Goldfarb v Higgins & Ors

Interest payable on a debt proved in a winding up is governed by the statutory regime in section 189 of the Insolvency Act 1986. Where that interest forms part of the company’s loss in a fraudulent trading application under section 213, the court cannot reduce the statutory rate or period. However, unreasonable delay by the liquidator may be considered when deciding, under section 213(2), whether it is reasonable for the respondent’s contribution to cover all of that interest. A delay is not unreasonable where proceedings were commenced when recoverable assets appeared, particularly where the limitation period was respected and the relevant respondents were difficult to trace or appeared assetless.

The liquidator of Overnight Ltd had previously succeeded in an application under section 213 of the Insolvency Act 1986. On 25 March 2010, the court ordered Mr Higgins to contribute the full loss caused to HMRC and Mr Charalambous to contribute 50 per cent of that loss on a joint and several basis.

This ruling concerned quantification of the contribution. The revised claim included the outstanding principal loss, statutory interest payable to HMRC, unrecovered costs and an ad valorem charge. Mr Charalambous argued that interest should be reduced because the liquidator had recovered the principal in 2002 but had not commenced proceedings until 2007. The central issue was whether that delay justified excluding some interest from the contribution.

1. The court confirmed that Mr Charalambous’s contribution was to be one-half of the amended claim. No fresh circumstances justified reconsidering the earlier ruling that his contribution should be 50 per cent.

2. Under section 189 of the Insolvency Act 1986, interest on a debt proved in a winding up is payable at the statutory rate where applicable. Under section 189(4), the rate is the greater of the rate otherwise applicable to the debt and the rate specified in section 17 of the Judgments Act 1838. The applicable specified rate had been 8 per cent since 1 April 1993.

3. The liquidator therefore had no discretion to reduce the interest payable to HMRC. The discretionary interest regime under section 35A of the Senior Courts Act 1981 did not directly apply because the section 213 application concerned a contribution to the company’s assets, rather than a personal debt or damages claim against Mr Charalambous.

4. Nevertheless, unreasonable delay in commencing section 213 proceedings could be considered under section 213(2) when determining the reasonable amount of the respondent’s contribution. The court treated the guidance in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC) as valuable guidance by analogy.

5. The liquidator’s delay was reasonable. Proceedings were commenced when it appeared that assets might be available for recovery, the limitation period had not been exceeded, and the other respondents were difficult or impossible to trace or appeared to have no assets. No reduction was therefore made for interest.

6. The amended total claim was £490,137.32. Mr Charalambous was ordered to contribute £245,068.66, jointly and severally with Mr Higgins’s liability for the full amount.