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||Neutral Citation Number:  EWCA Civ 761
||Case No: A2/2014/1582
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
London, WC2A 2LL
||23 May 2014
B e f o r e :
LORD JUSTICE VOS
SIR STEPHEN SEDLEY
|| TOP BRANDS & ANR
||GAGEN DULARI SHARMA
DAR Transcript of the Stenograph Notes of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street London EC4A 2DY
Tel No: 020 7404 1400 Fax No: 020 7404 1424
(Official Shorthand Writers to the Court)
Mr P Lawrence QC and Mr W Hansen (instructed by Zak Solicitors) appeared on behalf of the Appellant
Mr J Morgan (instructed by KW Law LLP) appeared on behalf of the Respondent
HTML VERSION OF JUDGMENT
Crown Copyright ©
LORD JUSTICE VOS:
- This is an appeal from the order of HHJ Simon Barker QC dated 16 May 2014, now only a week ago, refusing to adjourn the trial of this misfeasance application made under section 212 of the Insolvency Act 1986 ("section 212").
- The Appellant is the erstwhile liquidator of Mama Milla Limited ("MML"), MrsGagen Sharma ("the Appellant"). The Applicants in the substantive misfeasance proceedings, Top Brands Limited which is incorporated in Malta and Lemione Services Limited which is incorporated in Cyprus(together the "companies" or the "Respondents"), seek an order that the Appellant repays MML some £548,074.56 ("the Sum") allegedly paid away as a result of misfeasance. The companies are both controlled by a MrDildar Singh and his manager, MrPardeepHeer.
- The Appellant seeks to appeal from the judge's decision on two substantive grounds. First, that the judge was wrong to hold that the Appellant had no standing to challenge a Consent Order that she had entered into on 28 September 2012 as liquidator of MML accepting that the companies were creditors of MML ("the Consent Order"). The judge says the Appellant ought to have held that she had sufficient interest to challenge the Consent Order under the court's inherent jurisdiction as having been brought about by fraud. Secondly, the Appellant contends that the judge was wrong to refuse to adjourn the trial so that her challenge to the Consent Order could be heard at the same time as the substantive misfeasance proceedings.
- The Court of Appeal will not normally interfere with trial management decisions made by first instance judges. It is almost always better to leave such matters to the trial judge. As will appear, however, the reason for this appeal is really because matters have developed so fast that some technical legal questions have become intertwined with purely procedural ones.
- I should deal first with the somewhat complex chronological background to this appeal, but before doing so it is useful to understand the statutory foundation to the applications that have been made to the court.
- The misfeasance proceedings were brought under section 212 of the Insolvency Act 1986 which provides as follows:
"(1)This section applies if in the course of the winding up of a company it appears that a person who -
(a) is or has been an officer of the company
(b) has acted as liquidator or administrative receiver of the company, or
(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company,has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company...
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him -
(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just..."
- Blackburne J explained the nature of such proceedings in Eurocruit Europe Limited  Bus LR 146 in a case where the question arose as to the effect of a limitation defence on a claim under section 212. Blackburne J said this at paragraph 24 of his judgment:
"In my judgment, Mr Wilson's submissions on this point do not pay sufficient regard to the significance of the fact, made clear by the authorities, that section 212 is procedural in nature. The true significance of that fact is that the section merely provides an alternative means, in terms of procedure, of enabling the company, to which the defaulting director's duty was owed, to obtain recompense from that director for his breach of duty. If the liquidator chooses to name himself as the formal claimant in lieu of the company, his claim is by application, or (as appropriate) originating application, in the liquidation rather than by a claim form under CPR Part 7. The procedure is not available if it is intended to make someone other than a director (or other person falling within section 212(1)) liable for the wrong to the company, for example a claim against a non-director (along with a director) for having conspired to harm the company; in such a case or where other claims not within section 212 are brought against a director, for example a straightforward claim in debt, the claim must be brought by the company. In each case, however, the claimant is in substance the company; the relief which is granted under section 212(3) is for the repayment, restoration or accounting (to the company) of the money or property of the company or for a contribution to be made "to the company's assets by way of compensation" for the wrong in question. This is so whether the claim is brought by the company or by the liquidator or, for that matter, by a creditor or a contributory. It would be extraordinary, therefore, if, finding that a claim brought by the company in liquidation against a defaulting director had been successfully non-suited on limitation grounds, the company's liquidator could, in effect, ignore that result and advance the self-same claim again but, in his own name, shorn of any risk of a successful limitation defence merely because the claim was brought within six years of the commencement of the liquidation. The reason he cannot is that there is only a single cause of action, that of the company. All that section 212 does is give to the liquidator, if he wishes, the right to bring the claim in his own name."
