Hunt (As Liquidator) v Katz & Ors [2017] EWHC 2756 (Ch)

[2017] EWHC 2756 (Ch)Case No 2951 of 2017IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTSVenue AT MANCHESTERINSOLVENCY & COMPANIES LIST (Ch D)IN THE MATTER OF A & M ACCESS LIMITED AND 36 OTHER COMPANIESVenue Manchester Civil Justice Centre, 1 Bridge Street, ManchesterDate Friday, 20 th October, 2017
Before
HIS HONOUR JUDGE HODGE QCSitting as a Judge of the High Court
Between
Hunt (As Liquidator)ClaimantKatz & OrsDefendantB E T W E E N:STEPHEN JOHN HUNT (As Liquidator) Applicant- and -(1) STEPHEN JOHN KATZ(2) BRIAN NEIL JOHNSON(3) DAVID BIRNE Respondents
MR IAN TUCKER (instructed by Edwin Coe LLP) appeared on behalf of the Applicant.MR TIRAN NERSESSIAN (instructed by Messrs Mills & Reeve Solicitors) appeared on behalf of the First Respondent.MR EDOARDO LUPI (instructed by Rosenblatt Solicitors) appeared on behalf of the Second and Third Respondents.

J U D G M E N T APPROVED

[1]This is my extemporary judgment on an application by Mr Stephen John Hunt in the liquidations of A & M Access Ltd and 36 other companies. The applicant is represented by Mr Ian Tucker (of counsel). The respondents to the application are Mr Stephen Katz and Mr Brian Johnson and Mr David Birne. Mr Katz is a licensed insolvency practitioner presently practising with David Rubin & Partners. Mr Johnson and Mr Birne are licensed insolvency practitioners currently practising with H W Fisher & Co. Mr Katz was formerly the liquidator of 34 of the companies and Mr Johnson and Mr Birne were formerly the liquidators of the remaining three companies.[2]The applicant, Mr Hunt, had originally been appointed as the liquidator of a company known as Corporate Company Transfer Ltd by the Secretary of State on 8th October 2013. Before entering into liquidation CCT had operated a scheme which had been investigated by the Secretary of State for Business Innovation and Skills and CCT had ultimately been wound up on public interest grounds. The scheme had been offered to companies, including the companies the subject of this application, which were in financial distress. Essentially the scheme operated as follows: first, the assets of a company were valued by The Warren Partnership; second, CCT, sometimes in conjunction with a third party, was appointed as a director of the company; third, the company sold its assets to the former directors’ new corporate vehicle relying upon The Warren Partnership valuation. The Warren Partnership was paid for the valuation out of the sale proceeds, and the balance was passed to an insolvency practitioner. CCT would then resolve to put the company into creditors’ voluntary liquidation and appoint that insolvency practitioner as liquidator, sometimes alongside a joint liquidator. The balance of the monies received from the asset sale would then be applied towards the insolvency practitioner’s fees, leaving nothing for creditors.[3]The insolvency practitioner involved was usually the first respondent, Mr Stephen Katz. The second and third respondents held three such appointments. Mr Katz was disciplined by his professional body as a result of his involvement in the CCT scheme for having paid £132,000 to a third party for the introduction of insolvency appointments. That allegation had not been contested by Mr Katz.[4]Last year Mr Hunt, the applicant, determined to cause CCT to restore to the register those companies that had been involved in the scheme. In his supporting witness statement Mr Hunt relied upon three grounds for the restoration applications. The first was that following the public interest winding up of the various companies involved in operating the CCT scheme, it was appropriate that the conduct of all such companies should be investigated by an independent liquidator. The second point was a specific concern that The Warren Partnership valuations had omitted to take account of goodwill, work in progress and the value of ongoing contracts. The third, and final, ground for seeking restoration of the companies to the register was that claims might lie against Mr Katz pursuant to Insolvency Rule 5.16 of the 2016 Insolvency Rules (previously Rule 4.150), which gives a specific cause of action against liquidators who have improperly solicited for a liquidator’s appointment. It is said that the disciplinary finding against Mr Katz is prima facie evidence that the requirements for such a claim are satisfied. The total remuneration in respect of the companies is said to be over half a million pounds.[5]On 7th March 2017 His Honour Judge Raynor QC, sitting as a judge of the High Court, heard the claims for restoration and granted the relief sought. As far as material, the companies were restored to the register. The applicant was required to serve a copy of each order on the company’s former liquidator(s), and the applicant was appointed as liquidator over each company pursuant to s.108 of the Insolvency Act. The former liquidators, the respondents, were served with notice of that order on or about 20th March 2017. Mr Ian Tucker (of counsel) appeared for the applicant on the restoration application.