Rubin v Coote

The Court of Appeal dismissed an appeal against a High Court order under section 165 of the Insolvency Act 1986 sanctioning a liquidator’s compromise of claims brought under sections 238, 239 and 423 of the Insolvency Act 1986. The court held that the judge had properly applied the correct objective test, adopting the approach in Re Greenhaven Motors Ltd, and was entitled to place weight on the liquidator’s assessment supported by counsel’s advice and statements of affairs. The court found no clear evidence that further asset investigation would have produced a materially better outcome or that the judge’s decision was outside the bounds of legitimate discretion. The application to adduce new valuation and Land Registry material was refused as it would not have falsified the judge’s conclusion.

This was an appeal by a creditor, Mr Michael Coote, against HHJ David Cooke QC’s order dismissing the creditor’s challenge to a liquidator’s compromise and refusing to remove the liquidator. The liquidator, Mr Rubin, had negotiated a £1 million settlement with a former director, Mr Brian Henton, and Lookmaster Limited to compromise claims alleged to arise from transactions at undervalue (IA 1986 s.238), preferences (s.239) and transactions defrauding creditors (s.423), and had applied under s.165 IA 1986 for court sanction.

Background and procedural posture:

• Branchempire Limited had been put into voluntary liquidation; Mr Coote was the principal unsecured creditor following successful County Court judgments against the company.
• Mr Rubin, appointed by creditors as liquidator, issued proceedings in 2005 and 2008 against Mr Henton and Lookmaster to recover assets/monies said to have been extracted from Branchempire.
• The liquidator sought court approval of a compromise under s.165 IA 1986; HHJ Cooke approved the compromise and dismissed an application to remove the liquidator. Mr Coote appealed to the Court of Appeal and sought permission to adduce new evidence (valuations and Land Registry entries).

Issues framed:

• Whether the proposed compromise was in the best commercial interests of the company and its creditors such that the court should sanction it under s.165 IA 1986;
• Whether the liquidator had made adequate enquiries into the asset positions of Mr Henton and Lookmaster and had properly evaluated the prospects of recovery;
• Whether newly produced valuation and Land Registry evidence should be admitted on appeal.

Court’s reasoning and conclusions:

• The court reiterated the appropriate approach to sanction applications, including that the court must decide whether the compromise is likely to best serve the interests of those with a real interest in the assets and should not conduct a mini-trial or re‑weigh evidence as if at trial. The decision-maker may properly place weight on the liquidator’s informed assessment, particularly when supported by counsel’s advice.
• Counsel’s opinions supplied to the liquidator identified a core of stronger claims (in the region of £500,000) and other more uncertain claims; the £1 million offer was within a commercially reasonable range when balanced against the costs and risks of further litigation and the absence of an alternative offer.
• The judge was entitled to treat the statements of affairs and supporting material as a basis for assessing asset availability; on the material before him there was no clear evidence of significant undisclosed assets that would make it likely a materially better result would have been obtained by rejecting the compromise.
• The proposed new evidence would at best have shown an arguable understatement of assets but would not have enabled the court to conclude positively that a higher realisable sum would have been obtained or that Mr Henton would have agreed to pay more; accordingly the new evidence was refused and the appeal dismissed.

Appeal dismissed. The Court of Appeal held that the judge below had applied the correct objective approach to a s.165 Insolvency Act 1986 sanction application, was entitled to place weight on the liquidator’s assessment supported by counsel, and there was no clear evidence that further enquiries or the new evidence would have led to a materially better outcome for the creditors. The judge’s decision was within the proper ambit of judicial discretion.

Appeal from the High Court of Justice, Chancery Division, Companies Court (HHJ David Cooke QC), No. 10836 of 2008; s.165 IA 1986 sanction application and application to remove liquidator decided below; judgment of the Court of Appeal delivered as [2011] EWCA Civ 106 dismissing the appeal and refusing to admit new evidence.