Thus it will be immediately observed that section 212 is a procedural section providing a means by which a company can obtain recompense; in this case from an allegedly defaulting liquidator. That is the substance of the claim that is being brought under section 212. In other words, whoever is the nominal claimant under section 212, the beneficiary of the claim is the company itself; in this case, MML.
The court's involvement in the acceptance or rejection of proofs
- Insolvency Rule 4.85 that is underlying the argument in this case relates to "expunging of proof(s) by the court". The rule forms part of Chapter 9 of the Insolvency Rules that lays down a statutory regime for the provision of proofs as follows:
"4.73. In a voluntary winding up (whether members' or creditors') the liquidator may require a person claiming to be a creditor of the company and wishing to recover his debt in whole or in part, to submit the claim in writing to him...
4.82. (1) A proof may be admitted for dividend either for the whole amount claimed by the creditor, or for part of that amount.
4.82. (2) If the liquidator rejects a proof in whole or in part, he shall prepare a written statement of his reasons for doing so, and send it as soon as reasonably practicable to the creditor.
4.83. (1) If a creditor is dissatisfied with the liquidator's decision with respect to his proof (including any decision on the question of preference), he may apply to the court for the decision to be reversed or varied. The application must be made within 21 days of his receiving the statement sent under Rule 4.82(2)...
4.84. A creditor's proof may at any time, by agreement between himself and the liquidator, be withdrawn or varied as to the amount claimed.
4.85. Expunging of proof by the court.
(1) The court may expunge a proof or reduce the amount claimed -
(a) on the liquidator's application, where he thinks that the proof has been improperly admitted, or ought to be reduced; or
(b) on the application of a creditor, if the liquidator declines to interfere in the matter.
(2) Where application is made to the court under this Rule, the court shall fix a venue for the application to be heard, notice of which shall be sent by the applicant -
(a) in the case of an application by the liquidator, to the creditor who made the proof, and
(b) in the case of an application by a creditor, to the liquidator and to the creditor who made the proof (if not himself)."
It will be readily seen that chapter 9 of the Insolvency Rules relates to the relationship between creditors and the liquidator in relation to the amount in respect of which that creditor may be admitted for a dividend in winding up. Rule 4.85 is a part of that regime.With that introduction, I turn to the complex chronological background to the issues that arise for decision in this case.
- On 17 November 2009, MML was incorporated in England, with its sole shareholder MrFaruq Tariq ("Mr Tariq"). On 13 August 2011, the Appellant was requested by Mr Tariq to fix a meeting of creditors and members of MML to take place on 1 September 2011.
- On 15 September 2011, SERT-MST PLC ("SERT) paid the Sum to MML allegedly in respect of certain goods (soaps and razors) that had been allegedly delivered to it by the companies at the behest of MML on about 16 September 2011. MML's bank account was frozen, as a result of the impending meeting of creditors, containing the Sum and a very little additional money.
- On 21 September 2011, the creditors' voluntary winding up of MML commenced and the Appellant became the liquidator of MML. The Appellant is said to have admitted that she knew by 29 November 2011 that the companies claimed to be creditors of MML in respect of the Sum. Between 30 November 2011 and 5 March 2012, it is alleged by the companies in these proceedings that the Appellant as liquidator sent the Sum to some 18 unnamed recipients of which 17 were overseas. The Appellant says that she returned the Sum at the direction of SERT, having taken legal advice that SERT was entitled to it. On 2 May 2012, the Appellant rejected the companies' formal proof of debt in the amount of the Sum.
- On 30 May 2012, the companies commenced proceedings under Rule 4.83 of the Insolvency Rules 1986 to be established as creditors of MML challenging the rejection of their proof of debt. They made it clear that they would bring misfeasance proceedings against the Appellant if the money that had been paid to MML was lost. On 28 September 2012, the Appellant (as liquidator of MML) agreed to the Consent Order, accepting the companies as creditors of MML in the Sum by giving them standing to pursue the current misfeasance proceedings and bringing to an end the application under Rule 4.83 of the Insolvency Rules.
