Overview Of Creditor Indemnity Sufficient
Creditor Indemnity Sufficient For Trustee To Litigate? is an issue that arises from a case referred to in an earlier post, Section 303 Trustee In Bankruptcy Application Succeeds there was an report on the case of Patley Wood Farm LLP & Ors v Kicks & Ors [2022] EWHC 2973 (Ch). This was followed with another post Insolvency Practitioners Not Allowed Costs From Estate concerning the costs being denied from the Bankruptcy estate to the Trustees in Bankruptcy in this matter and was reported on in Patley Wood Farm LLP & Ors v Kicks & Anor [2022] EWHC 3118 (Ch)
Background To Patley Wood Farm Case
The case was notable because the Trustees were invited by creditors to intervene in proceedings in which the Bankrupts could regain possession of the Cottage notwithstanding that they had no beneficial interest in it.
The Trustees in Bankruptcy decided against getting involved in an Application by the Bankrupts to the Court of Appeal on the basis that they said there was no equity in the property to benefit creditors of the Bankruptcy Estates.
A former Trustee in Bankruptcy had contracted to sell the beneficial interest in the property referred to as the Cottage to the party known as The Chedington Court Estate Limited (“Chedington”). That contract is subject to proceedings to go before the Supreme Court and the current Trustees in Bankruptcy were taking no action on complying with the contract until those proceedings had been determined.
Chedington wanted the Trustees in Bankruptcy to become joined into their proceedings in the Court of Appeal with the Bankrupts to resist their possession application.
Trustees’ Neutral Position Notwithstanding Creditor Indemnity
The Trustees adopted a neutral position notwithstanding that Chedington offered to pay the Trustee’s costs of going into the Court of Appeal proceedings and to:
…indemnify the Trustees in respect of any adverse costs
An indemnity is not cash. What was offered by Chedington initially it appears was “reasonable costs” to be joined to the Appeal, to oppose the Bankrupt’s ability to regain possession and those to obtain an order that the Trustee’s be given possession of the Cottage. The indemnity was to also cover the risk of adverse costs if that should result. That suggests the Trustees could incur costs which they considered necessary but which Chedington may have thought differently about.
It appears however the Chedington funding offer extended subsequently to not only legal costs but also non-legal costs and expenses of the Trustees. The Court said:
In the circumstances, it is difficult to see the downside to the trustees in making an application to intervene.
It is not clear how the financing was precisely to be resolved. If the funding was not on a cash on demand basis then perhaps that could have been an issue for the Trustees but the judgment suggests it was sufficient. Perhaps the Trustees could have applied for payment of the funding to Chedington and there could have been a delay in respect of its payment.
However, the Court did, it seems apply itself to the risk issues because it said:
In this case the trustees have funding, indemnities, encouraging comments from the Court of Appeal, and a clear opportunity to monetise the cottage for the benefit of the estates. However, they have chosen to fold their arms and do nothing.
It therefore must be reasonable to assume that the Trustees were covered for most positions that could arise and would not presumably have been out of pocket.
However, if indeed there was a situation where there could have been delays in providing funds to the Trustees and scope for disputes to arise over what funds might have been provided by Chedington, then perhaps the Trustee’s arguments might have been more solid. Given how stridently the Court expressed itself it seems unlikely but we were not at the hearing and we have not seen the evidence before the Court so we do not know one way or the other.
Court Ordered Directions Sought By Creditors
The effect of what the Court ordered ie. a Direction that the Trustees were to join in the Court of Appeal proceedings and to make out arguments to the Court in opposition to the Bankrupts being able to regain possession of the Cottage. This was interesting because the Court not only ordered the Trustees to join in but also directed how they were to act once they had joined.
Court Of Appeal Decision
The Trustees subsequently appealed to the Court of Appeal which said their decision was not perverse:
… the Trustees’ decision not to apply to join the Eviction Claim appeal cannot possibly be stigmatised as perverse.
The Court of Appeal’s decision can be reviewed in an article called Trustees’ Decision Not Perverse Says Court Of Appeal.
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