[6]Since restoration Mr Hunt has been seeking to gather in the companies’ books and records as well as the winding up files of the former liquidators. It is his case that he has been frustrated in doing so by the respondents despite, in the case of the first respondent, his initial agreement to provide such documents within a notified timescale. Mr Tucker expressly accepts that, on the facts and in the circumstances of the present case, he can place no reliance upon Insolvency Rule 6.32; rather, he relies upon s.234 and s.236 of the Insolvency Act for the jurisdiction to grant the relief sought on the present applications.[7]That relief is the delivery up to Mr Hunt of various documents in hard copy and electronic form, both of the individual companies and those which came into existence as a result of the relevant respondent’s position as liquidator (or joint liquidator) in respect of each company. The application also seeks delivery up of any records of the winding up, including correspondence, proofs and other documents and such of the relevant companies’ records as have not been destroyed.[8]The application is supported by the witness statement of Mr Hunt dated 29th September 2017 together with exhibit SJH/1. Evidence in answer has been put in in the form of witness statements from Mr Stephen Katz, dated 18th October 2017, the first respondent, and from Mr Brian Neil Johnson, dated 19th October 2017, the second respondent. The first respondent’s solicitors have been engaged in the matter for some time and they are Edwin Coe. The solicitors now acting for the second and third respondents, Rosenblatt, have only been appointed to act much more recently. The first respondent is represented by Mr Tiran Nersessian (of counsel) and the second and third respondents are represented by Mr Eduardo Lupi (also of counsel). All three counsel have produced detailed written skeleton arguments.[9]I should record that this application was listed in accordance with a covering letter from Mills & Reeve, the solicitors for the applicant, which invited the court to “kindly list the application for the first available two hour hearing before a s.9 judge at a time when counsel is available.” A list of counsel’s available dates for Mr Tucker accompanied that application. It is therefore at the insistence of the applicant that this matter was listed today for two hours.[10]All three respondents object to any substantive order being made today. They say that they need time to put in evidence addressing the merits (or otherwise) of the applications and to address what is said to be an application for draconian relief under an inquisitorial jurisdiction. In correspondence, the solicitors, in particular for the first respondent, have been arguing for some time that they need to see all of the material that was before Judge Raynor at the time of the restoration application. They have received the evidence in support of the application, but they have been seeking the skeleton argument of Mr Tucker in support. They have apparently recently obtained a transcript of the proceedings before Judge Raynor. The applicant’s solicitors have responded that the skeleton argument contains submissions and nothing more than that and that the respondents have already had the actual evidence that was before Judge Raynor.[11]I obtained the court file relating to the restoration application and, without opposition from Mr Tucker, I gave the first respondent’s solicitor and both counsel the opportunity of inspecting that file over the extended short adjournment. Within the file was a copy of Mr Tucker’s skeleton argument which the respondents have now seen and read. There was also said to be an important communication from the Government Legal Service which is said to have caused some concern to the respondents because it made it clear that the view of the Government Legal Service was that notice of the restoration application should have been given to the former liquidators before it was made.[12]The respondents rely in particular upon a Companies’ Court Practice Note relating to claims for an order restoring the name of the company to the register made by the Chief Bankruptcy Registrar on 12th November 2012 and reproduced at para.2G-54 of Volume 2 of the current (2017) edition of Civil Procedure. In circumstances where a consent order is filed for approval by the court on the papers and without the need for attendance, para.3.5 of the Practice Note requires there to be filed with the court, in circumstances where the company was dissolved whilst in or following its liquidation, original evidence of service of the claim form on the Official Receiver, or former liquidator if one was appointed. The respondents say that that requirement was not observed. Mr Tucker points out that that requirement only applies where an order is sought by consent and without any hearing. Although mis-describing the relevant paragraph of the Practice Note, Mr Tucker points out that in his skeleton argument in support of the restoration application, Judge Raynor’s attention had been drawn to the requirement at para.3.5 of the Practice Note; and at para.26 Mr Tucker had advanced submissions as to why it was not appropriate, in the particular circumstances of the instant restoration applications, for notice to be given to the former liquidators (the respondents to the present application).