Lomax Leisure Ltd v Miller & Anor

Insolvency Rules governing dividends must receive a commercial construction. Where, within the four-month period, a creditor applies to reverse or vary a decision on its proof, Rule 11.4 empowers the insolvency practitioner to postpone or cancel the dividend. That power is not confined to the period before formal declaration and may extend to stopping cheques already issued. The rules protect creditors who have proved their debts and secure pari passu distribution, rather than serving finality alone.

Lomax Leisure Ltd, as assignee of cheques issued by liquidators in payment of a dividend in a members’ voluntary liquidation, challenged their cancellation after the liquidator stopped payment following a creditor’s application concerning rejection of its proof of debt.

Mr Mark Cawson QC, sitting as a deputy High Court judge in the Chancery Division, dismissed the claim on 12 October 2007 and held that the liquidator was entitled to cancel the dividend. On a renewed application for permission to appeal, the central issue was whether the Insolvency Rules required payment once notice of intention to declare a dividend had been given or cheques issued, or whether Rule 11.4 permitted postponement or cancellation.

1. Application refused. Lady Justice Arden held that the proposed appeal had no real prospect of success. The subsidiary arguments concerning statutory duty, consideration for the cheques and restitution therefore did not arise.
2. For the purposes of the dividend provisions, a creditor who had already lodged a proof remained a creditor who had proved its debt even though the proof had been rejected. Rule 4.182A(v) was consequently inapplicable on the facts.
3. The conditions in Rule 11.4 were satisfied. The relevant four-month period had not expired when the proof was rejected and the application to the court was made. The rule empowered the responsible insolvency practitioner to postpone or cancel the dividend.
4. Rule 11.4 was not limited to the interval between notice of intention to declare a dividend and formal declaration. The rules distinguished between an intention to declare a dividend, the declaration itself and cancellation of the dividend. If a narrower power had been intended, clearer wording referring to cancellation of the intention or notice would have been used. Stopping the cheques could therefore constitute cancellation of the dividend.
5. The Insolvency Rules were not primary legislation, but still required a commercial construction. The liquidation objective included protection of proved creditors and distribution on a pari passu basis, not finality alone. The court did not need to decide the further argument under Rule 11.5(1), since Rule 11.4 independently upheld the judge’s decision.

• Court of Appeal (Civil Division): On 9 April 2008, Lady Justice Arden refused the renewed application for permission to appeal.
• Chancery Division: On 12 October 2007, Mr Mark Cawson QC, sitting as a deputy High Court judge, dismissed the claim and held that the liquidator was entitled to cancel the dividend.