James Hawksworth & Ors v Paul Stanley & Ors [2025] EWHC 139 (Ch)

[2025] EWHC 139 (Ch)Case No CR-2020-3161IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND AND WALESINSOLVENCY AND COMPANIES LIST(Ch D)Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 5 February 2025
Before
SAIRA SALIMI (sitting as a Deputy High Court Judge)
Between
James Hawksworth and (2) Matthew Wild (as Joint Liquidators of Park Regis Birmingham LLP)Applicants(3) Park Regis Birmingham LLP (in liquidation)Paul Stanley and (2) Gary Norton Lee (as former joint administrators of Park Regis Birmingham LLPRespondents(3) Staywell Hospitality Management Limited
Peter Shaw KC and Paul Wright (instructed by JMW Solicitors LLP) for ApplicantsSimon Passfield KC (instructed by DAC Beachcroft LLP) for First and Second RespondentsRobert Mundy (instructed by Knights Professional Services Ltd) for Third RespondentHearing Hearing dates: 9-10 December 2024
Approved JudgmentThis judgment was handed down remotely at 10am on Wednesday 5 February 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

SAIRA SALIMI :

[1]The applications before me were the latest stage in long-running insolvency proceedings concerning Park Regis Birmingham LLP (“the LLP”). The Third Respondent (“Staywell”) appointed the First and Second Respondents (“the Former Administrators”) as administrators of the LLP in 2016. The LLP was dissolved in 2018. In 2020 it was restored to the register and the First and Second Applicants appointed as liquidators (“the Liquidators”). Further factual background is set out below.[2]In 2023, the Applicants issued two applications under the Insolvency (England and Wales) Rules 2016 (“the Insolvency Rules”).[3]The first application (“the Main Application”) was brought under rule 1.35 of the Insolvency Rules: by it the Applicants seek a declaration that the Former Administrators were invalidly appointed, together with equitable compensation or damages for breach of fiduciary and other duties, and for trespass, by the Former Administrators. They also seek damages from Staywell for trespass and breach of contract.[4]The second application (the “Permission Application”) is an application to the court for permission to bring proceedings against the Former Administrators in accordance with paragraph 75(6) of Schedule B1 to the Insolvency Act 1986, which provides that the permission of the court is required to bring proceedings against an administrator who has been discharged.[5]The applications before me were applications to strike out both the Main Application and the Permission Application in their entirety. Factual background[6]The LLP was incorporated on 29 November 2011 for the purpose of redeveloping a site in Birmingham as a hotel. By a members’ agreement dated 5 April 2012, the members of the LLP agreed to make an initial capital contribution, in respect of which it was anticipated that 100% tax relief (business premises renovation allowance) would be available.[7]Staywell agreed to provide the LLP with a loan facility for £27,000,000, secured by a floating charge over the LLP’s assets, under a facility agreement dated 5 April 2012. The facility agreement was amended and restated on 11 June 2015, incorporating a new clause 4.3 requiring the borrower (i.e. the LLP) to pay the “Minimum Investor Contribution" into a specified account by 4 August 2015.[8]Staywell asserts that this condition was not fulfilled, the floating charge crystallised and it was therefore entitled to appoint administrators. It did so on 17 August 2016, appointing the Former Administrators. The Former Administrators sold the LLP’s assets, including the hotel, on 17 August 2016 to a company connected with Staywell. Their appointment ended on 12 January 2018, and the LLP was dissolved on 12 April 2018.[9]The LLP was restored to the register on 9 September 2020, and the First and Second Applicants were appointed as liquidators. The Applicants sent letters of claim to Staywell and the Former Administrators on 28 July 2022.[10]By a standstill agreement dated 12 August 2022, the parties agreed to extend time for the Applicants to issue proceedings. The limitation period was further extended by an extension of the standstill agreement on 10 November 2022 and again on 8 February 2023. The Main Application and the Permission Application were filed on 15 May 2023, one day before the expiry of the extended limitation period on 16 May 2023.[11]The form completed by the Applicants and issued by the court on 15 May 2023 seeks a declaration of the following (somewhat abbreviated for the purposes of this judgment): i) that the purported appointment of the Former Administrators was invalid pursuant to paragraph 16 of Schedule B1 to the Insolvency Act 1986; ii) that the Former Administrators’ dealings with the LLP’s assets were as trespassers and that the LLP suffered losses as a result; iii) that the Former Administrators were custodians of the LLP’s assets and as such owed fiduciary duties to it; iv) that they acted in breach of their fiduciary duties in a range of ways that are specified in the application (among other things, in failing to take account of the tax circumstances of the investors in the LLP), or in the alternative they acted in breach of their duties as administrators; v) that Staywell was not entitled, in the absence of an event of default, to demand repayment of its loan facility until seven years after commencement of the hotel’s trading (i.e. after March 2023); vi) that Staywell’s issue of a demand for repayment was a breach of the terms of the amended and restated facility agreement; and vii) that Staywell is liable to the Applicants for breach of contract, or alternatively is concurrently liable with the Former Administrators to the Applicants as joint tortfeasors in trespass on the basis that they invalidly procured the appointment of the Former Administrators.[12]The Applicants also sought damages, interest and costs.[13]The Applicants paid a court fee of £10,000 (substantially more than would have been required for an insolvency application), explaining in a letter to the court dated 18 May 2023 that “the Main Application contains non-Insolvency Act claims in respect of which we asked the court to deduct an issue fee of £10,000 from our PBA account”.[14]On 16 May 2023, the court sent a sealed copy of the Permission Application to the Applicants’ solicitors, endorsed with a hearing date of 30 June 2023. The Applicants wrote to the court asking the court to relist the matter by reference to their dates to avoid, and the hearing was relisted for 2 August 2023.