction.

The application for directions

[20]In the present case the liquidator sought directions, under section 112 of the 1986 Act, that he “be at liberty to accept the offer of Andrew Munro in the sum of £110,000 for the assignment of the rights and actions of Vol-Mec Limited in accordance with the attached draft Deed of Assignment”. The draft deed was in the form sent with the letters of 28 October 2005. His application was supported by a witness statement made on 14 November 2005. At paragraph 3 of that witness statement he explained that there were no assets in the liquidation which he could use to pursue claims on behalf of the company. At paragraph 7 he referred to the possibility that any potential claim which the company might have against Mr Munro could become statute barred in the near future. At paragraph 8 he expressed his view that the company does have such a claim; but noted that – although the Bentley Jennison report had put the value of that claim at “a sum in the region of, or in excess of, £500,000” – he had to treat it as of uncertain value. He attached to his statement the offers received from Mr Munro and Mr Whitehouse. At paragraph 11 he explained why he took the view that Mr Munro’s offer was in the interests of the company. He set out three reasons:(i) the offer was for an amount (£110,000) which was certain;

(ii) the offer was unconditional and did not seek to fetter the conduct of the liquidator and

(iii) the offer provided for payment within 28 days. At paragraphs 12 and 13 he explained why he did not favour the offer made by Mr Whitehouse. Put shortly: (i) the offer was conditional upon an assignment by Mr Chamberlain of any indemnity which he had been given by Mr Munro, and the liquidator had no power to procure such an assignment; (ii) he did not favour an assignment to a foreign registered company “bearing in mind the indemnities contained within the assignment”; (iii) on the basis of an example provided by Mr Whitehouse, he valued Mr Whitehouse’s offer at £110,571.10, payable over three years; and

(iv) he thought that the fetter which Mr Whitehouse sought to impose on the distribution of the funds paid under the offer – “by stating that the funds must not be utilised for the purposes of paying certain costs” – was inconsistent with the statutory order of distribution under the 1986 Act. At paragraph 14 he said this:

“It is for those reasons that I believe it would be appropriate to accept the offer made by Mr Munro as it is the most commercially realistic offer for the benefit of the Company. Additionally, the offer of Mr Whitehouse imposes conditions which are not acceptable to the Liquidator as they would potentially breach the requirements of the Insolvency Act 1986.”

[21]In reaching the conclusion that he should accept the offer made by Mr Munro, the liquidator was conscious that to do so would effectively stifle the company’s potential claim against him. At paragraph 15 of his witness statement he explained his concerns:

“. . . I am more than aware that to accept the offer of Mr Munro would be to effectively prevent the institution of proceedings against Mr Munro for what may be a substantial claim. The report of Bentley Jennison indicates that the claim may have a value in excess of £500,000. I am unable to validate the extent of the claim or to issue proceedings in reliance upon the report. However, I do appreciate that if the causes of action are assigned to Mr Munro this would prevent Mr Whitehouse from pursuing those causes of action. The additional complication in this matter is that there are no other creditors to whom reference may be made as to whether the offer of Mr Munro should be accepted. It is for this reason that the direction of the court is sought in respect of the offer of Mr Munro.”

[22]The liquidator’s application was opposed by Mr Whitehouse; for the reasons which he set out in a witness statement made on or about 16 November 2005.

The order of 18 November 2005

[23]The application came before Judge Langan on 18 November 2005. In the judgment which he delivered that day, the judge recorded two developments since the application had been made. First, the Bentley Jennison report had been disclosed to both Mr Munro and Mr Whitehouse. It seems that the accountants had been paid their fees: the judge was told by Mr Whitehouse that he had seen the report – which, with appendices, ran to 200 pages or thereabouts – only on the previous evening. Second, Mr Whitehouse had made a further offer in the course of the hearing. That offer was to match Mr Munro’s offer of £110,000; to pay that sum within 14 days; and to hold any surplus arising from the litigation (after reimbursement of the litigation costs and the £110,000) upon trust for the creditors of company until they had been paid in full.

[24]It is, I think, reasonably clear that the judge took the view that the application before him, although expressed to be made under section 112 of the 1986 Act, should be treated as an application for the sanction of a compromise with Mr Munro; that is to say, as an application for sanction under section 165(2)(b) of the Act. That appears from the reference, at paragraph 11 of the judgment which he delivered on 18 November 2005, to the decision of Mr Justice Lightman in In re Edennote Ltd (No 2)

[1997] 2 BCLC 89

– itself an application for sanction. That explains, also, the reference – in his judgment and in the order of 18 November 2005 – to the judge’s readiness to “sanction” the liquidator’s acceptance of “the best cash offer”. Given that the liquidator was not (formally, at least) asking the court to decide which offer he should accept – but, rather, was seeking directions that he be at liberty to accept Mr Munro’s offer – it seems to me that that view was correct. Although it could, perhaps, be said that the form of the proposed transaction was such that Mr Munro would take an assignment of the company’s claims against Vol-Mec UK and Q&M as well as the claims against himself, the transaction plainly contained (at the least) an element of compromise. Indeed, in substance, that it what it was; as the liquidator had recognised in paragraph 15 of his witness statement.

[25]At the hearing of the application on 18 November 2005 the judge took the view that he should adjourn the application for a short time to enable Mr Munro and Mr Whitehouse to reconsider their offers in the light of the Bentley Jennison report; which, as I have said, had only recently been made available to them. The judge explained the basis for that view at paragraph 15 of his judgment:

“The liquidator is right, in my judgment, in deciding to accept an offer in terms of cash payable within a reasonable period. More complex forms of offer are liable to introduce uncertainty and delay, and the decision of the liquidator to reject Mr Whitehouse’s first offer was, in my judgment, entirely correct. That said, it seems to me, for reasons already given, that Mr Whitehouse has not been afforded the opportunity to play on level ground with Mr Munro, and that a short adjournment should be allowed in order that both these gentlemen can reconsider their offers, in conjunction, no doubt, with an analysis by each of the contents of the Bentley Jennison report. On the basis of that consideration each should have a final opportunity to put a cash offer to the liquidator. The time allowed should be relatively brief. It does not seem to me that it should be more than 14 days. I propose to adjourn this application for 14 days, but on the understanding that the court will then sanction the liquidator’s acceptance, if the liquidator wishes then to do so, of the best cash offer from either gentleman which he has received over the course of the adjournment.”

[26]The order which the judge made on 18 November 2005 was, perhaps, rather more prescriptive than (in the light of paragraph 15 of his judgment) he might be thought to have intended. But I am not persuaded that anything turns on that. The order was in these terms, so far as material:

“1 The application be adjourned to Friday, 2 December 2005 at 10.30 a.m., on the understanding that the court will then sanction the Applicant’s acceptance of the best cash offer (such cash to be payable to the Applicant within 30 days of acceptance of the offer) in respect of the causes of action referred to in the Applicant’s letter dated 28 October 2005. 2 Each Respondent shall have the opportunity to make a further cash offer to the Applicant by 4 pm on Wednesday, 30 November 2005. . . . ”

There is no appeal from that order.

The further offers

[27]Mr Munro made a further offer, through his solicitors, at 3.00 pm on 30 November 2005. The offer was in the same terms as that made on 4 November 2005, save that the offer price – the “cash offer” for the purposes of the order of 18 November 2005 - was increased to £160,000, payable within 7 days of acceptance

[28]Mr Whitehouse made two offers on behalf of CF Whitehouse Ltd. Each is contained in e-mails dated 30 November 2005; the first timed at 14.23, the second at 15.45. The two e-mails are in the same terms, save for paragraph 4. In the first offer that clause reads:

“4. The Liquidator is not to pay expense claims to the extent that there exists a valid defence or right of counterclaim and set off, without the assignee’s approval.”

