“ The Company was incorporated as the parent company of a property development group. Over time the group became involved in four developments within Liverpool and one development in Manchester….The Company built up a worldwide network of property sales agents in order to sell long leasehold interests off plan to Investors…. Each development was owned by a specific corporate entity for the purpose of developing that specific project with the Company being the sole shareholder of each of these special purpose vehicles, creating the group structure.”
“The company will continue to trade in the sense that its management team and consultants will endeavour to arrive at a satisfactory exit from each of its development subsidiaries. The aim being to realise as greater profit as possible from each of these assets with a view to returning a greater return to creditors where at all possible.”
“Unsecured Creditors 12. Once preferential creditors have been paid in full, unsecured creditors (including for this purpose secured creditors to the extent that there is a deficiency or shortfall in the amount recovered or recoverable under their security) shall be entitled to be paid a dividend or dividends from the remaining funds available to pay a dividend(s) together with any monies set aside as the Prescribed Part under clause 10. 13. Creditor claims will be calculated by reference to the value of their claim as at the date upon which the CVA is approved. 14. The Rules 14.21 to 14.26 (concerning: debts in a foreign currency; payments of a periodical nature; interest, mutual dealings and set-off) shall apply to this CVA in the same manner as it applies in a liquidation. The date for determining rights of set-off shall be the date of approval of the Proposal. …. 22. Any creditor who Is bound by the CVA, by virtue of Section 5(2)(b)(ii) of the Act, as amended, who becomes aware that the CVA has been approved shall …participate in the CVA on a pari passu basis with all other creditors of the same category. If a dividend or dividends have already been paid to the creditors, such that there are no or insufficient funds to enable a dividend to be paid to the new creditor equal to the aggregate of dividends already paid to other creditors of the same category then, if the Company has assets which are not included within the CVA Proposal, the Company will upon receipt of a written notice from the Supervisor pay such further sum to the Supervisor as shall be sufficient to ensure that such creditor is paid the same dividends as all other creditors of the same category. If all of the Company's assets are included in the CVA or the Company's assets are insufficient to pay the amount required by the Supervisor to pay a full equalising dividend to the new creditor, then such a creditor shall be paid such funds as are available to distribute (if any) and the new creditor shall be bound by the CVA notwithstanding the Supervisor is unable to pay the creditor a full equalising dividend. Payment of Dividends 23. Part 14 of the Rules, which relate to claims by and distributions to creditors in Administration, Winding Up and Bankruptcy shall apply to this CVA - (with any necessary amendments) -R14.21- R14.25 …. 77. Unless and until such time as a Certificate of Termination is issued by the Supervisor, creditors will be bound by the terms of the CVA and shall be taken to have accepted their participation in the CVA in full and final settlement of all of their claims against the Company at the date of approval of the Proposal (whether such claims are present or future, contingent, ascertained, unascertained or otherwise). In the event that the Supervisor issues a Certificate of Termination, he shall advise creditors in writing of the issue of such notice and creditors shall be entitled thereafter to pursue the Company in relation to the debts which they had compromised up to the date of issue the Certificate was issued.”
“deferred and potentially disallowed pending the investigations of HMRC into transactions that were treated as loans which HMRC consider should be treated as an expense and therefore not due to be repaid.”
“2.4 Following discussions with the Company's director, l have been advised that the Company's annual accounts have been amended for the entire period of trading following advice given by a specialist tax advisor. The amendments relate to the treating of the transactions between the Company and the development subsidiary companies ("SPVs"). The Company's only income was payments received from the SPVs and were originally accounted for as taxable income in the Company and a taxable expense in the SPVs. Following tax planning advice from its Tax advisor at the time the treatment of these transactions were amended to account for them as loans to the SPVs. Two of the SPVs companies have fallen into insolvency and a third has had a Receiver appointed. The Company has sought further specialist tax advice and it is their view that the Company should now raise invoices to clear the intercompany loans to rectify the position as they simply constituted recharges of head office expenses and overheads. 2.5 The Company is in the process of raising the appropriate invoices in respect of the recharges and the SPVs creditors will be removed from the company voluntary arrangement.”
“(a) That the CVA be allowed to continue and that the Company be allowed until30 November 2019 to remedy the breach’s [SIC] identified in the Supervisors breach [SIC] letter dated11 February 2019 .”