[13]I accept that Mr Tucker does appear to have addressed the matter appropriately in his skeleton argument. Judge Raynor appears to have been aware of the normal practice and would appear to have allowed a departure from it, although, apparently contrary to submissions advanced by Mr Tucker, he did include provision in his order for notice of the order to be given to the former liquidators. However, the respondents say that they would wish to consider whether an application should be made to set aside the restoration order, given that they were not aware of the application that had been made for it.[14]In the light of the respondents’ opposition to the relief sought on the application notice, Mr Tucker has sought today to limit the disclosure that is sought to that of an up-to-date list of the creditors of each company. In his supporting evidence, at para.15.1, Mr Hunt says that he has been unable to notify all of the companies’ creditors of his appointment as liquidator. He accepts that he could use the information listed in the statement of affairs for each company; but he says that that is out of date and that the former office holder should have more accurate records of creditors, the sums that they have proved for, and their contact details. Relying on the information available in the statement of affairs means that Mr Hunt, or his office, will have to do a reconciliation once the books, records and former office holders’ files are obtained. That will only increase the costs of the liquidation, compromising a further return to the creditors. Mr Hunt says that he does not regard that as acceptable in light of the duty that clearly exists for the former office holder to deliver the papers requested.[15]In support of his application for an up-to-date list of creditors, Mr Tucker referred me to the Institute of Chartered Accountants’ Insolvency Guidance Note: Statement of Insolvency Practice Number 2, at para.2 (headed “Liquidator’s duty”). It says:
“A liquidator’s function is said to be to get in the assets of the company and distribute them to the creditors. To that end, he has a duty to investigate what assets can be realised and what other recoveries can be made. The creditors have an interest in the liquidator’s investigations because both the level of the recoveries and the costs of the investigations will directly affect the funds available for distribution to them. When considering the scope and detail of his investigations, the liquidator should therefore bear in mind their impact on the creditors’ interests. He should maintain appropriate communication with the creditors to ascertain their views about actual and prospective investigations and to keep them informed of their progress and likely outcome.”
[16]In his address, Mr Nersessian referred me to Insolvency Rule 6.15 of the 2016 Rules which no doubt informs the content of para.2 of Statement of Insolvency Practice 2. Insolvency Rule 6.15 imposes a duty on the liquidator to deliver notice to the creditors and contributories within 28 days of his appointment. However, that rule is engaged only on the appointment of a liquidator under s.100; and, in the present case, Mr Hunt was appointed not under s.100 but under s.108 of the Insolvency Act. There would, therefore, appear to be no duty upon Mr Hunt under that rule to notify creditors of his appointment.[17]Mr Lupi, when he came to address me, referred me to Insolvency Rule 6.22(6), relating to appointments by the court under s.108 of the Act. Rule 6.22(6) provides that, within 28 days from appointment, the liquidator must(a) deliver notice of the appointment to creditors of the company or(b) advertise the appointment in accordance with any directions given by the court. Mr Lupi identifies that as the source of the requirement to give notice of the liquidator’s appointment to company creditors; but he makes the point that, as an alternative, the liquidator has the opportunity to invite the court to give directions as to the advertisement of the liquidator’s appointment. Mr Hunt, knowing the difficulties that he would be in without immediate access to the companies’ records and the former winding up papers, could have invited the court to give directions for the advertisement of his appointment, but he omitted to do so.[18]Although Mr Lupi did not put the point in precisely this way, it does seem to me that Mr Hunt is effectively the author of his own misfortune. If, not having sought alternative directions for advertising the appointment, he has found himself unable to comply with his obligation under Insolvency Rule 6.22(6) to deliver a notice of his appointment to the creditors within 28 days of that appointment, that time period has of course now expired.