- On 23 August 2013, the Appellant's solicitors wrote to the companies' solicitors saying that SERT had asserted a trust in relation to the Sum and, having obtained legal advice and an indemnity, that Sum was returned "as reputedly directed by SERT". On 4 October 2013, the companies issued these misfeasance proceedings under section 212 against the Appellantclaiming that the indemnity obtained for the repayment was forged, that the repayment of the Sum to SERT was a misfeasance under section 212 and that the Appellant should restore that Sum to MML. On 19 December 2013, the Appellant filed points of defence in the misfeasance claim admitting that the companies were creditors of MML.
- On 20 December 2013, at a hearing before HHJ Cook, the proceedings were listed for trial on 14 April 2014. The Appellant agreed to call a meeting for the purposes of her own removal as liquidator. On 17 January 2014, the Appellant was duly removed as liquidator of MML and a Mr Barry Ward was appointed as the new liquidator of MML. In early March 2014, the Appellant says that she changed her legal advisers.
- On 25 March 2014, Mr Ward made a first interim report to the court in which he identified a pattern of trading by MML which he describes as a carousel (MTIC) fraud leading to undeclared VAT due from MML of some £788,546. Mr Ward makes a number of interim conclusions that are adverse to the Appellant's handling of the liquidation saying that:
"A reconciliation of the SERT account shows that these can never have been trust funds due to SERT at all."
- On 28 March 2014, the Appellant applied to adjourn the trial then fixed for 14 to 16 April 2014 on the grounds that she wished to allege that the Consent Order had been procured by fraud and that the companies were a party to the carousel fraud identified by Mr Ward. The application by the Appellant is in these terms and seeks an order in these terms:
"An order adjourning the trial fixed for 14 to 16 April 2014 so as to allow the Defendant to pursue a claim to set aside the Consent Order... by which she accepted the Claimants as creditors of (MML) and thereby gave them the standing to pursue the present proceedings under section 212 of the Insolvency Act 1986..."
- On about 7 April 2014, the court fixed the adjournment application for to be heard on about 15 April 2014 and re-fixed the trial for between 3 and 5 June 2014.
- On 7 April 2014, Mr Ward made a second statement to the court saying that he was satisfied that MML was involved in an MTIC fraud, but that he was still investigating and should not be taken as having concluded that the companies were involved in any joint enterprise with MML. I shall not lengthen this judgment by reading large extracts from Mr Ward's report to the court, but it is perhaps important to note certain aspects of that report as follows:
"4. Once I have had the opportunity to complete my investigations I will be in a position to prepare a further report if required, but I will in any event prepare reports for creditors in accordance with my statutory duties.
5. I will also in due course be expecting to interview, one, the former directors, assuming they are traceable; two, (possibly Mrs Sharma) [the Appellant]; and three, any other party I find to have been involved with the company who may have relevant information.
6. It would be wrong for a party in this situation to interpret my earlier statement as supporting the view which they may hold before my investigations are concluded...
. . .
8. I am surprised to be told by the solicitors for the Applicants in these proceedings that the former liquidator and Respondent [the Appellant] has read my report and relies on it for the purposes of an interim application to challenge the status of the Applicants as creditors on the basis that they are alleged to be party to the VAT fraud. My interim report does not come to any such conclusion.
9. The investigations do lead to conclusions which Mrs Sharma could have reached herself and which, had she done so, she would have been obliged to report to HMRC.
10. Immediately on my appointment as liquidator I sought to establish the trading position and it was immediately evident that the terms filed at HMRC did not reflect the trading position of the company.
11. I am surprised the issues I was able to identify in the very short period of time were apparently not discovered at all by Mrs Sharma during her 24 months (also in office).
12. On the face of what I have seen, the company had been involved in VAT fraud for a considerable period of time...
. . .
16. In my interim report I have explained that the fraud has elements of a carousel fraud. In this instance, the fraud is not particularly complicated... With regard to the transaction which is the subject matter of the application for misfeasance, I have seen no evidence which would suggest either that this transaction was a sham or that SERT-MST or the Applicant were involved in a fraud with the company..."
- On 14 April 2014, the Appellant issued proceedings against the companies seeking to set aside the Consent Order of 28 September 2012 on the grounds of the fraud and seeking damages for fraudulent misrepresentation ("the fraud claim"). She alleged that the companies were involved in a joint enterprise to use MML as a vehicle for VAT fraud. The judge found that these allegations were not fanciful and had a real prospect of success.