In the second offer that clause had become:

“4. The Liquidator will advise the amount of each expense claim when known.”

It is, I think, common ground that the change was made following a telephone call by the liquidator (or a member of his staff) to Mr Whitehouse after receipt of the first e-mail. Paragraphs 5 and 6 (in both offers) were as follows: “5. SUMS PAYABLE BY THE ASSIGNEE. The Assignee [CF Whitehouse Limited] agrees to pay to the Liquidator, for the Debts and Rights of Action to be assigned pursuant to this Assignment, £110,000 within 28 days of the date of this Deed of assignment plus such additional sums (‘the additional sums’) if any as will enable the Liquidator to pay all outstanding expenses of the liquidation (insofar as they are legally enforceable and after taking any defence or setting off any counterclaim which may be available to the Liquidator) including interest at the statutory rate for judgments, from a date 30 days after the Liquidator’s receipt of invoices for same, the additional sums if any to be paid out at the time of the recovery mention (sic) at 6(b) below but in any case no later than 3 years from the date hereof; provided that the total payable under this clause shall not exceed £200,000 (i.e. the additional sums shall not exceed £90,000). 6. The assignee shall ensure that such claims for debts and rights of action as his/its legal advisers consider prudent to pursue are so pursued and to the extent that any recovery is made in respect of such debts and rights they will be held on trust and will be applied in the following

[29]On 1 December 2005 the liquidator’s solicitors wrote to the solicitors for Mr Munro and Mr Whitehouse to say that the liquidator had decided that Mr Munro’s offer should be accepted. The letter explained:

“The reasons for accepting this offer are as follows: 1 The offer is certain. From the point of view of the Liquidator this is important bearing in mind the previous difficulties with the liquidation. To ensure fairness between the parties the Liquidator contacted Mr Whitehouse to clarify the nature of the offer made by him and specifically paragraph 5 and the reference to the payment of the expenses of the liquidation. It was apparent from the conversation and also from the contents of the Skeleton Argument provided by Mr Whitehouse for tomorrow that what is intended is that such expenses of the liquidation will be paid as are in the opinion of Mr Whitehouse and /or his solicitors further to meetings with the liquidator properly payable. The discretion as to whether further payments are made to the Liquidator over and above the initial offer of £110,000 is therefore entirely Mr Whitehouse’s. There is no guarantee in these circumstances of any further payment being made by Mr Whitehouse. By contrast, the whole offer of Mr Munro is certain and not subject to any conditions or in any way subject to a discretion vested in Mr Munro not to make payment. 2 The offer of Mr Munro is to make payment within a fixed period of time acceptable to the Liquidator. The offer of Mr Whitehouse above the initial payment of £110,000 is subject to a deferred period of up to three years with no security. 3 The additional offer of Mr Whitehouse to make payment to creditors of the Company is entirely dependent upon the success of the litigation which would arise from the assignment of the proceedings. In any event, the only beneficiary of such an offer would be Mr Whitehouse himself. 4 It cannot be concluded that the offer as made by Mr Munro is insubstantial and in acknowledging that the effect of acceptance of this offer would effectively prevent a claim the extent of the offer has accordingly been taken into account. In the circumstances the only commercial basis upon which the Liquidator believes he should consider the offers is to compare the certain offer made by each party which in the circumstances is an offer by Mr Munro to pay £160,000 payable within seven days of acceptance of the offer against the offer of Mr Whitehouse to pay £110,000 within 28 days of the completion of the deed of assignment. Even on the basis that VAT must be included in the offer from Mr Munro the extent of the certain offer is in excess of that made by Mr Whitehouse. We would therefore confirm that it is the liquidator’s intention to attend before the Court tomorrow to advise the court that he would wish to accept the offer of Mr Munro.”

The order of 2 December 2005

[30]When the application came back to the judge on 2 December 2005 - as he had directed – he had the benefit of a witness statement made by Mr Munro on 29 November 2005, a witness statement made by Mr Whitehouse on 30 November 2005 and skeleton arguments. And he had the offer letters of 30 November 2005 and the liquidator’s response of 1 December 2005.

[31]It is, I think, pertinent to set out the judge’s understanding of the offer made by Mr Whitehouse on behalf of his Dominican company. At paragraph 3 of his judgment he set out the terms of paragraph 5 of the offer letters, omitting some words which (as he said) were unnecessary for an understanding of the thrust of that offer. At paragraph 4 he said this:

“The reference to paragraph 6(b) is to the application of the amounts recovered for the benefit of the post liquidation creditors to the extent that they have not already been paid. Paragraph 6 sets out in detail the provisions which would apply to amounts recovered from Mr Munro. They would go first for repaying the costs of the assignee in connection with such recovery, i.e its litigation costs; secondly, for the benefit of the expense creditors in the liquidation; thirdly, for the repayment of the assignee’s costs under the assignment itself; fourthly, for the payment of the creditors of the company; fifthly, at the discretion of the assignee. The only or major creditor of the company, according to Mr Whitehouse, is Mr Whitehouse himself – that I understand is something which Mr Munro disputes. Mr Munro on the other hand would say that he is a creditor, something which Mr Whitehouse disputes.”

The judge then referred to the liquidator’s letter of 1 December 2005, to part of the headnote to the BCLC report of Edennote (No 2) and to observations made by Mr Justice Lightman towards the end of his judgment in that case (ibid, 95a):

“The question is the commercial best interests of the company, reflected prima facie, by the commercial judgment of the liquidator, a judgment in my view which, in the circumstances and in the light of the evidence in this case, ought to be given full weight.”

The judge observed that it appeared from the decision in Edennote (No 2) that those who sought to persuade a court to reject the view of the liquidator “have something of an uphill task”. He then went on to explain why he took the view that Mr Whitehouse had failed in that task.

[32]At paragraphs 8 to 10 of his judgment, he said this:

“8. Consideration of the matter, it seems to me, falls into two main parts. The first question has to do with the merits of the two offers looked at in terms of what the company will get out of what each of Mr Munro and Mr Whitehouse is laying on the table. It is said on behalf of Mr Whitehouse, and I do take this into account, that because the assignment which he proposes would be to a foreign registered company which is not subject to VAT, that there would be greater maximisation of payments from the funds received proportionately than under Mr Munro’s offer. As he puts it, the first £110,000 is sufficient to pay £129,250 of VAT inclusive invoices, therefore the contrast between £110,000 and £160,000 is not as stark as might appear from his statement of those unadjusted figures. 9. That said, the Liquidator puts forward various reasons for accepting Mr Munro’s offer. The first is to do with certainty. The sum of £160,000 would be received at latest within seven days of acceptance of the offer. The offer of Mr Whitehouse, apart from the initial payment of £110,000, provides for an additional sum which may become payable within a timescale which may extend as far as three years. I say ‘may become payable’ because the offer to pay outstanding expenses of the liquidation is, as I read the offer, heavily qualified. It is to pay those expenses ‘insofar as they are legally enforceable and after taking any defence or setting off any counterclaim which may be available to the Liquidator’. That appears to me to import into this offer a desire on the part of Mr Whitehouse to have considerable input into decisions of the Liquidator as to what expense creditors are in fact paid. That desire has been manifested, as has been shown in the course of submissions this morning, in written material already placed before the Court by Mr Whitehouse and it appears – I say no more than ‘appears’ because what I say rests on the letter of 1st December – to have been manifested also in conversations between the Liquidator and Mr Whitehouse after the receipt of his latest offer. It is, in my judgment, wholly undesirable and a recipe for future argument and the running up of further litigation costs, that an offer should contain a provision of this kind. 10. It seems to me that the liquidator’s view as to the certainty and finality of the higher offer made by Mr Munro is one which is really unanswerable.”

