Tracs (Engineering) Ltd v Sampson & Ors

An interim receiver should be appointed only after separating the merits of the underlying claim from the practical measures needed to preserve the claimed asset. The court must consider whether the relevant contract can be completed profitably and whether its proceeds can be properly accounted for and protected against dissipation. Appointment is inappropriate and disproportionate where it risks disrupting performance, depends on replacing managers whose continued involvement is necessary, and less intrusive freezing or monitoring arrangements provide adequate protection.

Tracs sought the appointment of a receiver over PWME Ltd and, in practical terms, its Beechbrook Farm subcontract, alleging breaches of duty by Mr Sampson and Ms Wilson. Freezing orders and financial monitoring arrangements were already in place. On 18 July 2001, a Deputy Judge of the Queen’s Bench Division appointed a receiver with powers substantially corresponding to those in Schedule 1 to the Insolvency Act 1986. The defendants sought permission to appeal. The central issue was whether receivership was a just and convenient interim remedy, having regard to the prospects of successful performance, the defendants’ continuing involvement, the risk of dissipation and the available alternatives.

Permission to appeal was granted and the appeal was allowed unanimously. The order appointing a receiver was discharged, while the existing monitoring provisions were continued. Tracs was ordered to pay the successful defendants’ costs of the receivership application in the Court of Appeal and below, with an interim payment of £10,000 within 14 days.

1. Appellate review. Chadwick LJ stated that appointment of a receiver under section 37 of the Supreme Court Act 1981 was discretionary. The Court of Appeal could intervene where the judge erred in principle, took account of an irrelevant matter, failed to take account of a relevant matter, or reached a plainly wrong conclusion.
2. Separate merits and preservation inquiries. The Deputy Judge had failed to distinguish between the prospects of Tracs establishing a beneficial entitlement to the Beechbrook Farm Contract and the interim remedy required to preserve the asset if that claim succeeded. The apparent strength of the substantive claim had little or no relevance to the second inquiry.
3. Preservation of the asset. The court had to consider both whether the contract would be completed on schedule and within budget so as to generate a profit, and whether the proceeds would be properly accounted for and protected against dissipation.
4. Practical and proportionality considerations. The evidence showed that successful completion depended on the continued day-to-day involvement of Mr Sampson and Ms Wilson. Replacing them at a late stage risked chaos, loss of the contract or loss of profit. Freezing orders and monitoring could prevent diversion of receipts and allow the cashflow to be checked. Receivership would also incur substantial cost and carry unwarranted insolvency connotations. It was therefore an inappropriate and disproportionate remedy.
5. The receiver’s proposed powers were substantially framed by reference to Schedule 1 to the Insolvency Act 1986, but the order remained an exercise of the power under section 37 and did not appoint an administrator or administrative receiver. Peter Gibson LJ concurred in Chadwick LJ’s reasoning and orders.

• Court of Appeal (Civil Division): In [2001] EWCA Civ 1388, permission to appeal was granted and the appeal was allowed. The receivership order was discharged and monitoring provisions continued.
• Queen’s Bench Division: A Deputy Judge, the Honourable John Leighton Williams QC, ordered the appointment of a receiver on 18 July 2001.