- On 16 April 2014, the hearing of the application to adjourn the trial before HHJ Barker took place. On that date also the judge made an order first declaring that the Appellant had insufficient standing to bring a claim to set aside the Consent Order (on the ground that she had no locus standi to bring such a claim no longer being liquidator) and dismissing the application for an adjournment and giving further directions for the trial of the misfeasance proceedings to be heard between 3 and 5 June 2014.
- On 21 May 2014, I gave permission to appeal on paper on the basis that the grounds of appeal were arguable and that (1) the fraud claim was intimately bound up with the intended challenge to the Respondent's status as creditors of MML; (2) if these proceedings were to succeed at trial there could be great difficulties if there were later a successful challenge to the Respondents position as creditors; (3) what happens might also depend on the new liquidator's approach, which remains at the moment uncertain; and (4) this possible outcome is a strong pointer in favour of an adjournment to allow a substantive resolution of all issues together, including the locus standi of the Respondents to challenge the Consent Order and such an adjournment might also give the new liquidator time to decide what position he wishes to adopt.
- Just before we sat this morning, it was made clear that the companies had today (23 May 2014) issued an application before the Insolvency Court for an order that, without prejudice to such rights as he may have as regards to challenging the status of the companies as creditors of MML, Mr Ward as liquidator of MML should be joined to the misfeasance applications so that he is bound by the court's judgment at trial and may enforce any order made against the Appellant under section 212.
The judge's reasons
- The judge dealt with four issues as follows:
1. Does the Appellant, being a former liquidator who is no longer an office holder, have sufficient standing to bring an action to set aside the Consent Order?
2. Is the Appellant estopped from challenging the Consent Order on the ground that her consent was obtained by fraud?
3. Would an action by the Appellant against the companies based on such a challenge be an abuse of the court's process?
4. Should the court refuse further to adjourn the trial and refuse to give directions for the concurrent trial of the companies' challenge to the Consent Order for procedural reasons?
- The judge examined the prospects of success on the facts and concluded at paragraph 9 that the Appellant's claim that the Consent Order was obtained by fraud had a real prospect of success. He then decided the first issue that I have mentioned concluding at paragraphs 47 and 50 as follows.
"47. In my judgment, the route to challenging a proof of debt already accepted by a liquidator is provided for by r.4.85 IR 1986, which authorises a liquidator or a creditor (if a liquidator declines to act) to apply to the court for a proof to be expunged or reduced. This subordinate legislation, embodied in regulations made under IA 1986, clearly identifies the category of person who may make the application. Thus, r.4.85 limits the jurisdiction of the court (the first kind of case identified by the Privy Council in Deloitte &Touche AG). R [the Appellant] is neither the liquidator nor, so far as I am aware, a creditor of MML. As the former liquidator of MML, R has no jurisdiction to seek to expunge or reduce the proofs of [the companies] TBL and LSL, which is the outcome sought by R's [the Appellant's] intended challenge to the Consent Order...
50. If my conclusion that r.4.85 is relevant, that R [the Appellant] does not qualify as an applicant to challenge the validity of As' [the companies'] proofs and, therefore, that the court lacks jurisdiction to entertain a challenge by her to the Consent Order is wrong, I would accept Mr Lawrence's submission as to the more general kind of case referred to in Deloitte &Touche AG and hold that R [the Appellant] has demonstrated a sufficient interest to enable the court to exercise its inherent jurisdiction and recognise her as a competent party to challenge the Consent Order. Such interest would be based upon (1) the nature of As' [the companies'] claim against R [the Appellant], there being a real prospect that As' [the companies] derive their status from a consent order procured and obtained by fraudulent misrepresentation, and (2) the nature of the claim and remedy to be sought by R [the Appellant]. However, that is not my decision on the Competent Party Issue."
- The judge rejected the companies' submissions on estoppel and abuse of process. He then held that, on procedural grounds, the trial should not be delayed, concluding at paragraph 78 as follows:
"Ignoring for the moment my decision on the Competent Party Issue, I attach great weight to R's [the Appellant's] desire to raise a fraud challenge to the Consent Order, in this context I treat R's [the Appellant's] challenge as having a real prospect of success and I disregard Mr Morgan's submission that it is very weak; however, I attach even greater weight to the continuation of the s.212 application without further delay because (1) the present liquidator of MML, Mr Ward, endorses the call for R [the Appellant] to explain her conduct as liquidator of MML, and (2) Mr Ward, as liquidator of MML, will be duty bound to satisfy himself that As [the companies] are genuine creditors before making any distribution from MML's assets to its creditors, not least because any distribution to As [the companies] will adversely affect the distribution to MML's undoubted creditor, HMRC."