[33]It is, if I may say so, reasonably clear that the judge’s observation that the desire of Mr Whitehouse to have considerable input into decisions of the Liquidator as to what expense creditors are in fact paid had been made manifest “in conversations between the Liquidator and Mr Whitehouse after the receipt of his latest offer” [emphasis added] is based on a misunderstanding of the factual position. The judge may not have appreciated that Mr Whitehouse had sent two offer letters by e-mail on 30 November 2005; and that the conversation to which the liquidator’s solicitors referred in their letter of 1 December 2005 took place between the receipt of the first and the second of those e-mails. But nothing turns on that point. The judge does not base his observation on the terms of paragraph 4 of the first offer letter – where it is said, in terms, that the liquidator is not to pay expense claims without the assignee’s approval. And there was ample material in Mr Whitehouse’s witness statement of 30 November 2005 and in the skeleton arguments prepared on his behalf, to support the conclusion that Mr Whitehouse did intend to have considerable input (if he could) into the question what liquidation expense creditors were paid. He had strong views as to the conduct of Mr Chamberlain and as to the ultimate cost of the Bentley Jennison report.

[34]It may also be said that the judge was too ready to accept what was said on behalf of Mr Whitehouse in relation to Value Added Tax. The true comparison between the two cash offers, as it seems to me, was this:(i) on the basis that the liquidator (or the company) would have to account for output tax on the £160,000 to be paid by Mr Munro, the value of that payment (net of VAT) was £136,170;

(ii) it is that figure which must be compared with the value of the CF Whitehouse Ltd offer;

(iii) if the assignment to the Dominican company would not have been chargeable to VAT (because it fell to be treated as a supply not made in the United Kingdom) the value of the CF Whitehouse Ltd offer was, indeed, £110,000;

(iv) if (as seems to me more likely) the assignment to the Dominican company would have been treated as a supply made within the United Kingdom – and so chargeable to VAT – the relevant comparator was £93,617 (being the value of £110,000 net of VAT). In that context I note that we were told by counsel for the liquidator that the liquidator’s view was that he (or the company) would have been accountable for VAT on the payment by the Dominican company. As I have said, I can understand why he takes that view. Be that as it may, although (on the basis most favourable to Mr Whitehouse) the relevant proportion would be the same (123.79%), in absolute terms the difference between the net value of the two offers would not have been £30,750 (as the judge may have been led to think) but the rather lesser amount of £26,170. But it is clear that the judge would not have regarded that as a material matter affecting his reasoning.

[35]At paragraphs 13 to 15 of his judgment the judge considered the second question which he had identified: whether the fact that a compromise with Mr Munro (against whom, on the hypothesis he was required to adopt, there was a claim for misfeasance while a director of the company) would, in effect, enable him “to buy his way out of further scrutiny” was a matter which, in the public interest, should lead the court to refuse to sanction the compromise. On that question

the judge said this:

“13. . . . The mere fact that a compromise stifles a claim against a director is not by itself a reason why a liquidator should not recommend such a compromise for approval by the Court, [nor] a reason why the Court should not approve the proposed compromise. That emerges from Edennote (No 2). The fact that a claim will be stifled is, however, a consideration which the Court should take into account. That emerges from the case of Faryab and Smith [Faryab v Smith [2001] BPIR 246], which was referred to in argument. 14 . But two matters, it seems to me, arise from the judgment of the Court of Appeal in Faryab and Smith which detract from the weight which it is sought to place on the decision on behalf of Mr Whitehouse. The first is . . . that not much weight was attached by Lord Justice Robert Walker in the leading judgment to the public interest element in the case. The other point is that what was being proposed in that case was the buying off of a claim at a sum which was derisory or almost derisory in relation to the amount of the claim. 15. It is going to be difficult in the present case to determine what economic value should at the end of the day be placed on the company’s potential claim against [Mr Munro]. There is, says [counsel] on behalf of Mr Whitehouse, a solid bedrock of some £370,000 claim arising from an accountant’s report, which is before the Court, and it may be considerably more. Well, that may be so, one does not know, but buying off the claim for £160,000 is not on any view of the matter buying it off for a derisory sum. In my judgment, in the particular circumstances of this case, the public interest argument does not really carry Mr Whitehouse any distance at all.”

[36]The order made by the judge on 2 December 2005 reflects his view – to which I have referred earlier in this judgment - that the application before him was for sanction, under section 165(2)(b) of the 1986 Act, of the liquidator’s decision to exercise the power to compromise conferred by paragraph 3 of Schedule 4 to the Act. The order is in these terms (so far as material):

“1. The decision of the Applicant to accept the offer of Andrew Munro in the amount of £160,000 payable within 7 days of acceptance for an assignment of the rights and actions of Vol-Mec Limited in accordance with the attached Deed of Assignment be sanctioned by the Court.”

It is from that order that Mr Whitehouse appeals. It is, perhaps, pertinent to note that CF Whitehouse Ltd was not a party to the application before the judge; and is not a party to this appeal. On a proper analysis, Mr Whitehouse’s interest in the appeal – whatever it may have been on the application when it was first before the judge on 18 November 2005 – is not as “under-bidder”. His interest in the appeal is as a person claiming to be a creditor of the company.

The grounds of appeal

[37]The grounds advanced in the amended appellant’s notice filed on 16 January 2006 may be summarised as follows:(i) the judge did not give sufficient weight to the public interest that claims against a misfeasant director should not be stifled;

(ii) the judge gave insufficient weight to the strength of the company’s claims against Mr Munro, which led him to hold, wrongly, that Mr Munro was not buying off those claims for a derisory sum;

(iii) the judge failed to give sufficient weight to the fact that, even in terms of the immediate cash payment, the offers made by Mr Munro and CF Whitehouse Ltd were not very far apart when the VAT advantage of the CF Whitehouse Ltd offer was taken into account;

(iv) the judge gave too much weight to what he regarded as qualifications to the CF Whitehouse Ltd offer with respect to the payment of liquidation expenses; and

(v) the judge failed to give sufficient weight to the views of creditors, namely Mr Whitehouse. These grounds were developed in counsel’s skeleton argument and in his oral submissions on the appeal.

[38]Although set out under five heads in the grounds of appeal, there are, as it seems to me, two principal issues for consideration in this Court. First, was the compromise with Mr Munro for which the liquidator sought sanction in the best commercial interests of the company. In that context the underlying question is whether the terms offered by Mr Munro were more advantageous than those offered by CF Whitehouse Ltd – there being no other offer in prospect. That, of course, is a question on which both the liquidator and Mr Whitehouse (in his capacity as a person claiming to be a creditor) have expressed views. So, in addressing that question, it is necessary to ask what weight should be given to their views. Second, if the Court would otherwise conclude that the compromise with Mr Munro was in the best commercial interests of the company, should it, nevertheless, hold that the public interest in the pursuit of claims against an allegedly misfeasant director precluded sanction of that compromise. Grounds (iii), (iv) and (v) come in under the first issue; grounds (i) and (ii) come in under the second issue.

