Coniston Hotel (Kent) LLP, Re

In an insolvency application, the court may give summary judgment where an allegation has no real prospect of success, including because the factual or legal premise necessary to support it has already been thoroughly examined and cannot realistically be re-opened. A pleaded case must identify the acts or omissions said to constitute misconduct and the causal consequence relied on. Serious allegations of fraud or dishonesty require a proper foundation and cannot proceed to trial if they are not pleaded. An application to examine an administrator’s conduct is not necessarily available as of right. The court may consider whether the proposed examination has a proper purpose, including a realistic monetary consequence or a demonstrated public interest.

Mr Bernsten and Mr Richardson, members and alleged creditors of Coniston Hotel (Kent) LLP, applied for relief concerning the conduct of the LLP’s former administrators under paragraphs 74, 75 and 88 of Schedule B1 to the Insolvency Act 1986. The LLP had entered administration and was later ordered to be wound up, with claims under paragraphs 74 and 75 preserved.

The application alleged, among other matters, failure to rescue the business by obtaining further bank funding, sale of the hotel at an undervalue, and improper recovery of administration costs. The court considered case-management directions and an application for summary judgment or strike-out. A separate claim by the applicants against the bank concerning the alleged funding obligation had already been dismissed summarily and unsuccessfully appealed.

1. Failure to rescue by obtaining funding. Summary judgment was given for the administrators. The applicants’ case depended on the bank having an obligation, or being capable of being required, to provide further funding. The evidence and decisions in the separate bank proceedings gave no realistic basis for establishing that obligation. The applicants identified no new material capable of changing that conclusion. Nor was there any apparent reason why the administrators could have achieved funding which the applicants, described as experienced businessmen, had themselves failed to obtain. The allegation therefore had no real prospect of success.
2. Alleged sale at an undervalue. The pleaded case did not properly identify the acts or omissions said to have caused the hotel to be sold too cheaply, or the consequence of the alleged lack of independence of the valuers. The more serious allegation of a predetermined dishonest arrangement was not pleaded and, in any event, had previously been identified as requiring a proper foundation before it could be advanced. The applicants were given 14 days to serve a draft amended pleading removing hopeless matters and identifying an arguable undervalue case. The case management conference was adjourned for that purpose.
3. Examination of the administrators’ conduct and costs. Paragraph 75 of Schedule B1 to the Insolvency Act 1986 empowers the court to examine an administrator’s conduct and, following examination, to order payment to the LLP. The court expressed doubt that such an examination was available as of right where no monetary consequence was realistically identified. A possible public-interest justification might lead to a different conclusion, but that issue was left open pending clarification of the re-pleaded undervalue claim.
4. The court emphasised the need for active case management. The matter was to continue only on properly pleaded and realistically arguable issues.