Ultraframe (UK) Ltd v Rigby & Ors

Under the Insolvency Act 1986, a creditor may challenge a liquidator’s act even where it also seeks a litigation advantage. Court intervention remains exceptional, but an assignment may be vulnerable where the liquidator failed to investigate its value, seek better offers or negotiate a share of proceeds. A non-lawyer insolvency practitioner’s reliance on personal valuation is especially unsatisfactory for a difficult claim.

At strike-out stage, the question is whether the application has a real prospect of success. Delay and disputed facts about notice, investigation and purpose require evidence. They cannot be treated as automatic bars without giving the applicant a proper opportunity to respond.

Quickfit Conservatories Limited was in liquidation. Its liquidator assigned intellectual property rights and causes of action to Gary Fielding, who later assigned them to the Burnden Group plc. Ultraframe, a creditor of Quickfit and involved in related litigation with Fielding and Burnden, applied under sections 167(3) and 168(5) of the Insolvency Act 1986 to set aside the assignments.

The High Court struck out the application, treating the liquidator’s conduct as unimpeachable and relying on Ultraframe’s dual role, delay and alleged tactical purpose. The appeal concerned whether those matters made the application hopeless, and whether the judge could decide them without evidence when the hearing had been listed for directions.

1. Appeal allowed. The application was restored. Directions were to be given for its future conduct; the Court of Appeal did not decide whether the assignments should ultimately be set aside.
2. Ultraframe had standing as a creditor under sections 167(3) and 168(5) of the Insolvency Act 1986. Its additional interest in using the assignments in separate litigation, even if that was its primary motivation, did not remove standing. The observations in Mahomed v Morris [2000] 2 BCLC 536 and Re Edennote Limited [1996] 2 BCLC 389 concerned the standing of outsiders, not applicants with a dual capacity.
3. The applicable intervention test, derived from Re Edennote Limited [1996] 2 BCLC 389, was that, apart from fraud or bad faith, the court would intervene only where the liquidator’s act was so utterly unreasonable and absurd that no reasonable person would have done it. Selling an asset or assigning a cause of action without considering whether a third party might make a better offer could satisfy that test.
4. Faryab v Smith [2001] BPIR 246 showed that it was highly unsatisfactory for a non-lawyer insolvency practitioner to rely on personal valuation when disposing of a difficult claim. The practical procedure discussed in Stein v Blake, namely reserving a percentage of the proceeds for creditors, was desirable.
5. The application disclosed a sufficient prospect of success to avoid strike-out. Relevant matters included the absence of evidence that the liquidator investigated the potential misappropriation claim, negotiated for a share of the proceeds, sought offers beyond the circular and advertisement, or allowed creditors adequate time to consider the proposed transaction.
6. Neither Ultraframe’s dual role nor delay was a knock-out point. The significance of delay depended on evidence of when Ultraframe learned of the assignments and why it did not act sooner. Since the hearing had been fixed for directions and disputed factual issues required evidence, the judge should have adjourned the matter and allowed Ultraframe to file evidence.

• Court of Appeal (Civil Division): Appeal allowed on [2005] EWCA Civ 276; the application was restored and directions were required.
• High Court, Chancery Division, Manchester District Registry: His Honour Judge Maddocks struck out Ultraframe’s application on 17 August 2004.