Rubin v Coote

On an application under the Insolvency Act 1986 to sanction a liquidator’s compromise, the court must objectively decide whether creditors’ interests are likely to be best served by accepting the compromise on its stated terms or by refusing it. The court need not determine whether better terms might have been obtained or conduct a mini-trial. It should assess the apparent merits, risks, costs and resources involved in continuing or negotiating claims, together with assets available to meet them. It may give weight to informed views of the liquidator and interested creditors, but remains responsible for the decision. Possible undisclosed assets do not necessarily make a compromise unacceptable where the evidence does not establish that they would produce a better offer or judgment.

Branchempire Limited’s principal creditor, Michael Coote, had obtained substantial damages in earlier proceedings concerning the company’s failure to repair his flat. After Branchempire entered liquidation, its liquidator, David Rubin, brought proceedings against a former director, Michael Henton, and companies connected with him, alleging transactions at an undervalue, transactions intended to defraud creditors, preferences and breaches of fiduciary duty.

Rubin agreed a compromise for £1 million, payable in stages. Coote opposed the compromise, contending that the claims were worth substantially more and that Henton and Lookmaster Limited had concealed assets. HHJ David Cooke QC approved the compromise under section 165 of the Insolvency Act 1986. Coote appealed that decision and sought to adduce further evidence about Henton’s assets. The central issue was whether the judge had properly assessed the compromise’s commercial benefits, the prospects and costs of continued litigation, and the possibility of a better recovery.

Disposition. The Court of Appeal unanimously dismissed the application to adduce further evidence and dismissed the appeal.

1. Approach to sanction. The court’s task under section 165 of the Insolvency Act 1986 is an objective assessment of whether those with a real interest in the company’s assets are likely to be better served by the compromise on its actual terms or by refusing it. The court is not deciding an appeal from the liquidator. It may give weight to the views of interested creditors and to the liquidator’s informed assessment, but the decision remains its own.
2. The approach in Re Greenhaven Motors Limited [1999] 1 BCLC 635 required comparison with the realistic consequences of refusing approval. The court should consider whether the claims would be pursued or abandoned, any realistic later negotiation, their apparent merits, the risks and costs of litigation, available resources and the assets available to satisfy a judgment. It should not conduct a mini-trial or speculate about better terms without a concrete basis for doing so.
3. Application. The liquidator had competent legal advice identifying claims worth about £524,485 as strong and the remaining claims as uncertain or likely to fail. Further investigation and litigation would involve substantial additional costs. There was no alternative offer and no clear evidence that Henton or Lookmaster possessed additional uncharged assets capable of funding a better settlement. The £1 million offer, when made, would have enabled Coote to receive payment in full, and the order protected the liquidation’s position if the settlement was not paid.
4. Evidence obtained after the hearing showed, at most, an arguable and strongly contested possibility that assets had been understated. It neither established nor quantified any understatement and did not show that Henton would pay more. It therefore did not undermine the judge’s conclusion that the compromise was commercially acceptable.
5. The judge had taken the relevant factors into account. His decision was not vitiated by misdirection and was not outside the legitimate bounds of his discretion.

• Court of Appeal (Civil Division): [2011] EWCA Civ 106. Appeal against approval of the compromise dismissed, and application to adduce further evidence dismissed.
• High Court, Chancery Division, Companies Court: HHJ David Cooke QC, 15 June 2009. The compromise was approved under section 165 of the Insolvency Act 1986; the application to remove the liquidator was also dismissed. No citation for that decision is stated in the judgment.