“As detailed in previous reports it is understood due to changes in treatment of the amounts due between associated companies these claims are now expunged. I am currently reviewing the claims of the associated creditors and hope to be in a position to adjudicate on these shortly.”
“In relation to your possible preference claim, the relevant date for the crystallisation of a preference does not occur until a liquidator is appointed, given that Baltic House entered liquidation after the approval of the CVA, this would amount to a post-CVA debt and therefore is not provable in the CVA.”
“ That the CVA is allowed to continue and that the Company is allowed until the earlier of the following: a)31 July 2020 or b) within 30 days of establishing the final position in respect of creditors' claims, as decided by the Supervisor a)31 July 2020 or b) within 30 days of establishing the final position in respect of creditors' claims, as decided by the Supervisor to remedy the breaches identified in the Supervisors breach [SIC] letter dated 11 59. February 2019 and c) the Company pay into the CVA the sum of£50,000 within 14 days of the 60. approval of the variation.”
“[40] In my judgment, “creditors” in section 425 of the Companies Act 1985is not limited to those persons who would have a provable claim in the winding up of the company, although it clearly includes all those who would have such a claim. As was submitted by Mr Snowden and other counsel, one of the recognised purposes of section 425 is to encourage arrangements with creditors which avoid liquidation and facilitate the financial rehabilitation of the company: see, for example, SeaAssets Ltd v PT Garuda Indonesia[2001] EWCA Civ 1696 at [2]. This suggests that as wide a meaning as possible should be given to “creditors” in the section. Having said that, it is important to bear in mind that section 425 is designed as a mechanism whereby an arrangement may be imposed on dissenting or non-participating members of the class and such a power is not to be construed as extending so as to bind persons who cannot properly be described as “creditors”.”
“[46] The present state of the authorities therefore shows that(i) the holder of a contingent claim is a creditor for the purposes of the provisions governing both schemes of arrangement and CVAs and (ii) the claim need not be a provable debt. The nature of contingent claims is such that a creditor for these purposes need not have an accrued cause of action.”
“[60] If the principles established by In re Sutherland, decd[1963] AC 235 and Secretary of State for Trade and Industry v Frid[2004] 2 AC 506 are applied to this case, it is right in my judgment to conclude that T & N is subject to contingent liabilities to pay damages to those who have already been carelessly exposed to asbestos by the actions of T & N and who later suffer compensatable loss, resulting in claims for damages in negligence against T & N. The creditors in respect of those contingent liabilities are the persons who have been carelessly exposed to asbestos and who will have claims in negligence if they suffer loss as a result. Reverting to Lord Reid's speech, the contingent liability to pay damages is a liability which, by reason of something done by the person (i e the use or distribution by T & N of asbestos or asbestos products) will necessarily arise or come into being if one or more certain events occur (i e the onset of asbestosrelated conditions in persons previously exposed to asbestos by T & N). Lord Guest referred specifically to the contingent debtor being “automatically involved by the operation of law in the payment” of the debt once the contingency occurred. That precisely describes the situation here. The careless exposure of persons to asbestos by T & N will automatically by the operation of the law of negligence lead to the liability to pay damages, assuming the existence of the other necessary elements of a claim in negligence.”
“[66] I conclude therefore that T & N is subject to contingent liabilities in respect of future asbestos claims, as defined in the administrators' application and that the future asbestos claimants, being those persons who have been exposed to asbestos and who will have claims in negligence against T & N if they develop asbestos-related diseases, are “creditors” of T & N for the purposes of section 425 of the Companies Act 1985and Part I of the Insolvency Act 1986dealing with CVAs.”
“ [112] However, it is not possible to read rule 12.3(1) on its own. The broad range of claims to which it refers are provable “as debts”
““Debt”, “liability” (winding up) 13.12. (1) “Debt”, in relation to the winding up of a company, means (subject to the next paragraph) any of the following— (a) any debt or liability to which the company is subject at the date on which it goes into liquidation; (b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and (c) any interest provable as mentioned in Rule 4.93(1). (2) In determining for the purposes of any provision of the Act or the Rules about winding up, whether any liability in tort is a debt provable in the winding up, the company is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued. (3) For the purposes of references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly. (4) In any provision of the Act or the Rules about winding up, except in so far as the context otherwise requires, “liability” means (subject to paragraph (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.” 13.12. (1) “Debt”, in relation to the winding up of a company, means (subject to the next paragraph) any of the following— (a) any debt or liability to which the company is subject at the date on which it goes into liquidation; (b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and (c) any interest provable as mentioned in Rule 4.93(1). (2) In determining for the purposes of any provision of the Act or the Rules about winding up, whether any liability in tort is a debt provable in the winding up, the company is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued. (3) For the purposes of references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly. (4) In any provision of the Act or the Rules about winding up, except in so far as the context otherwise requires, “liability” means (subject to paragraph (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.”