[19]Mr Tucker invites the court to require the respondents to provide an up-to-date list of creditors, to include their current addresses. He submits that that cannot involve any element of oppression, or the pursuit of any collateral purpose. He points to the fact that there is presently no application for any stay of the liquidation, and no pending application to set aside the restoration order or the order appointing Mr Hunt as liquidator of the various companies. He emphasises that the first respondent initially agreed to provide the company records. Although the wish to inspect the court file had been intimated, no formal application to that effect had been made. It was only made orally at this hearing; and, once made, was not opposed by Mr Hunt. He submitted that the evidence supporting the application for the restoration order had been provided in July, and that the request for the skeleton argument was very much a side show. He invited the court to say that there was no prospect of any successful challenge to either the restoration order or to the appointment of Mr Hunt as the liquidator of the various companies. He indicated that the court had to balance the need for Mr Hunt to comply with his statutory duty to disclose his appointment to the creditors of the companies against the costs to the respondents of compliance. However, he made it clear that the costs of compliance were to be borne by the respondents, and not by Mr Hunt. It is common ground that none of the companies have any assets from which any payment of costs can be met.[20]In the course of his concluding submissions, Mr Tucker indicated - although he acknowledged that there was no evidence to this effect - that his understanding, and instructions, are that 98 per cent of insolvency practitioners’ practices use software that enables a creditors’ list to be extracted at minimal or no cost. Therefore, there would be no adverse costs consequences to the respondents if they were required to provide up-to-date details of the companies’ creditors.[21]Mr Tucker referred me to the decision of Registrar Jones in the case of Re Harvest Finance Ltd [2014] EWHC 4237 (Ch) as to the provision for the payment of the costs of compliance with a s.236 order. In that case, reference had been made to the decision of Vinelott J in the earlier case of Re Cloverbay Ltd [1989] BCLC 724. At para.30 the Registrar had observed that Vinelott J had made it plain that the court would only exercise its power to make such a conditional order in very exceptional circumstances. The example he had given was where there was no reason to believe that the respondent had been guilty of any misconduct, and might be able to meet the burden that the order placed upon him. The reason for this “exceptional circumstances” approach was said to be the existence of the public duty to assist the office holder to investigate the company in insolvency.[22]At para.36 of his judgment, that led the Registrar to conclude that, whilst there was a conflict between two decisions, and therefore there was the jurisdiction to award costs of compliance, the practical result of those decisions on the application was the same, provided a “very exceptional circumstances” test was not applied. Whether approached from the basis that the jurisdiction was only rarely exercised by making a conditional order, or from the basis that jurisdiction existed under the rule, the court, in exercising its discretion, did not presume that the costs of compliance would be paid; but, to the contrary, would take account of the fact - which the authorities were said to establish was very important - that compliance was pursuant to a public duty. Mr Tucker relied upon that in support of the submission that the court should not make any order conditional upon the payment of costs by Mr Hunt.[23]I am satisfied that the circumstances of this case are “very exceptional”, if indeed that needs to be established. This is a case where the companies have already been wound up, where the liquidation process has been duly completed, and where, subsequently, each company has been dissolved. Mr Hunt has elected to restore the companies to the register and to seek his appointment as liquidator. In those circumstances, it seems to me that he cannot complain if the former liquidators, who have already discharged their functions and secured their release, are only prepared to provide information and documents on terms that Mr Hunt personally bear the costs of them doing so. That seems to me to be only just and reasonable in the very exceptional circumstances of the present case. If I had been minded to make any order, it would have been on the condition that Mr Hunt personally pay the costs of compliance.[24]During the course of the hearing, it became clear that there was no existing list of creditors over and above that which Mr Hunt already has by way of each company’s statement of affairs. That meant that the respondents would, in the case of each company, have to trawl through the winding up records and files that they had in order to produce a list of creditors.[25]It does not seem to me that that would be justified at the present time for the reasons advanced by both Mr Nersessian and by Mr Lupi for the respondents. Mr Lupi referred me to the principles that should govern the exercise of the court’s discretion under s.236, as set out in the decision in Re Corporate Jet Realisations Ltd [2015] EWHC 221 (Ch), and reported at [2015] BCC 625. First, there must be a reasonable requirement for the material sought; secondly, s.236 must not be used abusively; and, thirdly, any order under the section must not result in an unreasonable burden being placed upon the respondent.