[39]I should add that it is not suggested on behalf of the appellant that the judge was wrong to give weight to the views of the liquidator. In my view, counsel was right to accept that this was a case which fell within the approach adopted by Mr Justice Lightman in Edennote (No 2) in the passage to which the judge had referred. The application under section 112 of the 1986 Act had not asked the judge to direct the liquidator whether he should accept one offer rather than the other. As I have said, the liquidator was, in effect, seeking sanction of the decision which he had, himself, made – to compromise with Mr Munro. In deciding whether to sanction that compromise it was, of course, necessary for the judge to consider what other option or options was or were open to the liquidator; and to ask himself whether the liquidator had properly evaluated those alternatives. In the present case the only other option open to the liquidator (other than doing nothing) was to accept the offers made by Mr Whitehouse or CF Whitehouse Ltd. The liquidator had explained, at the hearing on 18 November 2005, why he had decided to accept Mr Munro’s offer of 4 November 2005; notwithstanding the offers made by Mr Whitehouse (on 7 November 2005) and CF Whitehouse Ltd (on 8 November 2005). But for the fact that he thought that Mr Whitehouse (and his Dominican company) had not had the opportunity to offer “on a level playing field” – because Mr Whitehouse had not had sufficient time to study the Bentley Jennison report – the judge would have sanctioned that decision: as he said at paragraph 15 of the judgment which he delivered on that day –“the decision of the liquidator to reject Mr Whitehouse’s first offer was, in my judgment, entirely correct”. The judge decided, on 18 November 2005, that he would sanction “the liquidator’s acceptance, if the liquidator then wishes to do so, of the best cash offer . . . received over the course of the adjournment” (ibid). His order of 18 November 2005, directing an adjournment of 14 days, was expressed to be made “on the understanding that the court will then sanction the Applicant’s acceptance of the best cash offer (such cash to be payable to the Applicant within 30 days of acceptance of the offer) . . .”. As I have said, there is no appeal from that order.

The first issue: the commercial interests of the company

[40]The company is in an insolvent winding up. The interests of the company are the interests of its creditors. But the creditors fall into (at least) two distinct groups: post-liquidation expense creditors and pre-liquidation creditors. There may be sub-groups, in that some post liquidation creditors may rank for payment ahead of others and, if there were preferential creditors in the liquidation (which, as far as I am aware, there are not) they would rank ahead of the general liquidation creditors.

[41]The liquidator’s evidence as to the financial position of the company and the amount of the unpaid expense creditors appears at paragraphs 3 and 4 of his witness statement of 14 November 2005. In summary: (i) Mr Chamberlain realised assets in the amount of £124,023, from which he paid liquidation costs of £87,790, leaving £36,233 in hand. Outstanding liquidation costs at November 2005 amounted to £215,550: of which the major components were £68,125 said to be due to Chamberlain & Co in respect of unbilled work in progress, £51,735 was claimed by Bentley Jennison in respect of work done on their report and £83,040 due to the liquidator’s solicitors in respect of their fees and disbursements (including counsel’s fees). It is reasonable to expect that, since November 2005, further legal fees would have been incurred – some of which, depending on the outcome of this appeal – might be recoverable under costs orders; and that the liquidator himself would have substantial unbilled fees. For my part, after taking account of the monies in hand as at November 2005, I would regard it as unreal to expect that the further funds needed to pay post-liquidation expense creditors could have been less than £250,000; but I am content to take the figure at the £200,000 for which the CF Whitehouse Ltd offer makes provision (at paragraph 5).

[42]On that basis the whole of the cash offer made by Mr Munro will be applied in paying the liquidator’s fees and post-liquidation expenses. That offer does not serve the interests of the general creditors at all. The first question, therefore, is whether it serves the interests of the post-liquidation creditors better than the CF Whitehouse Ltd offer. Plainly an immediate cash payment of £160,000 is better than an immediate cash payment of £110,000, whatever the VAT treatment.

[43]It might well be said that – given the task which he had set himself on 18 November 2005 – there was only one order which the judge could have made on 2 December 2005. He had to ask himself whether the liquidator’s decision to accept Mr Munro’s offer of 30 November 2005 was a decision to accept “the best cash offer (such cash to be payable to the Applicant within 30 days of acceptance of the offer)”. If the answer to that question was in the affirmative (as to which there could be no dispute), the order which the judge had made on 18 November 2005 required him to sanction that decision.

[44]But, if the judge was entitled to go behind the order of 18 November 2005 (which, so long as that order remained unvaried and unappealed, I doubt) he had to ask himself whether the worth to be attributed to the deferred element of the CF Whitehouse Ltd offer should lead to the conclusion that the CF Whitehouse Ltd offer, including the deferred element, served the interests of the post-liquidation creditors better than Mr Munro’s offer.

[45]I do not find it easy to understand the effect of the terms in paragraph 5 and 6(b) of the CF Whitehouse Ltd offer. At first, I was inclined to the view that “the additional sums” referred to in paragraph 5 would be forthcoming (up to a maximum of £90,000) in any event; that is to say, whether or not any recoveries were made by the assignee. That seemed consistent with the provision that those additional sums would be paid “in any case no later than 3 years from the date hereof”. But that view sits uneasily with the provision that “the additional sums if any to be paid out at the time of the recovery mention (sic) at 6(b) below”. It is plain that nothing will be paid under paragraph 6(b) unless the assignee does make recoveries. And what meaning is to be given to the qualification, in paragraph 6(b) itself, “to the extent that they have not been paid already as aforesaid”. Does that refer to payment out of the £110,000; or out of the £110,000 plus the additional sums; and, if the latter, how does that fit with the provision in paragraph 5 that the additional sums are to be paid at the time of the recovery mentioned at 6(b) below?

[46]The judge – as I read paragraph 9 of his judgment – took the view that “the additional sums” referred to in paragraph 5 would be forthcoming (up to a maximum of £90,000) in any event; that is to say, whether or not any recoveries were made by the assignee. His concern – when he said that the offer to pay outstanding expenses of the liquidation was heavily qualified – was that Mr Whitehouse would seek to dictate to the liquidator which expense creditors were paid and which were rejected. The judge thought it “wholly undesirable and a recipe for future argument and the running up of further litigation costs” that an offer should contain a provision of that kind. I agree. The potential for argument as to which expense creditors should actually be paid adds to the potential for argument as to whether the additional sums become payable notwithstanding the failure to make any recoveries from Mr Munro. It would, of course, be possible to decide the latter point, as a matter of construction, at this stage; but CF Whitehouse Ltd is not before the Court and the Court cannot be confident that CF Whitehouse Ltd would be bound by whatever decision it might reach. The history of this litigation suggests that, if there is point to be taken, it is sensible to assume that one or other of the parties will seek to take it.

[47]Putting the matter at its highest, the deferred element in the CF Whitehouse Ltd offer was an offer by a company registered in the Dominican Republic, without assets (so far as was known) in the United Kingdom, to pay an amount towards outstanding liquidation expenses (subject to potential dispute as to which expenses) on terms that £90,000 of that amount (subject to potential dispute as to the meaning of the offer letter) might be forthcoming at the end of three years and the balance (if any ) would only become payable out of recoveries made against Mr Munro (and then only after litigation costs incurred in pursuing Mr Munro). It was said that Mr Whitehouse would guarantee the obligation of CF Whitehouse Ltd to make that payment; but there was no offer (so far as I am aware) to secure that guarantee on assets and there was no material upon which a view could be taken as to the worth of Mr Whitehouse’s unsecured guarantee.

[48]In my view the judge was correct to hold that the liquidator’s view that, in relation to the interests of the post-liquidation expense creditors, Mr Munro’s offer was to be preferred on grounds of certainty and finality could not be challenged. Further, in so far as the judge (exercising his own judgment) took the same view, he was plainly correct. On the material available to him it was impossible to reach the conclusion that, looking at the position through the eyes of post–liquidation expense creditors who were at risk of not being paid in full, the deferred element of the CF Whitehouse Ltd offer was worth more than the difference between the immediate cash offer made by Mr Munro (£160,000) and the immediate cash element of the CF Whitehouse Ltd offer (£110,000) even if – which the liquidator does not accept – the company would not be liable to account for VAT on the latter sum.

