Gresham International Ltd & Anor v Moonie & Ors

A liquidator’s failure to obtain insolvency sanction before issuing proceedings does not invalidate the proceedings. It ordinarily prevents recovery of the relevant costs from the company’s assets.

Sanction may be granted prospectively in stages and may be limited by scope or a costs cap. Retrospective sanction is ordinarily subject to urgency and an application without undue delay under the Insolvency Act 1986 and Insolvency Rules 1986. The court nevertheless retains a residual supervisory power to regularise non-compliance in an appropriate case. That power is exceptional and requires proper justification.

Gresham International Ltd was in compulsory liquidation and its liquidator sought declarations concerning the validity and effect of a sanction granted by the Secretary of State for proceedings against the respondents. The proceedings concerned transactions allegedly involving property, business assets and a preference. They had been issued before the application for sanction.

The Secretary of State’s application did not disclose that proceedings had already been issued and sought prospective rather than retrospective permission. The central issues were whether the sanction covered the existing proceedings, whether further prospective sanction could be granted in stages, and whether the court should retrospectively sanction costs under its statutory or supervisory powers.

1. Existing sanction ineffective. The Secretary of State’s sanction was prospective on its face and did not cover proceedings already issued. It could not be recharacterised as retrospective sanction when the true position had not been disclosed. The liquidator therefore had no valid sanction for the proceedings as they stood.
2. Effect of failure to obtain sanction. The absence of sanction did not render the proceedings a nullity or give the respondents a right to object to them. Its ordinary consequence was that the liquidator could not recover the relevant expenses from the company’s assets, following Dublin City Distillery v Doherty [1914] A.C. 823 and Re London Metallurgical Company [1897] 2 Ch 262.
3. Prospective and retrospective sanction. Sanction may cover the whole action, particular steps, or expenditure up to a specified limit. A liquidator may seek further prospective sanction for matters such as amended pleadings, costs exceeding a cap or mediation. Retrospective sanction remains subject to the statutory requirements of urgency and application without undue delay, although the court may exceptionally act under its supervisory jurisdiction.
4. Supervisory jurisdiction. The court retains a residual power to regulate compulsory winding-up and bankruptcy proceedings and, where justified, to overcome non-compliance with statutory sanction requirements. The power must not be used routinely or capriciously. Relevant considerations include the office-holder’s duty to realise assets for creditors, the consequences of shifting the costs burden personally to the office-holder, and whether the failure was inadvertent or otherwise justified.
5. Application. The court granted prospective sanction for costs incurred from the application, but refused retrospective sanction for costs incurred before 8 December 2008. The alleged inadvertence was not satisfactorily explained and there was no sufficient justification for departing from the statutory requirements.