[26]I am satisfied that, unless there was a provision for Mr Hunt to bear the costs of compliance, an unreasonable burden would be placed on the respondents; but I am also satisfied that no reasonable requirement for the material sought has been demonstrated, at least in advance of a full hearing of the application on evidence as to the substantive merits of it from the respondents. Mr Tucker’s position is that such a hearing will be required because he limited the application today to the up-to-date list of creditors.[27]I am not satisfied that there is any reasonable requirement for that to be produced now. The liquidator could have sought directions as to advertisement and he did not. He was required to notify creditors within 28 days of his appointment, and that period has long since expired. This is not a company that has not previously been through an insolvency process. As I have already observed, it has been wound up; and that winding up was concluded and each company was dissolved. I accept Mr Lupi’s submission that this is not a regular winding up, and there is no suggestion of any deficiency on the part of the former liquidators in dealing with creditors’ claims. Rather, what is sought is to see if further assets can be gathered in for the benefit of creditors, and, no doubt, also for the benefit of Mr Hunt, as the insolvency practitioner involved in undertaking that task.[28]I am not satisfied that there is any immediate need for the list. Given the fact that the companies have already been dissolved after being fully wound up, there can be no assurance that any list of creditors that could be distilled from searches of the company records would be any more reliable, or more up-to-date, than the information available from the companies’ statements of affairs. If Mr Hunt wishes to do so, he could advertise for creditors; further, or alternatively, he can write to those in the statements of affairs. Alternatively, given that he is already in breach of any duty to notify creditors, he can simply wait until the full application has come on for an effective hearing.[29]I accept the submissions of both counsel for the respondents that there is no need to deal with that part of the application today. It would not be appropriate to determine that aspect of the application alone in the summary manner sought by Mr Tucker. There is no urgency in the matter. I accept that there should be sensible directions for evidence going forward. I accept also that there should be, within those directions, provision for the applicant to disclose communications passing between himself, or his solicitors, and the Government Legal Service relevant to the original restoration application.[30]The next question is whether the application should remain in Manchester or should be transferred to London. Mr Nersessian has referred me to the provisions of CPR 30.3, which sets out the criteria for a transfer order. The particular matter to which he invites this court to have regard is that set out in CPR 30.3(2)(b): whether it would be more convenient or fair for hearings to be held in some other court. Essentially he says that the only connection that this matter has with Manchester is that the relevant office of the applicant’s solicitors is in this city. The applicant, and all three respondents, actually conduct their insolvency practices in London. The solicitors for the first and for the second and third respondents are based in London, as are their respective counsel. Everything, it is said, points to London being the appropriate venue for this application.[31]If this application were the only one known about I would probably have acceded to those submissions and ordered the transfer of this application to London. But the whole thrust of the respondents’ response to this application has been that it is closely tied in with the original restoration application and the resulting order that was made by his Honour Judge Raynor. That was heard in Manchester, although I accept that the respondents had no input into that because they had had no prior notification of it. But the application was made in Manchester, and there is no pending application in those proceedings and, therefore, there is nothing in those proceedings I can presently transfer to London. At the present time those proceedings are at an end. It does seem to me that if there is to be a challenge to the restoration order and/or the appointment of Mr Hunt as liquidator, that would have to be brought in Manchester. It may be that that would be accompanied by an application to transfer to London; but, unless and until such an application is made, and succeeds, it does seem to me that it would be more convenient for this hearing to remain in Manchester.[32]If at some stage it becomes apparent that no application is going to be made in relation to the restoration order or Mr Hunt’s appointment as liquidator, then it may be appropriate for an application for transfer to London of this application to be made. But at the present time, given the close linkage (according to the respondents) with the restoration proceedings, it seems to me that this application should remain where the restoration proceedings are, in Manchester. (After a short time)[33]Having delivered my substantive extemporary judgment, inevitably I now have to address the issue of costs. For the applicant, Mr Tucker, submits that costs should be reserved. He says that today has served a useful purpose and that the appropriate time to address the issue of costs is at the effective final hearing. The respondents say that they should be entitled to their costs in any event on the principle that the loser pays and costs should follow the event.