[49]The second question for the judge – if he were entitled to go behind his order of 18 November 2005 - was whether the fact that the CF Whitehouse Ltd offer might serve the interests of the pre-liquidation creditors (which, as I have said, Mr Munro’s offer plainly does not) should lead to the conclusion that that offer must be accepted, notwithstanding that that would be to the detriment of the interests of post-liquidation expense creditors (which, as I have said, it plainly would be). In addressing that question it is necessary to have in mind that the CF Whitehouse Ltd offer would produce no benefit for pre-liquidation creditors unless and until the litigation costs of pursuing Mr Munro had been met and the post-liquidation expense creditors had been paid in full. In practice that would require that there be recovered from Mr Munro (after he had paid his own litigation costs) at least £200,000 – and, probably, a substantially greater sum if the future costs and expenses of the liquidator were to be met – and the litigation costs of CF Whitehouse Ltd. There can be little doubt, given the history of this litigation, that proceedings against Mr Munro would be defended; and that those proceedings would be lengthy, complex and expensive. There was no material on which the liquidator or the judge could reach the conclusion that, whatever the strength of the claim against Mr Munro, a judgment could be enforced in an amount sufficient to meet that requirement.

[50]It may be said that Mr Whitehouse is the only pre-liquidation creditor – although that is not common ground - and that he (or CF Whitehouse Ltd) is prepared to take the risk that pursuit of Mr Munro will produce no benefit for him. There would be force in that point if the effect of the CF Whitehouse Ltd offer was that the whole risk were borne by that company. But, as I have explained, that is not the effect of that offer. The effect of that offer is that (ignoring the supposed VAT advantage and the value, if any, of the deferred element) the first £50,000 of that risk is borne by the post-liquidation expense creditors. It is, I think, right to ignore the VAT advantage in that context, because the liquidator (on grounds which seem to me likely to be correct) does not accept that there is any such advantage; and right to ignore the value (if any) of the deferred element because, if that element is to have real value, the liquidator will need to incur costs in order to address Mr Whitehouse’s desire to dictate which expense creditors should be paid. In my view the judge was correct to take the view (in so far as he addressed the point) that CF Whitehouse Ltd (or Mr Whitehouse) should not be enabled to pursue Mr Munro for the benefit of Mr Whitehouse as a pre-liquidation creditor at the expense and risk of the post-liquidation creditors.

The second issue: does the public interest preclude sanction of the compromise

[51]The judge came to the conclusion that “in the particular circumstances of this case, the public interest does not really carry Mr Whitehouse any distance at all.” In my view the judge was plainly correct to take that view. Indeed, it may be said that it was not open to him to take a contrary view on 2 December 2005; having regard to the decision which he had already made on 18 November 2005. The point had been squarely raised by the liquidator at paragraph 15 of his witness statement of 14 November 2005. If the judge were going to hold that the public interest precluded the acceptance of a compromise with Mr Munro, there was no purpose in having an adjournment to enable the liquidator to decide between two further cash offers.

[52]The importance of the investigation and of the imposition of criminal or civil sanctions in respect of misconduct on the part of persons who may be shown to have abused the privilege of incorporation with limited liability is not in doubt; it was emphasised by Lord Walker of Gestingthorpe in In re Pantmaenog Timber Co Ltd

[2003] UKHL 49

, [77],

[2004] 1 AC 158

, 180G. But it is, I think, pertinent to keep in mind that Parliament has made provision for circumstances which lead a liquidator in the course of voluntary winding up to suspect that a director’s conduct in relation to the company may give rise to criminal liability – including, in particular, criminal liability within sections 206 to 211 of the Insolvency Act 1986 - to be brought to the attention of the Secretary of State: section 218(4) of the Insolvency Act 1986. And, further, section 7(3)(b) of the Company Directors Disqualification Act 1986 requires that, if it appears to the liquidator of a company in creditors’ voluntary winding up that a director’s conduct in relation to that company (taken alone or taken together with his conduct as director of any other company or companies) has been such as to make him unfit to be concerned with the management of a company, the liquidator must report the matter to the Secretary of State.

[53]The relevant question, as it seems to me, is whether the public interest in the imposition of civil sanctions – in this context, the recovery for the benefit of the company’s pre-liquidation creditors of funds or commercial opportunities said to have been misappropriated or misdirected by the actions of a director – should lead to the conclusion that litigation to achieve that end should be pursued at the expense and risk of the post-liquidation creditors whose interests would be best served by a compromise with the alleged wrongdoer.

[54]We were reminded that Lord Justice Robert Walker (as he then was), sitting in this Court in Faryab v Smith

[2001] BPIR 246

, had observed that there was a public interest in pursuit of meritorious claims in a bankruptcy and that it was important that “bankruptcy should not be too readily available as a means of stifling claims which may have substance”. In that case the applicant, a bankrupt, sought an order that his trustee in bankruptcy assign to him a cause of action in pending proceedings against a firm of solicitors on terms that he would account for the entirety of any net proceeds for the benefit of his creditors. Estimates as to the value of the cause of action ranged between £2m and £5m. There were no other assets in the bankrupt’s estate. The solicitors had offered to pay £10,000 (subsequently increased to £17,000) for an assignment of the cause of action. A large majority of creditors approved a resolution that the cause of action be assigned to the solicitors. Mr Justice Neuberger as he then was refused the bankrupt’s application. His decision was reversed in this Court. Lord Justice Robert Walker said this, (ibid, [44]):

“[44] . . . I have come to the conclusion that the [trustee’s] decision in this case was flawed. He was mistaken as to the statutory power which he was exercising. It seems to me that, in a case of this sort involving the evaluation of a complex claim, he badly needed independent legal advice and, through no fault of his own, he was unable to obtain it. His own evaluation of the merits of the claim was, in my view, inadequate. [The trustee] was understandably concerned about his own costs, but failed to see that an assignment to Mr Faryab was the best way of ensuring that what is potentially a valuable claim was not stifled by the payment of a relatively very small sum. [Counsel for the solicitors] says, in reliance on the recent written statement of [the trustee], that there is the possibility of more assets of Mr Faryab coming to light. Nevertheless, whether the receipt of £17,000 into the estate would produce any significant benefit for the creditors seems to me very debatable indeed.”

[55]Although Lord Justice Robert Walker had referred to the public interest in pursuit of meritorious claims in bankruptcy (ibid, [40]), he had observed that he did not attach much weight to that factor. It is clear that his decision was founded on his view that the trustee in bankruptcy had failed adequately to evaluate the cause of action which he had decided to assign to the solicitors; and had failed to weigh the advantages, to the creditors, in having that claim pursued by Mr Faryab – “an experienced and skilled litigant in person who could be expected to prosecute the cause of action if it is re-assigned to him with skill as well as vigour and determination” (ibid, [38]) – against the absence of any benefit from the receipt of £17,000. No doubt he had in mind that the effective defendant to the proceedings would be the solicitors’ indemnity fund; so that there was no question but that recovery would be made under any judgment obtained against the solicitors.Lord Justice Judge (the other member of the Court) took a similar view. He said this (ibid, [49]:

“The significant feature is to look at this from the point of view of the creditors. So far as they are concerned, it is difficult to see any advantage at all [in the assignment to the solicitors]. At best there is virtually no advantage which could inure to them from the present assignment. Possibly there may be some limited protection from liability to the trustee for the costs incurred by him to date – something in the region of £17,000. As against that, the creditors will certainly be deprived of any possibility of adding to the funds available for distribution to them from the cause of action. . . .”

