The Connaught Income Fund, Series 1 v (Capita Financial Managers Ltd & Anor

A liquidator of an insolvent limited partnership may accept assignments of investors’ claims and pursue them for the benefit of the estate where doing so is commercially justified. Partnership dissolution does not determine the liquidators’ separate statutory authority.

Procedural rules governing claims by partnerships should be interpreted broadly and consistently with the overriding objective. Paragraph 5A of Practice Direction 7A does not impose substantive criteria that prevent an assignee from suing in the partnership name.

Claims under FSMA may be assigned. The restriction on claims brought by non-private persons does not apply merely because an assignee is not acting in a fiduciary or representative capacity.

The claimant was an insolvent limited partnership in liquidation. More than 1,000 investors had assigned to it claims concerning alleged unlawful promotion and misleading literature relating to the Fund.

The defendants argued that the proceedings were invalid because the claims belonged to investors personally, the assignments were made after dissolution, the wrong partnership name was used, the assignments circumvented the FSMA restrictions on claims by non-private persons, and the liquidators lacked statutory authority to accept the assignments.

The court treated the application as determining the legal issues as at trial and considered whether the Fund could bring the assigned claims and whether its liquidators had power to acquire and pursue them.

1. Practice Direction 7A, paragraph 5A. Paragraph 5A is procedural, not substantive, and must be interpreted in accordance with the overriding objective in CPR 1. It contains no additional partnership criteria of the kind advanced by the defendants. It should be read broadly so that claims can be tested without unnecessary expense, uncertainty or procedural risk. The Fund could sue in the firm name through its liquidators.
2. Dissolution and authority. The issue was not the authority of former partners under section 38 of the Partnership Act 1890. The proceedings were brought by the liquidators on behalf of the Fund, so the argument based on post-dissolution partner authority failed.
3. FSMA assignments. Regulation 6 of the Rights of Action Regulations principally addresses persons holding investments through professional trustees. A legal assignee does not, without additional circumstances, act in a fiduciary or representative capacity. The words “at the suit of” in section 150 of FSMA do not remove the ordinary right to assign a claim. The assignments were therefore not invalid merely because the Fund was not a private person.
4. Liquidators’ statutory powers. Paragraph 13 of Schedule 4 to the Insolvency Act 1986 was a freestanding sweep-up power to do all things necessary for winding up and distributing the partnership’s assets. “Necessary” was assessed commercially. Taking gratuitous assignments which might generate a substantial recovery for all creditors was an unassailable justification on the evidence. The liquidators also had sanction to bring the proceedings under paragraph 4.
5. The claim therefore succeeded. The Fund could bring the claims on the basis of the assignments.