Power v Petrus Estates Ltd & Ors

On an appeal under rule 4.70 of the Insolvency Rules 1986, the court determines whether a proof or vote was valid for voting purposes, examining the evidence available to the court and the creditor’s position at the date of the meeting. Subsequent events do not ordinarily justify allowing the appeal.

Where an invalid vote was cast, the court must decide whether a further meeting would serve a useful purpose. The result may be corrected by eliminating the invalid vote without rerunning the meeting, particularly where the issue was clear-cut and the result would be unchanged. A further meeting is more likely where an eligible creditor was prevented from voting.

A liquidator should not be chosen by a person whose interests or conduct conflict with the liquidator’s duties.

The appellant, the sole director of Power Builders (Surrey) Ltd, appealed against the Registrar’s striking out of his application under rule 4.70 of the Insolvency Rules 1986. He challenged the admission of a proof submitted by Petrus Estates Ltd at the company’s creditors’ meeting and sought a further meeting to appoint liquidators.

For the appeal, Petrus conceded that it should be assumed not to have been a creditor and that its vote was invalid. The issues were whether that assumption required a new meeting, whether the outcome would have changed, and whether the appellant could properly seek the appointment of a liquidator of his own choice.

1. The appeal was dismissed. The court assumed, for the purposes of the strike-out application, that Petrus was not a creditor and that its vote was invalid. That did not establish that the chairman had acted wrongly when allowing the vote subject to objection.
2. Rule 4.70 provides a rapid voting procedure at the creditors’ meeting, followed by fuller scrutiny on appeal. The court may consider admissible evidence not placed before the chairman, but the relevant question is whether the claim was established, and in what amount, at the date of the meeting. Later events do not ordinarily make the appeal succeed.
3. The power under rule 4.70(4) to summon another meeting is discretionary. Its exercise depends on the question put to the vote, the nature of the voting error, the effect of invalid votes, creditor democracy and the cost of another meeting. Where an entitled creditor was wrongly denied a vote, a further meeting may ordinarily be appropriate. Where all entitled creditors voted and an additional vote is later invalidated, the court may simply eliminate the invalid vote.
4. The supposed “foregone conclusion” test was not established by the Chelsea FC case. In this case, the meeting had one clear-cut question and Petrus’s vote could be removed without changing the result. A further meeting would therefore serve no useful purpose.
5. The court accepted the principles stated in Fielding v Seery [2004] BCC 315. A liquidator should not be chosen by a person whose interests conflict with the liquidator’s duties, against whom the company has hostile claims, or whose conduct is under investigation. The appellant fell within those categories.
6. Although the court considered that a chairman who is also a creditor or contributory may in principle appeal under rule 4.70(2), it did not need to decide whether that right was available on these particular facts.

High Court (Chancery Division): On appeal from Registrar Derrett, Mr Justice Lewison dismissed the appeal and upheld the striking out of the application.