Managa Properties Ltd. v Brittain

Under section 172(3) of the Insolvency Act 1986, the court retains a discretion whether to direct a liquidator to convene a creditors’ meeting to consider replacement. A creditor’s qualifying percentage does not create an automatic entitlement to such an order. The applicant must satisfy the court that convening the meeting is in the best interests of the liquidation. This requires consideration of the reality and utility of the proposed meeting, including whether the debt relied on remains disputed, whether the applicant would be able to vote, whether the application would increase costs, and whether it serves a proper insolvency purpose. A rejection of a proof under rule 4.82 need only constitute a decision accompanied by reasons; the adequacy of those reasons is not determined under rules 4.82 and 4.83. Time under rule 4.83 runs from receipt of the decision.

Managa Properties Limited appealed against Registrar Derrett’s order dated 16 September 2008, which refused to direct the liquidator of Panix Promotions Ltd to convene a creditors’ meeting under section 172(3) of the Insolvency Act 1986 to consider her replacement.

The applicant also sought reversal or variation of the liquidator’s rejection of its proof for an alleged debt of £2,271,265. The liquidator’s letter rejecting the proof had been sent before the Registrar gave judgment but had not been brought to her attention. The central issues were whether the meeting should be directed, whether the rejection was effective under the Insolvency Rules, and whether the challenge to the rejection was out of time.

1. The appeal against the refusal to direct a creditors’ meeting was dismissed. Section 172(3) gives the court a discretionary power. Even where a creditor is established as representing more than 25 per cent of the creditors’ claims, the court need not direct a meeting if it would not serve the interests of the liquidation or would merely waste costs.

2. Where the applicant’s status as a creditor depends on a disputed proof which the liquidator has not yet adjudicated, the court’s judgment is wider. The proposed meeting would be of questionable utility because the liquidator would chair it and might reject the applicant’s vote. The application was substantially based on the liquidator’s failure to determine the very proof relied upon. The applicant had not shown that replacing the experienced liquidator would advance the liquidation.

3. The court construed the appropriate requirement as satisfaction that, in all the circumstances, directing a meeting would be in the best interests of the liquidation. The phrase “show cause” was not adopted, although the difference was not considered substantial.

4. The rejection letter was a rejection under rule 4.82, not a decision under rule 4.70 concerning voting at a creditors’ meeting. The statement that satisfactory evidence had not been provided was sufficient to amount to reasons and a decision for the purposes of rules 4.82 and 4.83.

5. The application to challenge the rejection was not out of time because the court accepted, on balance, that the applicant had not received the letter earlier. Alternatively, applying CPR 3.8 as incorporated by rule 12.9, time was extended. The delay had caused no prejudice, and refusing an extension would have been disproportionate. The substantive proof issue was directed to be determined by a Registrar with oral evidence.

High Court (Chancery Division): appeal from Registrar Derrett’s order dated 16 September 2008 dismissed. The court also held that the application to reverse the rejection of the proof was in time, or alternatively extended time.