Courts Plc (In Liquidation)

Under section 176A(5) of the Insolvency Act 1986, the court has no power to disapply section 176A(2) selectively for some unsecured creditors while preserving it for others. The provision operates on an all-or-nothing basis.

The statutory cost-benefit assessment must be made by reference to unsecured creditors as a body. Individual claim-processing costs, or an average cost allocated to each creditor, are not the proper measure. The pari passu principle and the priority given to liquidation expenses remain relevant. Even if jurisdiction existed, an arbitrary threshold based on rough average costs would not justify the order.

Courts plc had entered administration in 2004 and later liquidation in 2007. Its prescribed part was £600,000, with approximately 297 unsecured creditors. The joint liquidators sought an order under section 176A(5) of the Insolvency Act 1986 disapplying section 176A(2) for creditors whose claims were £28,000 or less, on the basis that distribution costs would be disproportionate to the benefits. They also sought approval of their costs under rule 12.2(2) of the Insolvency Rules 1986. The central issues were whether partial disapplication was within the court’s jurisdiction and, if so, whether it should be ordered.

1. Qualified disapplication refused. The application under section 176A(5) of the Insolvency Act 1986 could not succeed. The wording that section 176A(2) shall not apply contemplated disapplication of the subsection as a whole. It did not authorise an order disapplying it only for selected unsecured creditors.
2. The statutory language was reinforced by the pari passu principle. Subject to preferential claims, unsecured creditors share rateably. A partial order would instead allow approximately 37 larger creditors to take the prescribed part while leaving approximately 260 other creditors with nothing. No sufficient indication appeared in the Act, the Insolvency Rules 1986 or other admissible material that Parliament intended that result.
3. The cost-benefit condition in section 176A(5)(a) required a critical assessment by the court. The relevant benefits were not to be assessed creditor by creditor by allocating an average processing cost to each claim. Liquidation expenses are paid from the company’s assets before distribution, and the remaining assets are shared rateably. Whether the average or actual cost of processing an individual claim exceeded that creditor’s dividend was therefore irrelevant.
4. In any event, the proposed threshold rested on an informed guess and could produce arbitrary results. A creditor with a claim just below the threshold might receive nothing even where little processing cost had been incurred, while a creditor just above it might receive a dividend despite greater processing expense. The court would not exercise any assumed jurisdiction on that basis.
5. The proposed alternative undertaking was also refused. It would indirectly sanction a result which the court could not, or would not, order directly.
6. The court approved the liquidators’ costs up to £62,000 under rule 12.2(2) of the Insolvency Rules 1986, reflecting the need to process all unsecured claims.