[15]The Applicants served the Permission Application on the Former Administrators on 14 July 2023.[16]The Applicants served the Main Application on the Former Administrators on 25 July 2023 and on Staywell on 26 July 2023.[17]On 9 July 2024, the Former Administrators applied for strike out of the claims against them.[18]On 15 July 2024, Staywell applied for an order striking out the proceedings against it. The legal issues[19]There were two issues for me to determine. The first (the “Defects Issue”) was whether the Applicants’ claims had been properly issued by way of insolvency application, or whether the claims, or some of them, should have been issued by way of a claim form under Part 7 of the Civil Procedure Rules. The second (“the Permission Issue”) was whether the failure to serve the Permission Application on the Former Administrators on or before 15 June 2023, 14 days before the first date endorsed by the court on the application form, precludes the Applicants from proceeding with the Permission Application (and therefore also those aspects of the Main Application that require the permission of the court to proceed). The Defects Issue[20]As I have noted, the Applicants’ claims were brought by way of insolvency application under Rule 1.35 of the Insolvency Rules. Rule 1.35 (so far as in issue in these proceedings) provides as follows:
“ (1)This rule applies to applications to court under parts A1 to 11 of the Act (other than an application for an administration order, a winding up petition or a bankruptcy petition). (2) The application must state: (a) that the application is made under the Act or these rules (as applicable); (b) the section of the Act or paragraph of a Schedule to the Act or number of the rule under which it is made;” (a) that the application is made under the Act or these rules (as applicable); (b) the section of the Act or paragraph of a Schedule to the Act or number of the rule under which it is made;”
[21]The Former Administrators were appointed pursuant to paragraphs 14-16 of Schedule B1 to the Insolvency Act 1986, which relate to the appointment of an administrator by the holder of a floating charge. Paragraph 14 provides that the holder of a “qualifying floating charge” (defined in that paragraph) may appoint administrators. Paragraph 15 provides that the holder of such a floating charge must give notice to the holder of any prior floating charge before appointing administrators. Paragraph 16 provides that an administrator “may not be appointed under paragraph 14 while a floating charge on which the appointment relies is not enforceable”. The Applicants contend that Staywell’s floating charge over the LLP’s assets was not enforceable at the date when the Former Administrators were appointed because there was no breach of the requirement for a minimum investor contribution under clause 4.3 of the amended and restated facility agreement.[22]The Respondents contend that the applications, or at least some of the applications, are claims that should properly be brought under Part 7 of the Civil Procedure Rules, rather than as insolvency applications. There is case law about the use of insolvency applications to issue proceedings for which a Part 7 claim would be more appropriate. I was referred, in particular, to Manolete Partners plc v Hayward and Barrett Holdings Ltd [2021] EWHC 1481 (Ch). In that case, the applicants brought a mixture of “transaction avoidance” claims falling within Parts A1 to 11 of the Insolvency Act 1986 (to which Rule 1.35 of the Insolvency Rules clearly applied) and “company claims” - that is to say common law causes of action that vested in the company before the insolvency. The respondent sought an unless order, requiring the applicant to pay the issue fee that would have been payable if the claim had been commenced by way of a Part 7 claim form. Chief ICC Judge Briggs held that the company claims were not insolvency proceedings and should therefore have been commenced by way of Part 7 claims. He also said that it was not permissible for “hybrid” claims – i.e. claims that were a mixture of insolvency claims and company claims – to be brought by way of insolvency application: an office-holder who wishes to purse a mixture of transaction avoidance and company claims will need to commence separate proceedings in different lists within the Business and Property Courts.[23]In Re Traxx (Aggregates) Limited [2023] EWHC 236 (Ch), ICC Judge Barber explained that “Following the guidance given in Manolete Partners plc v Hayward and Barrett Holdings Ltd, an assignee bringing a mixture of claims under IA 1986 and CA 2006 is required in certain circumstances to commence two separate sets of proceedings...” The current guidance to parties in the Chancery Guide reflects this, indicating (at paragraph 21.19) that proceedings may be listed in relation to the same dispute in both the Insolvency and Companies List and in another list in the Business and Property Courts. The Guide encourages parties to consider carefully which list is appropriate and lodge a consent order for the transfer of the proceedings out of the other list at the earliest opportunity.[24]It was common ground between the parties that, if the application or part of it should have been made by way of Part 7 claim, the general power of the court to rectify procedural errors under CPR rule 3.10 is available to me, as Rule 12.1 of the Insolvency Rules applies the provisions of the CPR to insolvency applications “except so far as disapplied by or inconsistent with these Rules”. I was referred to the decision of HHJ Cawson QC in Re Taunton Logs Ltd (in liquidation) [2020] EWHC 3480 (Ch) by both parties: in that case, proceedings had been incorrectly commenced by insolvency application when they should properly have been characterised as a debt claim brought under Part 7 of the CPR, but the court refused to strike them out, instead permitting them to continue “as if commenced by CPR Pt 7 claim form”, conditional on the payment of the proper Part 7 issue fee. It was relevant, in the court’s view, that the application had been made by way of insolvency application in error. It is also relevant that, in Taunton Logs, there was no application before the court to strike out the proceedings.[25]The Applicants also asserted, but the Respondents disputed, that the power to rectify procedural defects in an insolvency application under Rule 12.64 of the Insolvency Rules was also available to me. Rule 12.64 provides that “no insolvency proceedings will be invalidated by any formal defect or any irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court.”

