Craig v Humberclyde Industrial Finance Group Ltd

A liquidator’s application for directions about realising a chose in action may use the procedure developed for a trustee deciding whether to sue a beneficiary. The procedure is not confined to contemplated litigation and may govern a choice between selling a claim and pursuing it. The court may withhold privileged material and exclude proposed defendants while considering it, but must give them a fair opportunity to answer new matters raised by the judge. Where set-off under Insolvency Rule 4.90 applies, a claim is not assignable if its likely value cannot exceed the creditor’s debt.

Hinckley Island Hotel Ltd was in liquidation. The Official Receiver had insufficient funds to pursue three causes of action and sought directions under section 168(3) of the Insolvency Act 1986 on competing proposals to assign them to former directors or to the Humberclyde Group.

Chadwick J directed assignment to the former directors by orders made on 20 and 30 June 1997. The Humberclyde Group appealed, challenging the procedure, the opportunity given to them to address the merits, and the conclusion that the Company’s claims exceeded its debts after set-off. The central questions were whether the trustee-directions procedure applied and whether any valuable cause of action remained assignable.

Disposition. The appeal was allowed unanimously. The Court of Appeal confined its decision to the two procedural objections and the balance of debt after set-off.

1. Supervisory procedure. The power exercised by the Official Receiver was the power to sell company property under paragraph 6 of Schedule 4 to the Insolvency Act 1986, subject to the court’s control under section 167(3). The jurisdiction arose under section 168(3). It was essentially administrative and concerned the proper exercise of fiduciary powers. The distinction between realising a chose in action by suing on it and realising it by selling it lacked substance. The procedure used on trustee applications under RSC Order 85 rule 2(3), reflected in Re Moritz [1960] 1 Ch 251 and Re Eaton [1964] 1 WLR 1269, therefore applied to the liquidator’s comparable application, subject to any contrary insolvency provision.
2. Fair opportunity. The judge was entitled to withhold the opinions of counsel and to exclude the Humberclyde Group while the directors’ submissions were received. The judge nevertheless had to identify and allow submissions on any new matters arising from that material or from his own enquiries. The invitations given were adequate, and there was no procedural unfairness.
3. Further evidence. The Court of Appeal had power to admit further evidence and reopen the hearing before its order was perfected. It declined to exercise that discretion because the directors had ample time, had been legally represented, and made their applications too late, with likely consequential costs and adjournments.
4. Set-off and value. Assuming that Insolvency Rule 4.90 applied, the Company’s claims had to be assessed against the Humberclyde Group’s debt. The 1991 valuation placed the hotel at £10 million, while the debt was approximately £14.5 million. The Redemption Action and Window Payment Action were minimal by comparison, and the Conspiracy Action could not yield a sufficient money judgment. There was consequently no cause of action susceptible of assignment.

The orders directing assignment to the directors were set aside, subject to the Humberclyde Group’s revised offer remaining open for acceptance.

1. Court of Appeal. In Craig v Humberclyde Industrial Finance Group Ltd [1998] EWCA Civ 1025, the appeal by the Humberclyde Group was allowed.
2. High Court, Chancery Division. Chadwick J directed the Official Receiver to apply for directions under section 168(3) of the Insolvency Act 1986, and later ordered assignment of the causes of action to the former directors on 20 and 30 June 1997.