Accordingly, the judge rejected the application for an adjournment.
Ground 1: Was the judge wrong to hold that the Appellant had no standing to challenge the Consent Order?
- As matters have turned out in the course of argument, this has become the key issue in the appeal, because if the judge was right on the point then there is no real reason why the trial should not go ahead on 3 June 2014. The judge did not, however, have an application to strike out the fraud action before him. All he had was the application for an adjournment of the misfeasance proceedings which I have already mentioned.
- The argument was undertaken before the judge on the basis that if there was any procedural route by which the Appellant could challenge the companies' status as creditors of MML, issue 1 would be decided in her favour. When he had decided against the Appellant, the companies put two draft orders before him; one that ordered the fraud claim to be struck out and one that simply declared that the Appellant had insufficient standing to bring a claim to set aside the Consent Order.
- When the court asked the parties in the course of argument how the judge had jurisdiction to make such a declaration when he was not hearing the fraud claim, it was common ground that the parties had accepted that in the light of his judgment and the argument that had preceded it that it had been appropriate for him to do so. Accordingly, nothing turns before us on the form of the declaration that the judge made. The judge reached his conclusion on the first point on the basis that only a liquidator or a creditor can challenge a proof of debt under Rule 4.85. Since the Appellant is no longer the liquidator or a creditor of MML, she has no jurisdiction to expunge or reduce the proofs of the companies. With that conclusion, I agree.
- Mr Patrick Lawrence QC's challenge to the judge's judgment is based upon his refusal to accept that this was a case that fell under the rubric of the inherent jurisdiction of the court that allows anyone affected by a judgment that has been obtained by fraud to apply to the court to set it aside.
- Mr Lawrence relied on two authorities. First, Deloitte &Touche v. Johnson  1 WLR 1605 where the question was a rather different one of whether a debtor of an insolvent company had standing to apply under the relevant statutory provisions in the Cayman Islands to remove a liquidator who had an alleged conflict of interest. Mr Lawrence relied upon Lord Millett's dictum at page 1611 of the report as follows:
"In their Lordships' opinion two different kinds of case must be distinguished when considering the question of a party's standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction."
- Secondly, Mr Lawrence relied on paragraph 1143 of Halsbury's Laws of England 2009, fifth edition, volume 1 in which the learned editors say as follows:
"A person who is not a party but who is directly affected by a judgment or order may apply to have the judgment or order set side or varied. A judgment which has been obtained by fraud either in the court or of one or more of the parties may be set aside and challenged in fresh proceedings alleging and proving the fraud... theoretically it may be true that even a party to a judgment which has been obtained by fraud is entitled to ask the court to disregard it in subsequent proceedings, but a party who has taken no proceedings to set aside the judgment would have great difficulty in establishing the fraud and a party to a consent judgment obtained by fraud must apply to set aside the judgment in order to avoid the estoppel..."
- There is, in my judgment, no doubt that the court has an inherent jurisdiction to set aside a judgment obtained by fraud. Indeed, there may be, as Halsbury would suggest, situations where a party affected by a judgment who is not a party to the original claim might be permitted to ask the court to vary or set aside an order or judgment obtained by fraud.
- But this case is not such a situation, as the judge himself held; not because there is not an arguable case for contending that a fraud may have been committed. The judge held that there was. But because the judgment in question merely set out that the decision of the liquidator of MML "as such liquidator" rejecting the proofs of the companies be reversed, and that the proofs be admitted. The order was merely the implementation of Chapter 9 of the Insolvency Rules which regulates the relationship between the company and its creditors in relation to what debts should be admitted to proof and in what amounts. The liquidator may apply at any time to reject the proofsor to reduce them in amount. But the relationship between the company and its creditors is nothing to do with third parties; even a third party who used to be a liquidator of the company.