On a proper understanding of the judgments in Faryab v Smith it is plain, if I may say so, that the decision did not turn on a perception that the public interestrequired meritorious claims to be pursued at the expense of the creditors; the decision turned on the Court’s view that the trustee in bankruptcy, in that case, had failed properly to identify where the best interests of the creditors lay.

[56]That is not this case. For the reasons which I have sought to explain, the liquidator and the judge were correct in their assessment of where the best interests of the post-liquidation creditors lay. Mr Whitehouse – whose wholly proper concern was to promote his own interest as the sole pre-liquidation creditor (other than, perhaps, Mr Munro) – needed to persuade the liquidator and the judge that he could do that without putting the interests of the post-liquidation creditors at risk. The obvious way to do that was to ensure that his immediate cash offer was of no less value to the post-liquidation creditors than the offer made by Mr Munro; or (in the alternative) that his immediate cash offer was sufficient to satisfy the post-liquidation creditors. The judge’s order of 18 November 2005 gave him the opportunity to out-bid Mr Munro; or to make an immediate cash offer which would meet the post-liquidation expenses. He did not take that opportunity. I can see no public interest reason why he should now be able to disturb the decision reached by the liquidator in accordance with the order of 18 November 2005.

Conclusion

[57]For those reasons I would dismiss this appeal.

Lord Justice Wilson:

[58]Apart from in the two areas in which their reasons for dismissal slightly diverge, I can and do agree both with the preceding judgment of Chadwick L.J. and with the following judgment of Lindsay J.

[59]As to the first of such areas, I consider paragraph 5 of Mr Whitehouse’s two corporate offers dated 30 November 2005 to be so opaque that it is impossible to discern whether its effect is to make the offer of further payments of up to £90,000 in respect of liquidation expenses either(a) irrespective of, or

(b) conditional upon, an equal or any recovery against Mr Munro and his companies. So, while I acknowledge that Lindsay J. – and indeed the trial judge – may be correct in favouring construction (a), I prefer to associate myself with the agnosticism expressed by Chadwick L.J. in [45] above. Even though, in describing the further payments of up to £90,000 as being entirely in the discretion of Mr Whitehouse, the liquidator, by the letter of his solicitors dated 1 December 2005, seems, apparently by reference to extraneous material, to have construed the paragraph beyond its two possible meanings, its objective opacity substantially detracted from its reasonable acceptability.

[60]As to the second of such areas, namely the superficiality suggested by Lindsay J. in the evaluation by the liquidator and the trial judge of the public interest element in the acceptability of one offer rather than the other, I disagree with none of what Lindsay J. will say but wish actively to associate myself with his criticisms of the trial judge (who seems to have received little assistance in this respect) rather than with those of the liquidator. It seems to me that in that, as Chadwick L.J. has explained in [24] above, the application was in effect for sanction under s. 165(2)(b) of the Act of 1986 of the liquidator’s proposed exercise of his power to compromise the company’s claims, the public interest in the proper pursuit of anyone who appears to have defrauded it should have received a more profound judicial evaluation than it received before sanction was granted. I am however clearly of the view that no more profound evaluation of it should – in this case – have led the judge to withhold his sanction. For reasons best known only to himself, Mr Whitehouse had hedged even his final corporate offer around with conditions, caveats and obscurities, which served only to invest Mr Munro’s final offer with an overriding commercial attractiveness. Mr Justice Lindsay :

[61]I gratefully adopt the full account of the facts and of the procedural history that has been set out above by Chadwick LJ.

[62]I have been troubled by two matters but, as will be seen, I arrive at the same conclusion as Chadwick and Wilson LJJ.

[63]Firstly, I am far from sure that the liquidator accurately understood what I will call the Whitehouse offers, those of the 30th November 2005 (see para 28 above). The earlier offer, timed at 14.23, contained a clause 4 which required the liquidator, whenever he had a valid defence or right of counterclaim or set-off against an expense creditor, not to pay that creditor without the assignee’s approval. I cannot see how, consistent with the duties cast upon him by the statutory scheme provided for insolvent liquidations, any liquidator could accede to such a provision. But then the second offer, timed at 15.45, had a clause 4 which deleted that unacceptable provision and instead provided only that the liquidator would advise (the assignee) of the amount of each expense claim when it became known, a provision that might be irksome for the liquidator but was not necessarily unacceptable. It was that second formulation, of 15.45, that had to be considered by the liquidator and, after him, by the Judge.

[64]Giving the liquidator’s reasons for preferring the Munro offer, the liquidator’s solicitors’ letter (see para 29 above) stated that under the Whitehouse offer such:

“… expenses of the liquidation will be paid as are in the opinion of Mr Whitehouse and/or his solicitors further to meetings with the liquidator properly payable. The discretion as to whether further payments are made to the liquidator over and above the initial offer of £110,000 is therefore entirely Mr Whitehouse’s. There is no guarantee in these circumstances of any further payment being made by Mr Whitehouse.”

[65]That, though, is not, upon my reading of it, an understanding that can be derived from the Whitehouse offer. Clause 5 of that (see para 28 above) provides that above the £110,000 to be paid within 28 days of the proposed deed there would be paid “additional sums”. The timing of their payment, I would accept, was potentially dependent upon the assignee making recoveries (presumably by way of successful pursuit of the choses in action assigned to it) over the forthcoming 3 years. That is so because the additional sums were to be paid “at the time of the recovery” but they were to be paid “in any case no later than 3 years from the date hereof”. The obligation to pay, as I read it, thus existed independent of any recovery by the assignee.

[66]As for the amount of “additional sums” to be paid, that was to be determined independently of recovery of anything by the assignee. The sums were computed by reference to some, at least, of the expenses of the liquidation. There was, unfortunately, room created by the language of the offer for dispute between the liquidator and the assignee as to the amount payable as that could depend on whether any defence, setting off or counterclaim could truly be described as “available” to the liquidator and whether it had been taken into account but the emergent sum then to be paid to the liquidator, once paid, was completely at his disposition within the ordinary boundaries of what a liquidator in pursuance of his duties might do. If, for example, the liquidator received additional sums of £20,000, there was nothing that entitled the assignee to direct the liquidator that such sum should or should not be paid to this or that expense or other creditor, nor could the assignee dictate in what proportions the additional sums received by the liquidator should be distributed between the expense or other creditors.

[67]There was nothing to suggest that all expense creditors were expected to be vulnerable to defences, set-offs or counterclaims available to the liquidator so there is no reason to suppose, at any rate in point of construction of the 15.45 offer, that substantial “additional sums” – to a possible maximum of £90,000 - would not be payable to the liquidator, albeit perhaps as late as some 3 years later. It was thus not correct that the liquidator should have concluded or that his solicitors should have advised the parties (and, in effect, the Judge) that there was a discretion as to whether further payments were to be made to the liquidator over and above the initial offer of £110,000, nor that if there had been a discretion it was entirely Mr Whitehouse’s. Nor, at any rate in point of construction of the written offer as I read it, was it true to say that such expenses of the liquidator would be paid as were in the opinion of Mr Whitehouse or his solicitors properly payable. Mr Whitehouse or his company, the assignee, might well have views as to whether a particular defence, set-off or counterclaim was “available to the liquidator” but if the liquidator disagreed with those views he could always ask the Court for guidance on whether the particular matter was available to him or not and I cannot see that the Court’s ruling would not bind the assignee and hence determine the “additional sums” to be paid.