The Permission Issue

[26]Where permission is required for proceedings to be brought against administrators who have been discharged, rule 12.9(1) of the Insolvency Rules provides that the applicant for permission must serve “a sealed copy of the application, endorsed with the venue for the hearing” on the respondent(s). Rule 12.9(3) provides that the sealed copy must be served “at least 14 days before the date fixed for its hearing”, unless alternative rules apply to its service or the application is urgent, or the court extends or abridges the time limit. The Former Administrators submitted that this requirement was not met and therefore service of the Permission Application was out of time. They also submitted that the Applicants had not made any application for an extension of time for service, and that if they had made such an application there would have been no good reason for granting it.[27]The Former Administrators referred me to Bell v Ide [2020] EWCA Civ 1469 on the question of the meaning of “the date fixed for its hearing” in a case where an application was originally listed for an earlier hearing date but that hearing date was vacated and the hearing relisted for a later date. Bell v Ide concerned an insolvency application made on the last day before the end of a limitation period, and the Court of Appeal held that the vacation and relisting of the hearing did not affect the applicant’s obligation to serve the respondent at least 14 days before the date originally fixed for the hearing. Nugee LJ took the view that the overall structure of the Insolvency Rules pointed strongly towards it being the original date that was intended, rather than the substituted date, and said (at [48]) “So far as practical considerations are concerned, I think we should, if other things are equal, favour an interpretation that leads to earlier service of applications rather than later. In the usual course that too would point to rule 12.9(3) referring to the date originally fixed for the hearing... It should not be forgotten that although some applications are purely procedural, an application such as the substantive application here amounts to the bringing of a substantive claim against the respondent. It is in that respect analogous to a claim form.”