[34]Mr Nersessian for the first respondent submits that the court has now made an incredibly simple set of directions in relation to which, if the applicant solicitors had engaged properly, this hearing could have been avoided. All the respondents wanted was a proper opportunity to put in substantive evidence. The matter had been listed for two hours expressly at the request of the applicant’s solicitors, and this matter should in fact have been listed as a hearing for directions. Mr Nersessian says that there was no attempt to engage. The applicant has pursued, even in the face of the court, a more limited application for immediate disclosure which he has lost, and he should, therefore, pay the costs, and pay the costs personally.[35]Mr Lupi, for the second and third respondents, adopts those submissions and, in addition, he points to the dearth of pre-action correspondence between the applicant and the second and third respondents, amounting only to some five letters.[36]Mr Nersessian acknowledges that the transfer application was made and failed but that took only a limited part of the hearing.[37]As far as the transfer application is concerned, that would have succeeded in all probability but for the linkage advanced by the respondents with the restoration application, which remains in Manchester. It is the respondents who advanced that linkage, and it is that linkage which has militated against a transfer of the application at this stage, and whilst there is a prospect of the restoration order being challenged. It does seem to me that that should be reflected in some way in the costs because the transfer application would have needed to be addressed even if other directions had been capable of agreement.[38]There would have been a hearing today; but it would have been a much shorter hearing. Whether it would have been necessary for the first respondent’s solicitors to attend is difficult to say if transfer had been the only issue. It is, however, likely that there would have had to be a hearing today in order to deal with the transfer issue, on which the respondents have lost.[39]For all of those reasons, it seems to me that the appropriate order, given the relative degree of success on the part of the respondents, but acknowledging that they were not entirely successful, is that the respondents should have an element of their costs. It is very difficult to quantify the element; but, doing the best I can, it seems to me that the respondents should be entitled to two thirds of the costs of today’s hearing. That is, of course, the costs of the hearing, not the entire costs of the application.[40]The court’s order on costs is that the applicant should pay two thirds of the respondents’ costs; and given that the applicant took the initiative in restoring the companies to the register, and securing his appointment as liquidator, in the knowledge that the companies had no assets, having been fully wound up and dissolved, it does seem to me that the applicant should bear those costs personally. (After a short time)[41]Summary assessment is always very much a rough and ready exercise which is incapable of precise explanation in arithmetical terms. Mr Tucker has made a number of points in relation to the first respondent’s statement of costs; but, as against that however, I must also bear in mind that only two and a half hours has been claimed for attendance at a hearing which has now taken about six hours. MR NERSESSIAN: I should say at a lower rate because it was envisaged that it would only be justifiable for the grade C solicitor to attend. In fact, it is the partner who has attended. We have already under charged if I can put it that way.

JUDGE HODGE QC:

[42]I had not appreciated that it was a grade A fee earner who had attended; no disrespect to him of course, but I should have realised that because the grade C is female and we do have a male attending. The point remains that whilst I should make some deduction to reflect Mr Tucker’s points, I also have to bear in mind that the attendance has been charged out at less than half the actual cost of attendance at the hearing. In the light of that, it seems to me that the appropriate figure to take as my base for then applying the fraction would be £15,000, and two thirds of that is £10,000, so I will summarily assess the first respondent’s costs at £10,000.[43]In the case of the second respondent, the hourly rates are even higher and, of course, there is no attendance at trial - of the hearing - to be adjusted. In the light of that, it seems to me that the appropriate figure at which to assess the costs is £8,000; and two thirds of that, I think, would be £5,333. I will summarily assess the second and third respondents’ costs at £5,333. Transcribed by Opus 2 International Ltd. (Incorporating Beverley F. Nunnery & Co.) Official Court Reporters and Audio Transcribers 5 New Street Square, London EC4A 3BFTel: 020 7831 5627 Fax: 020 7831 7737 civil@opus2.digital __________ **This transcript is subject to Judge’s approval**