Cabvision Ltd v Feetum & Ors

Designated members of a limited liability partnership may seek a declaration that the appointment of administrative receivers is invalid where the appointment directly affects their statutory rights and obligations. The rule in Foss v Harbottle does not apply where they assert personal rights rather than a cause of action belonging to the partnership.

For the project-finance exception to the prohibition on appointing an administrative receiver, the relevant agreement is the agreement under which the project company incurs, or is expected to incur, the qualifying debt. The expected amount concerns the anticipated quantum of the obligation under that agreement. A power to appoint an administrative receiver does not itself constitute statutory “step-in rights”.

Cabvision Ltd purported to appoint administrative receivers of Tower Taxi Technology LLP under a debenture. Three designated members challenged the appointment. They contended that it was prohibited by sections 72A–72E of the Insolvency Act 1986. Cabvision disputed their standing and argued that the project-finance exception applied.

Lewison J granted summary judgment and declared the appointment invalid: [2005] 1 WLR 2576. On appeal, the questions were whether the members had standing, whether the project was a “financed project”, and whether the power to appoint receivers constituted “step-in rights”. The respondents conceded that any disputed factual question about the expected debt could not be determined summarily.

1. Appeal dismissed. The designated members had standing to seek a declaration. They were not enforcing a cause of action vested in the LLP or claiming for injury suffered by it. They sought to determine whether the receivers could impose statutory obligations upon them. The rule in Foss v Harbottle therefore did not apply, and no derivative action was required.

2. The dispute concerned contested legal rights and directly affected the designated members. The contractual power to appoint receivers carried statutory consequences under the Insolvency Act 1986. Declaratory relief was therefore available. The restrictive dictum about directors’ standing in Secretary of State for Trade and Industry v Jabble was obiter and was inconsistent with the broader approach in In re S.

3. Under section 72E(2)(a), the relevant agreement is the agreement by virtue of which the project company incurs, or is expected to incur, the debt. “Expected to incur” concerns the anticipated quantum of the obligation assumed under that agreement where its precise amount is not yet ascertainable. The relevant agreement was consequently the bank facility agreement, and the relevant assessment date was the date of that agreement. The statutory test required as much objectivity as possible. A facility of “up to” £67.5 million did not, without more, establish an expectation of debt amounting to “at least” £50 million.

4. A financier’s ordinary power to appoint an administrative receiver is not a “step-in right” under paragraph 6 of Schedule 2A. Parliament made step-in rights an additional characteristic of the statutory exceptions. Treating the appointment power itself as sufficient would make that requirement superfluous. The statutory definition also did not distinguish between the categories of project company described in paragraph 7.

5. The project therefore lacked step-in rights and could not fall within section 72E. No other exception was relied upon. Section 72A prohibited the appointments, which were invalid.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The declaration that the appointment of the administrative receivers was prohibited and invalid was upheld: [2005] EWCA Civ 1601.
2. High Court, Chancery Division: Lewison J granted summary judgment for the designated members and declared the appointments prohibited by the Insolvency Act 1986 and invalid: [2005] 1 WLR 2576.