The applications for strike-out

[28]The substance of the Main Application is set out at paragraph 11 above.[29]The Respondents submit that the formal requirements of Rule 1.35 of the Insolvency Rules are not satisfied in relation to this application, because the application does not satisfy the requirement that each of the claims must specify the provision of the Insolvency Act 1986 or Insolvency Rules under which it is brought. This is clearly factually accurate: save for the claim for relief in relation to breach of paragraph 16 of Schedule B1 to the Insolvency Act 1986, the application does not specify the provisions under which the claims are brought.[30]In any event they submit that the claims, or the majority of them, are not “insolvency applications” because they are not claims that are capable of being brought under Parts A1 to 11 of the Insolvency Act 1986. Therefore, they submit, the Applicants should have brought them by way of Part 7 claim form. The Applicants submit that the applications are insolvency applications, as all the claims are made directly under insolvency legislation or “flow from” insolvency claims (that is to say that the claims for trespass and breach of contract would not arise but for the appointment of the Former Administrators, which the Applicants say is invalid).[31]The Respondents submit that, if the proceedings are allowed to continue, a substantial injustice has been done to them which cannot be cured by any order of the court. This is said to be twofold: first, had the proceedings been issued under CPR Part 7, all the Respondents would have called for service of the proceedings under CPR 7.7, and would therefore have either obtained them at an earlier date or had an opportunity to have the Main Application discontinued or dismissed. Second, the use of an insolvency application is said to be a clear abuse of the court’s process in a cynical attempt to gain a litigation advantage (and therefore, following the dicta of the court in Taunton Logs, it would be an appropriate use of the court’s discretion to strike out the proceedings).[32]I accept that the Main Application is defective as it contains claims which cannot properly be brought by way of insolvency application, as well as claims that can be brought by way of such an application. The claim for a declaration that the Former Administrators were invalidly appointed is clearly an application made under parts A1 to 11 of the Insolvency Act 1986, notwithstanding that the declaration of invalidity is not specified in paragraph 16 of Schedule B1 to that Act as an available remedy, and the allegations of breach of duty as administrators are also apt to be dealt with as such a claim (although I accept the Respondents’ point that the application should have specified the provisions of the Insolvency Act 1986 or the Insolvency Rules which were said to have been breached). However, the claims for trespass and breach of fiduciary duty by the Former Administrators, and for trespass and breach of contract by Staywell, are clearly claims that should have been brought by the issue of a claim form under Part 7 of the CPR. To say that they “flow from” insolvency claims is not realistic: there is no logical or necessary connection between the claims for trespass, breach of fiduciary duty and breach of contract and the insolvency claim that the Former Administrators were invalidly appointed. In particular, the claim against Staywell for breach of contract is a wholly separate claim which does not depend on the appointment of the Former Administrators being invalid, but on the proper interpretation of the contract between Staywell and the LLP. If anything, the claim that the appointment of the Former Administrators was invalid logically flows from the claim for breach of contract rather than the other way round.[33]The question, then, is what the consequence of this procedural error should be. The Applicants submit that the procedural error may be cured by the application of either CPR 3.10 or rule 12.64 of the Insolvency Rules. I can deal quite briefly with the question of the application of rule 12.64 of the Insolvency Rules, which was also considered in Taunton Logs: the court held (at [32]) that it was not open to the liquidator in that claim to rely on Rule 12.64 if proceedings have been brought that cannot properly be brought as insolvency proceedings. Rule 12.64 has no application other than in insolvency proceedings. That seems to me unassailable logic, and therefore to the extent that the proceedings in the present case are not “insolvency proceedings”, I accept the Respondents’ submissions that Rule 12.64 of the Insolvency Rules has no application.[34]As I noted above, it is common ground that the power under CPR 3.10 to make an order rectifying an error of procedure is available to me. The Respondents seek strike-out of the Main Application on the basis that an injustice has been done to them by its issue as an insolvency application which cannot be rectified. Staywell also urges strike-out on the basis that these claims are futile: they submit that the only consequence of permitting the Main Application to proceed, given that Staywell did not recover all the funds owed to it after the LLP went into administration, will be further funds flowing to Staywell in an expensive circle, enriching legal advisers and insolvency practitioners but with no practical benefit to any other person.[35]I reject the argument that a substantial injustice has been done to any of the Respondents as a consequence of the proceedings being brought. All the Respondents argue that, had the proceedings been brought under Part 7 of the CPR, they would have exercised their right to call for service of the proceedings. I have no reason to doubt that that is correct, and it might have resulted in their receiving the claim forms somewhat earlier than they in fact received notice of the insolvency applications. However, as matters stand, the proceedings were issued on 15 May 2023, and served on the Respondents in mid-July 2023. The ordinary period for service of proceedings under the CPR is 4 months, and a notice to serve proceedings must allow at least 14 days following the date of the notice. If the Applicants then failed to serve the proceedings, the Respondents would have had to make a further application to the court to dismiss the claim. Again, this would be unlikely to be instantaneous, though I have no doubt that the Respondents would have been prompt in pursuing it, given the energetic correspondence between the parties in which they sought copies of the proceedings.[36]The Respondents might, therefore, have obtained a copy of the Main Application a few weeks before they did in fact receive it. Though I do not doubt that the lack of information was frustrating, I cannot find that a substantial injustice was thereby done to them.[37]I make no finding as to the likely consequences of these proceedings: although Mr Mundy encouraged the exercise of my discretion to strike out the proceedings on the basis that the likely outcome of permitting the proceedings to continue would be that money would move in an “expensive circle”, the question of the likely outcome and the amount likely to be secured by way of equitable compensation and / or damages, was not substantively before me, and it would be premature for me to determine whether or not there will be any benefit to the Applicants or not. I therefore reject Staywell’s argument that the case should be struck out on that basis.[38]The Respondents also contend that the Applicants were fully aware at the time of the Main Application that it should have been made, at least in part, by Part 7 claim form: otherwise they would not have written to the court in the terms that they did and paid the appropriate fee for a Part 7 claim. The failure to make the claim in the appropriate form, they argue, is an abuse of process and should not be permitted.[39]On the facts before me, it seems reasonably clear that the Applicants knew, or at least knew there was a strong possibility, that not all of their claims could properly be brought by way of insolvency application, notwithstanding the witness evidence of Mr Worthington, which does not address the clear wording of the letter sent to the court. However, it seems likely, given the arguments before me concerning the permissibility of bringing all the claims in a “hybrid” case by way of insolvency application, that they had not fully realised the absolute nature of the requirement to issue both a Part 7 claim and an insolvency application, even in a case where both depend on the same facts. It is clear that they were not seeking to avoid the issue fee, since that was paid at the time of filing the insolvency application. The failure to recognise the procedural requirements is not laudable, but strike-out seems a severe penalty for that failure.[40]I conclude that it would be disproportionate to strike out the Main Application, and that those proceedings that cannot properly be characterised as insolvency applications should be permitted to proceed, in the exercise of my discretion under CPR 3.10, as if they had been issued by way of Part 7 claim.

