Overview Of Liquidator Fees Not Relevant To Void Disposition Claim
The case of James Court Ltd (In Liquidation) v Hindsight Contractors Ltd [2023] EWHC 1101 (Ch) (“the JCL case”) touched on a few interesting points, not least the fact that Liquidator fees were not relevant to the void disposition claim outcome.
This case has quite a sprinkling of issues:
- Issue estoppel
- Re-litigating claims
- Abuse of process
- Cause of action estoppel
- Change of position defence
- Fairness in believing a witness (Browne v Dunn)
This post does not consider those matters so the above link will take you to the ninety-six paragraphs that District Judge Bond fleshed out on 9 May 2023.
In this case, a void disposition arose from payments made by James Court Ltd to Hindsight Contractors Limited (a connected company due to a common Director and Shareholder) after the date of the winding up petition:
On 12 and 13 February 2019 JCL paid £23,000 and £14,000 respectively to HCL. Mr Fava was aware that JCL had been served with a winding-up petition at the time he caused JCL to make the payments…
What Is A Void Disposition?
A void disposition is one that typically arises from a payment made after commencement of winding up proceedings. Specifically in the context of a company that goes into Liquidation, such a payment is one that arises after the date of the winding up petition by virtue of Section 127(1) of the Insolvency Act 1986 which says:
In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up is, unless the court otherwise orders, void.
In the context of personal Bankruptcy, a similar provision is set out in Section 284(1) of the Insolvency Act 1986.
The Statutory Scheme
It is not unknown for parties facing a claim lodged by a Liquidator to plead as a part of their defence that the fruits of the action will not result in a return to creditors because it will all get hoovered up by the costs and expenses of the Liquidation.
In the JCL case it seems part of the respondent’s position relied upon an argument pleaded as one of its exceptional circumstances points:
(f) any monies paid in restitution to JCL will go to meet the costs of the insolvency;
However, it is often the case that argument faces an uphill struggle because of the statutory order of payment in insolvency proceedings. This was the statutory scheme to which District Judge Bond appears to have referred:
… JCL relies upon the pari passu principle and, in my judgement, correctly. From the time that the winding-up petition was presented JCL’s interests were in its creditors being paid rateably according to their rank. The preferential treatment of PPL by payment in full of its debt is contrary to the statutory regime. JCL lost the benefit of the debt of £29,000 due from HCL and paid £26,500 to PPL in full, which it would never have done had the statutory scheme been applied. On a balance sheet basis it might be said that, but for the £2,500, the arrangement was financially neutral, but having regard to the statutory scheme governing JCL’s affairs, the arrangement was far from neutral. It is irrelevant that these monies may in fact go to payment of the costs and expenses of the winding-up, which are themselves part of the statutory scheme: see Dean v Stout [2004] EWHC 3315 (Ch); [2005] B.P.I.R. 1113.
This statutory scheme determines who gets paid first in a Liquidation. If the Liquidator’s fees are deemed to be excessive there is an alternative regime available for creditors to lodge a challenge. Furthermore, creditors have a material say in the fees of an Insolvency Practitioner being by far the most common source of such approval. As a result, creditors will typically have deemed it in their interests for the Liquidator to be paid for the work undertaken.
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