“ [128] The language of rule 13.12(2) is, as all counsel agreed, most obviously linked to rule 13.12(1)(b). As I have already held, unliquidated claims in tort for loss already incurred at the liquidation date are probably covered by paragraph (a). Once it is accepted that unliquidated tort claims are to be provable at all, there is no difficulty in saying that claims for loss already incurred at the liquidation date are admissible to proof. The difficulty arises in relation to loss which has not then been incurred but may be incurred at a later date. Contingent claims are the subject of paragraph (b). All contingent claims are admissible to proof provided only that they arise “by reason of any obligation incurred” before the liquidation date. [129] The question requiring a clear answer is how those words are to be applied, for the first time, to tort claims. The purpose of rule 13.12(2) is to provide the answer. The obligation is incurred “when the cause of action accrued”
“Because a preference or transaction at an undervalue could not be impugned other than upon bankruptcy, and an order under s339 or s340 only had effect for the future, requiring the restoration of property passing under a transaction prospectively rather than declaring the transaction void (see Stonham vRamrattan [201 I] I WLR 1617, at [37]) and not having retrospective effect, he submitted there was no "obligation" incurred before the commencement of bankruptcy.”
“[77] However, the mere fact that a company could become under a liability pursuant to a provision in a statute which was in force before the insolvency event, cannot mean that, where the liability arises after the insolvency event, it falls within rule 13.12(1)(b). It would be dangerous to try and suggest a universally applicable formula, given the many different statutory and other liabilities and obligations which could exist. However, I would suggest that, at least normally, in order for a company to have incurred a relevant “obligation” under rule 13.12(1)(b), it must have taken, or been subjected to, some step or combination of steps which (a) had some legal effect (such as putting it under some legal duty or into some legal relationship), and which (b) resulted in it being vulnerable to the specific liability in question, such that there would be a real prospect of that liability being incurred.
“the issue of (i) what is a contingent liability and (ii) what is an obligation by reason of which a contingent liability arises, are closely related.”
“[84] As to the first requirement, on the date they went into administration, each of the Target companies had become a member of a group of companies, and had been such a member for the whole of the preceding two years—the crucial lookback period under the 2004 Act. Membership of a group of companies is undoubtedly a significant relationship in terms of law: it carries with it many legal rights and obligations in revenue, company and common law. [85] As to the second requirement, by the date they went into administration, the group concerned included either a service company with a pension scheme, or an insufficiently resourced company with a pension scheme, and that had been the position for more than two years. Accordingly, the Target companies were precisely the type of entities who were intended to be rendered liable under the FSD regime. Given that the group in each case was in very serious financial difficulties at the time the Target companies went into administration, this point is particularly telling. In other words, the Target companies were not in the sunlight, free of the FSD regime, but were well inside the penumbra of the regime, even though they were not in the full shadow of the receipt of a FSD, let alone in the darkness of the receipt of a CN.”
“[59]…. It appears somewhat arbitrary that the characterisation and treatment of the liability under the FSD regime should turn on when the FSD or CN happens to have been issued, if it is based on a state of affairs which existed before the insolvency event.”
“(2) The voluntary arrangement— (a) takes effect as if made by the company at the time the creditors decided to approve the voluntary arrangement, and (b) binds every person who in accordance with the rules— (i) was entitled to vote in the qualifying decision procedure by which the creditors' decision to approve the voluntary arrangement was made, or (ii) would have been so entitled if he had had notice of it, as if he were a party to the voluntary arrangement.” (a) takes effect as if made by the company at the time the creditors decided to approve the voluntary arrangement, and (b) binds every person who in accordance with the rules— (i) was entitled to vote in the qualifying decision procedure by which the creditors' decision to approve the voluntary arrangement was made, or (ii) would have been so entitled if he had had notice of it, as if he were a party to the voluntary arrangement.”