- As Lord Millett said in Deloitte &Touche, where a court is asked to exercise its inherent jurisdiction it will act only on the application of a party with sufficient interest to make that application. The ex-liquidator Appellant in this case has no interest in whether or not the companies are or are not creditors of MML, save insofar as she is resisting their application under section 212. But as we have seen, the application under section 212 is simply a procedural mechanism by which the statutory insolvency regime allows persons to make claims that are for the benefit of the company (MML). The status of the companies as creditors of MML is actually nothing to the point of whether there is a good claim for misfeasance against the Appellant. That turns entirely on what the Appellant did or did not do in returning monies to SERT between November 2011 and March 2012.
- Moreover, challenging the status of the companies as creditors of MML will not any longer make any difference to the section 212 claim against the Appellant because all parties are now agreed that the liquidator, Mr Ward, should be joined into the misfeasance proceedings so that they will be properly constituted on behalf of MML, whether or not the companies are to be regarded as creditors.
- At one stage in the course of argument I thought that the Appellant might have been in a better position had she sought to amend her defence in the misfeasance proceedings by withdrawing her admission that the companies were creditors, pleading fraud and contesting the companies' standing as creditors to bring the claim under section 212. I am no longer sure that matters. It is true that in that situation the companies would then rely on an estoppel arising from the Consent Order, but the Appellant would still have to persuade the court that the companies' status as creditors could be challenged notwithstanding the Consent Order by reason of the fraud.
- The truth is that the procedure does not make a difference. What matters is that only the liquidator (or other creditors) can challenge the companies' status as creditors. The fact that the Consent Order may have been obtained improperly does not actually matter to the present liquidator, because he can apply at any time to reduce or expunge the proofs on the basis of new facts. The fact that the Consent Order may have been obtained improperly does not actually matter either to the Appellant because the claim against her is for the benefit of MML and is unaffected by the question of whether or not the companies are properly to be regarded as creditors of MML. The question of who are properly the creditors of MML only affects who gets the money that is recovered from the Appellant if she is shown to be liable to restore the Sum to MML under section 212.
- Accordingly, in my judgment, the judge was right to hold that the Appellant has no standing to challenge the Consent Order or indeed to interfere in the statutory process of settling who are the creditors of MML. That is all for the current liquidator to do if he wishes by one of the routes allowed under the Insolvency Rules.
Ground 2: Was the judge wrong to refuse to adjourn the trial so that the Appellant's challenge to the Consent Order could be heard at the same time?
- It was accepted in argument by Mr Lawrence that his appeal failed if he did not succeed on the first issue. That said, I will say something briefly as to the second point.
- If the only issue had been whether the question of whether the companies were properly to be regarded as creditors ought to have been heard together with the misfeasance claim, I would have seen much merit in the two points being tried together since it is clear that there is a significant factual overlap between the matters relating to the original transactions in August and September 2011 and the Appellant's return of the sum to SERT or to unknown recipients a few months later.
- In my judgment, however, that was not the main question. Here the liquidator, Mr Ward, has not yet decided whether to challenge the companies' status as creditors. He may do so, but he may not. If he does so, it will be nothing to do with the Appellant. She has had ample opportunity to investigate and to raise arguments about the nature of the original transaction and the return of the sum.
- The court can and should determine as soon as possible whether or not she was acting improperly and paying away the monies of MML. If the Appellant succeeds, then it will not much matter whether the companies are creditors because there will be little or nothing to be distributed to creditors. If she fails, then the liquidator will be able to decide on the basis of his further investigations whether the companies should be challenged as to their status as creditors.
- The further important development that has occurred since the hearing before the judge is that Mr James Morgan, whose arguments before us should be complimented for their brevity and precision, has undertaken on behalf of his clients that they will not take any procedural point as to Mr Ward's standing to challenge their status as creditors, whether arising from an estoppel or an abuse of process or otherwise. That undertaking, as it seems to me, which should be reflected in an order of the court, is sufficient to protect the position and to ensure that the liquidator will if he wishes in due course be able to challenge the companies' position as creditors of MML.
- In the above circumstances, I take the view that the judge was right to refuse the adjournment on both the grounds that he relied upon and I would dismiss the appeal.
- I should only say, before leaving thiscase, that it clearly demonstrates the benefits of oral argument. I gave permission to appeal on paper because I thought then that the two factual points could perhaps best be resolved at one trial. On further consideration, that turned out not to be the central issue. Instead, the nature of the insolvency process under both section 212 and Chapter 9 of the Insolvency Regulations turned out to be at the heart of this appeal.
SIR STEPHEN SEDLEY:
- I agree.
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