The Permission Issue

[41]The Former Administrators also submit that the Permission Application should, in the absence of any order extending or abridging the time for service, have been served no later than 15 June 2023 (14 days before the hearing date of 30 June 2023 originally endorsed on the application), and that the failure to do so means that the Applicants may not proceed with the Permission Application unless and until they obtain an extension of the deadline for service. The Former Administrators submit that no application has been made for such an extension, and in any event if one were made there would be no good reason for granting it. (It was common ground between the parties that an application for permission may be retrospective, and no point was taken as to the lack of permission before the issue of the Main Application. The Former Administrators’ objection related only to the failure to serve the application in time.)[42]The Applicants argue that Bell v Ide can be distinguished from the present case, because it dealt with a substantive insolvency application very similar in its effect to a claim form, rather than a procedural application such as the Permission Application. They say that the Former Administrators have suffered no injustice as a consequence of the failure to serve the Permission Application by 15 June. (It was common ground between the parties that there is no requirement for an application for permission to proceed against administrators who have been discharged to be made or granted before the main proceedings are issued: such permission may be granted once the main proceedings have begun.)[43]Staywell made no submissions in relation to this point, which is not relevant to the claims made against it.[44]I accept that Bell v Ide is binding on me. Its findings are clear: the date for service of an insolvency application is the date first endorsed on the application, and not any subsequent date. In this case, therefore, the Applicants should have served the application on the Former Administrators no later than 15 June 2023, and failed to do so until a month later.[45]However, in my view, the Applicants’ prompt request for the court to vacate and relist the hearing, which was granted, constituted an implied extension of the period for service of the claim, and I reject the Former Administrators’ argument that there was no basis for an extension: the extension was permissible to correct a procedural irregularity. I also accept the distinction that the Applicants pressed upon me between the application in Bell v Ide and the application in the present case, namely that the Permission Application is procedural in nature. This distinction is implicit in the passage quoted at paragraph 27 above, where Nugee LJ stresses the substantive nature of many insolvency applications, which are not purely procedural in nature. The Main Application, containing the substantive claims, was issued and served in time. The failure to serve the Permission Application by 15 June did not deprive the Former Administrators of a limitation defence, unlike the respondents in Bell v Ide.[46]The Former Administrators contend that strike-out of the Permission Application is the only appropriate remedy. I have given serious consideration to this point. However, if (as I believe it can) Bell v Ide can be distinguished on the basis that it dealt with a substantive application, whereas this is a procedural application to enable the Main Application to proceed against the Former Administrators, I am not bound to strike it out. I am unable to identify any substantive detriment suffered by the Former Administrators as a consequence of the failure to serve the Permission Application in time. I therefore reject the argument and decline to grant the application to strike it out.

Conclusions

[47]The applications for orders to strike out the Main Application and the Permission Application are refused.[48]The Respondents submitted that, if they were unsuccessful in their applications to strike out the proceedings, further directions should be given at an early stage. I concur with this view.