Berntsen & Ors v Tait & Ors

Applications under paragraphs 74 and 75 of Schedule B1 to the Insolvency Act 1986 must be distinguished from personal professional-negligence claims. Paragraph 74 addresses unfair harm caused by the management of an administration. Paragraph 75 addresses misconduct, including breach of fiduciary or other duty and misfeasance, and ordinarily provides relief for the benefit of the relevant class of creditors or contributories. A paragraph 74 claim properly begun during an administration does not disappear merely because the company later enters liquidation. Insolvency pleadings must state concisely, and with sufficient particularity, every fact necessary to establish the statutory claim and the relief sought.

The applicants were members and creditors of Coniston Hotel (Kent) LLP, which entered administration after funding difficulties in a hotel development. The respondents were its former administrators. The applicants alleged that the respondents had acted unfairly, breached fiduciary and other duties, and caused losses by mishandling the administration and by advising before their appointment.

The respondents applied under CPR 3.4(2)(a) and CPR 24.2 to strike out or summarily dismiss the proceedings. The central issues were whether the claims were properly brought under paragraphs 74 and 75 of Schedule B1, whether the paragraph 74 claim survived the LLP’s liquidation, and whether the pleaded case was sufficiently defined.

1. Application partly successful. The applicants were ordered to file Amended Points of Claim. The proceedings were confined to claims brought in their capacity as creditors or members under paragraphs 74 and 75 of Schedule B1 to the Insolvency Act 1986.
2. Paragraph 74 concerns management of the administration and unfair harm to the interests of a creditor or member. The usual focus is unequal or differential treatment that cannot be justified by the interests of creditors as a whole or by the objectives of the administration. It is distinct from a claim centred on unlawful conduct. The distinction identified in Re Charnley Davies (No 2) [1990] BCLC 760 was applied.
3. Paragraph 75 concerns misconduct in relation to the LLP, including misapplication or retention of property, accountability for property, breach of fiduciary or other duty, and misfeasance. Relief under paragraph 75 restores or contributes to the insolvency estate for the benefit of the relevant class. The court cannot award equitable compensation or damages under that paragraph directly to an individual creditor or contributory.
4. A paragraph 74 claim properly commenced while the LLP was in administration was not extinguished by the subsequent liquidation. The liquidation affected the relief available, but the claim remained capable of adjudication.
5. The applicants’ personal professional-negligence claims had a different legal basis, issues, procedure and measure of loss. They were therefore unsuitable for inclusion within these insolvency proceedings. Claims for personal losses, future operating profits and disruption to the applicants’ personal positions were also excluded.
6. The Points of Claim had to identify the relevant interests, the harm, why the conduct was unfair, the statutory basis of any paragraph 75 claim, and the precise relief sought. The case concerning available bank facilities was not entirely fanciful and was not summarily dismissed.
7. Clydesdale Financial Services Ltd v Smailes [2009] EWHC 1745 (Ch) and Re Automold [2009] EWHC 3709 (Ch) were case-management decisions on materially obscure facts and established no general principle requiring the present pleadings to remain combined.