Contrarian Funds Llc v Lomas & Ors

When a creditor seeks more time to challenge an administrator’s rejection of a proof of debt, the court applies the modern approach to compliance with time limits, while recognising the distinctive public interest in the efficient and fair administration of the insolvent estate. The creditor must show good grounds for the extension. Relevant considerations include the length and explanation of the delay, the apparent merits, the creditor’s responsibility for obtaining supporting evidence, prejudice to the estate and other creditors, and the consequences of refusing relief. The need to preserve the momentum of a collective insolvency process may outweigh the value of a potentially substantial individual claim, particularly where the creditor has already received generous extensions and has not produced evidence capable of supporting the challenge.

Contrarian Funds LLC, as assignee of a claim originally held by Orange Capital LLC, lodged a proof of debt against Lehman Brothers International (Europe) in administration. The administrators rejected the proof on the ground that the relevant securities trade was with Lehman Brothers Inc, not LBIE. The rejection notice triggered the 21-day period under rule 2.78 of the Insolvency Rules 1986.

The administrators agreed successive extensions, ultimately extending time to 24 January 2014. Contrarian sought a further extension while it attempted to obtain information from Orange and Goldman Sachs. The central issue was whether there were good grounds to enlarge the time for an application to reverse or vary the administrators’ decision.

The application for a further extension of time was dismissed.

1. Applicable approach. Rule 2.78 of the Insolvency Rules 1986 required an application challenging rejection of a proof to be made within 21 days. The power to extend time arose under rule 12.9(2), read with the court’s general case-management power under CPR 3.1(2)(a), and was continued by rule 12A.55(2). The current approach under CPR 3.9, as explained in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, applied to the extent that the application initiated litigation. Efficient and proportionate conduct, and compliance with rules and orders, were matters of paramount importance.
2. The litigation context did not exhaust the relevant considerations. The court also had to recognise the public interest in the efficient and expeditious administration of an insolvent estate. Minor delays might be tolerable, but delay without good reason could prejudice creditors generally, prolong the administration, require staff and reserves to be retained, and undermine fair treatment between claimants. The consequence that refusal might deprive a claimant of its claim was also relevant, as recognised in Chartwell Estate Agents Ltd v Fergies Properties SA [2014] EWCA Civ 506.
3. Contrarian had known since August 2012 of the administrators’ position and had produced no substantive response for 12 months. It had received several generous extensions but remained unable even to decide whether to issue a challenge. As assignee, it was responsible for arranging with Orange the provision of relevant information. The assignment appeared to confer rights enabling it to require Orange’s co-operation, yet Contrarian had taken no effective steps to enforce those rights.
4. The available evidence appeared to support the administrators’ position, and there were no substantial grounds for believing that further information would rebut it. The scale of the administration and the fact that substantial further work remained did not justify relaxing the time limit. Maintaining momentum in determining claims was essential, and a relaxed approach to one claimant would have wider and unacceptable consequences.

The administrators had already been generous in agreeing extensions. No further extension was appropriate.