[68]Moreover, in the liquidator’s solicitors’ letter of 1st December 2005, paragraph 3 added that the only beneficiary of the offer of payment to creditors out of the assignee’s recoveries would be Mr Whitehouse himself. That was not necessarily true, for reasons given by Chadwick LJ at para 41. £200,000, the maximum receivable irrespective of recoveries, could well not be sufficient to meet even expense creditors, who, if that transpired to be the case, would look to receive under para 6(b) of the Whitehouse offer. If pre-liquidation creditors included Mr Munro, as he asserted, then he, too, could look to recovery under para 6(d).

[69]I shall refer later to interests other than and possibly contrary to the commercial best interests of the company which in some circumstances need to be considered but I would not wish to do other than underline the obvious force of Lightman J’s observation in Edennote (No. 2) as cited by Chadwick LJ in para 31 above that the commercial best interests of the company may be taken to be reflected, prima facie, by the commercial judgment of the liquidator but that observation does suppose that the liquidator concerned has correctly understood the circumstances which surround his liquidation. I do not believe that to be the case so far as concerned the Whitehouse offer.

[70]That failure by the liquidator’s solicitors accurately to summarise the Whitehouse offer is no doubt what led to a passage in the Learned Judge’s judgment which is at least ambiguous. In his paragraph 9 (cited at para 32 above) the Learned

Judge said, of the provisions of paragraph 5 of the Whitehouse offer, that it appeared to him:

“to import into this offer a desire on the part of Mr Whitehouse to have considerable input into decisions of the liquidator as to what expense creditors are in fact paid.”

[71]A desire as to an input is one thing; an ability to control or veto, which would be relevant, is another. A degree of control over the liquidator by the assignee would have been exercisable under the earlier, 14.23, clause 4 but not, as it seems to me, true of the later, 15.45, clause 4. As I have mentioned, “additional sums” would sooner or later become payable to the liquidator (independent, save possibly as to their timing, of recovery by the assignee). What the liquidator would then do with them was not in any way provided for by the Whitehouse offer. Thus if, by his reference to “decisions of the liquidator as to what expense creditors are in fact paid” the Learned Judge was referring to what amounts each separate expense creditors would be paid, that was not a matter over which the assignee had any power. It would be for the liquidator to determine in the usual way under the statutory code to whom and in what proportions inter se the expense or other creditors were to be paid out of whatever “additional sums” were received.

[72]If, instead, the reference “to what expense creditors are in fact paid” was intended to refer to the identity of the creditors to be paid, then again, neither the assignee nor Mr Whitehouse had any role in determining that. Even if it were to be agreed, for example, in order to speed up the liquidator’s receipt or by way of compromise as between the assignee and the liquidator, that, for the purpose of computing an additional sum, it could be assumed that the liquidator had a counterclaim for £n against a particular expense creditor’s invoice and that the additional sum payable was thus to be reduced by £n, even so the liquidator, in the absence of anything further, would be free, subject to the ordinary constraints upon liquidators, both to pay that expense creditor and, if appropriate, to ignore the reduction of £n.

[73]In the sense that the global pot payable in respect of “all outstanding expenses of the liquidation” was likely to depend on whether creditors’ invoices were “legally enforceable” and on whether a number of particular defences, set-offs or counterclaims were properly to be described as “available to the liquidator”, it may be that Mr Whitehouse, as I have said, would have some role that could be played but he was, after all, taken to be a major and perhaps the only pre-liquidation creditor of the company and his role could not be determinative because, as I have mentioned, if the liquidator failed to agree with him as to what was not “legally enforceable” or what defences, etc. were “available to the Liquidator”, the liquidator would be free to take directions of the Court which would lead to a quantification of the additional sums required to be paid, irrespective of Mr Whitehouse’s wishes.

[74]It will be seen from this that, so far as concerns the construction of the Whitehouse offer, I remain of the view to which Chadwick LJ was first inclined – see paragraph 45 above – and share the view which HHJ Langan had taken of construction of the Whitehouse offer – see para 46 above. In the event I do not see the possible divergences as to construction as affecting the conclusion but I would add that difficulties as to the effect of the Whitehouse offer may have opened up because, it seems, the liquidator’s solicitors in their letter did not rely exclusively on the written terms of the Whitehouse offer but also on a conversation and a perusal of Mr Whitehouse’s Skeleton Argument. The door was thereby opened to the possibility of some misunderstanding by the liquidator or his advisers. I have taken the terms of the Whitehouse offer to be those and only those of the written terms in the 15.45 email. However, that there was, in my judgment, a misunderstanding of the Whitehouse offer (certainly by the liquidator and, possibly but to a lesser extent, by the Judge) inevitably creates some unease on my part in accepting their respective routes to a conclusion but before I go further I shall turn to the second area which has caused me concern.

[75]The second subject of concern might loosely be called the public element in windings up. Mr Munro was outstandingly the majority shareholder in the company. The only other substantial holding was that of Mr Whitehouse, at little more than a third of the size of Mr Munro’s holding. Mr Whitehouse’s 25% holding had no representation on the board. Mr Munro was at all times either a director of the company or the sole director of the company. Mr Munro had so conducted himself that, after the company had gone into liquidation, independent accountants chosen for the task had looked at some length into his conduct (their bill for doing so was over £50,000) and had concluded that Mr Munro could be liable for misfeasance in a sum “in the region of or in excess of £500,000” – see para 20 above. Counsel had already drafted Points of Claim disclosing a claim against Mr Munro (jointly and severally with another company of his) for £607,921. Mr Munro had offered £110,000 to compromise the claim against him and, with only minimal further pressure brought to bear upon him, he had increased his offer to £160,000. It could, of course, even be the case that the £160,000 which Mr Munro offered to deploy in order to buy off the claim against him is truly company money or that which represents company money.

[76]When a director and majority shareholder in a position such as Mr Munro’s is able in the winding up to buy his way out of a possible misfeasance claim professionally appraised as of the order of £500,000 for a payment of £160,000 (and without his proving that recovery above that was improbable), then, as it seems to me, there is a public interest that broadly derives from considerations as to good corporate governance and commercial morality.

[77]Chadwick LJ – see para 52 above – refers to observations made in In re Pantmaenog Timber Co Ltd supra. Lord Hope at para 15 of the Report mentioned that the public interest was not served if commercially culpable conduct went unpunished; I would expect him to say the same if its fruits, without sufficient reason, were left with those responsible for it. Lord Millett at paragraphs 47, 48 and 74, referring at one point to In re Paget ex p. Official Receiver

[1927] 2 Ch 85

, drew attention to a public interest that required a look beyond the interests of creditors and spoke of the exposure of serious misconduct with the view to the promotion of higher standards of commercial and business morality. Lord Walker, to passages in whose speech Chadwick LJ has referred, underlined that there can be a public interest that is contrary to the financial interests of creditors and shareholders – paras 79 and 80 – and, by reference to In re London & Globe Finance Corporation Ltd

[1903] 1 Ch 728

, illustrated how the principles of windings up are not invariably to be concerned only with pecuniary benefit to be obtained for shareholders or creditors – see also para 82 and its reference to a public interest in dealing adequately with dishonesty or malpractice on the part of company directors.

[78]For the liquidator to say – see para 21 above – that he appreciated that, if the causes of action were assigned to Mr Munro, that would prevent Mr Whitehouse from pursuing them is less an evaluation by him of the public interest element than a statement of the glaringly obvious. Beyond that there was nothing to indicate that, in choosing between the competing offers, the liquidator had any public interest in mind. Counsel for Mr Munro argued that a liquidator cannot reasonably be expected, in assessing offers, to give any weight to a public interest in good corporate governance. A liquidator’s views of that interest would be unlikely to conclude the issue but that is far from saying they would not be relevant or helpful. I would not be in the least surprised if experienced liquidators had views as to what did or did not conduce to good corporate governance and, whilst introducing such views into the balance might seldom tip a response to an offer one way or another, it would never be imprudent for a liquidator, when consulting the Court, to set out his reflections upon the public interest in the circumstances of his particular case. I would expect a liquidator to devote particular scrutiny to cases where pecuniary benefit to creditors might suggest one course and the public interest to which I have referred another. Certainly it would not here have been wrong for the liquidator to have indicated to the Judge what weight, if any, he had given to the public interest in concluding, as he did, in favour of acceptance of Mr Munro’s offer. But other than the passage cited at para 21 above, nothing was said on the point by the liquidator in his evidence that suggested he had had the public interest element in mind at all.

[79]That meant that, so far as concerned the Judge, the subject was a blank sheet. He dealt with it briefly and, after mention of Faryab v Smith supra, said – see para 35 above – that the public interest argument did not really carry Mr Whitehouse “any distance at all”. It is true that in Faryab v Smith Robert Walker LJ has said in paragraph 40 of the judgment that in that case he did not attach much weight to the public interest element but, firstly, he added that insolvency should not too readily be available as a means of stifling claims which may have substance; secondly, the Court of Appeal in that case was able to come to a conclusion conducive to the public interest (a claim was not stifled but was enabled to be run and an assignment of it to the putative wrongdoer at a price that would have yielded nothing to creditors was stopped) without needing to rely upon it and, thirdly, Robert Walker LJ did not have the benefit of the later observations, including his own, in Pantmaenog supra. To deny force to the public interest element, as the Judge did, simply on the basis of Robert Walker LJ’s brief comment as to its weight in Faryab and on the further basis that, unlike the position in Faryab, here the price to be paid for the assignment could not be described as derisory, seems to me to be too superficial a response to the public interest element. It cannot be that nothing more is required than a debate as to whether an offer is “derisory” as there is ample room for offers which, whilst not derisory, are nonetheless plainly unreasonable. I would add that I would not here regard it as sufficient to leave the public interest to be dealt with by way of a liquidator’s report to the Secretary of State – see para 52 above – if only because the present liquidator, in office since 21st February 2005, nowhere mentions that he has had the making of such a report in mind and as it may be that if he compromises with Mr Munro he will be even less stirred into considering whether it would be appropriate to make one.

[80]It would be unfair to both liquidator and the judge if I left a comment as to the superficiality of the evaluation of the public interest element in the abstract without mention of what an adequate consideration of that element might have required or have led to. The liquidator had received an offer of £160,000 from Mr Munro, a figure handsomely above what might be expected if the claim against him had no more than nuisance value; Mr Munro’s own response suggested an awareness that the claim against him had substance. What, then, was the liquidator’s personal view, doubtless one informed at least in part by the Bentley Jennison report, of the conduct of Mr Munro in relation to the behaviour reasonably to be demanded of a director charged, as Mr Munro was, (in the absence of any board representation of Mr Whitehouse’s shareholding) with ensuring fairness between contributories? Leaving aside whether the case against Mr Munro would ultimately succeed in the courts, but doing the best he could on the material before him, how serious, in the liquidator’s view, were such of Mr Munro’s shortcomings as seemed to the liquidator to be likely to be made good? Had he considered a report to the Secretary of State – see para 52 above – and to what effect? If not, why not? Did he appreciate that the public interest and the commercial interest of the creditors might point in opposing directions and, if not, would introduction of that possibility affect his determination of which offer to accept and, if so, with what result?

[81]To the extent that the public interest element required that the party at fault was not to be seen too cheaply to be buying his escape from the company’s claims against him, the most careful and exacting scrutiny of offers which the public interest here required would have also led to an evaluation of Mr Munro’s position and means. Was his commercial life such that to expose him to the possible indignity or worse of misfeasance proceedings would be likely to lead to an increase in his offer? Were his means such that a greater recovery than £160,000 was practical? On the other side, would Mr Whitehouse be willing to add security in this jurisdiction to the personal guarantee of his company’s performance which he offered? Once the Bentley Jennison report had been paid for – see para 23 above – and to that extent could be relied upon in proceedings, ought not an approach have been made to either or both of Mr Munro and Mr Whitehouse to see whether the liquidator could be funded to take counsel’s opinion on what, in the circumstances, including an evaluation of the public interest element, were the matters which the liquidator ought to address in order fully to inform himself as to the relative merits of the two offers? Despite the prescriptive terms of the Judge’s order of the 18th November – see para 26 above – I cannot think that, had the liquidator asked for it, an adjournment beyond the 2nd December 2005 would have been refused if the liquidator had indicated that there were issues that needed further clarification in relation to each of the offers. The topic is, inevitably, somewhat speculative but, whilst I am unsure as to this, it could have been that the careful if not sceptical approach which, as I see it, the public interest element required, would have lead to a real prospect of a more advantageous compromise with Mr Munro or a better secured offer from Mr Whitehouse but, even if that was wrong, at least it could have been said, after such an approach, that full consideration had been given to the public interest element.

[82]So much for the two matters that have troubled me. But let it be assumed that the liquidator and, in turn, the Judge, had no misunderstandings as to the terms and effect of the Whitehouse offer and assumed also that there had been due consideration of the public interest element both by the liquidator and by the Judge. In such a case, and so far as concerns the commerciality of the competing offers, there is immense force, if I may respectfully say so, in the conclusions of Chadwick LJ in paras 47 and 48 above. And even if I am right in saying that the assignee ultimately had no control over the liquidator as to the identity and quantification of the expense creditors the debts to whom the assignee had to pay as “additional sums”, the assignee certainly had the ability to disagree, to delay and to contest on such issues in such a way as to make the assurance of Mr Munro’s £160,000, almost cash-in-hand, look more attractive than its size alone suggested.

[83]So far as concerns the public interest, for the reasons given by Chadwick LJ in paras 53 and 56 above, the judge’s conclusion as to the public interest could not be described as unreasonable and, as I have said, I cannot be at all sure, had the public interest been as fully considered as I would have wished, that the outcome would have been otherwise than it was.

[84]Thus, whilst, for my part, I might have concluded otherwise than did the liquidator and the Judge, I would not be able to describe either’s determination as outside that broad band within which decisions could be described as reasonable. I have, at some length, raised the matters that have troubled me notwithstanding that I arrive at the same conclusion as my Lords in order to underline the importance, in general, that any liquidator who is comparing competing offers should plainly demonstrate that he has accurately understood and evaluated each of them. Moreover, where it arises, it is important to see an adequate consideration of the “public interest element” and a recognition that on some facts it can oblige a liquidator to adopt a course that does not necessarily represent the best commercial interests of the creditors. With that long preamble, I, too, would dismiss this appeal.

order

(a) first, for the repayment of the costs of the assignee incurred in connection with such recovery (with the exception of the costs referred to at (c) below);

(b) secondly, for the benefit of the expense creditors (i.e. the post-liquidation creditors) to the extent that they have not been already paid as aforesaid;

(c) thirdly, for the repayment of the costs incurred by the assignee under this agreement (with the exception of the costs referred to at (a) above);

(d) fourthly, for the payment of the Creditors of the Company (i.e the pre-liquidation creditors);

(e) fifthly, at the discretion of the assignee.” Paragraphs 2 and 3 of each offer were in these terms: “2. The performance of the obligations of CF Whitehouse Ltd is fully guaranteed by myself in person to the full extent as though I were the person named as the assignee in the deed of assignment and I am willing to execute a deed to that effect; 3. It should be noted that an assignment to a foreign registered company is not subject to VAT at 17.5%, therefore enabling the Company to maximise payments from the funds received (i.e the first £110,000 is sufficient to pay £129,250 of VAT inclusive invoices);”