Hockin & Ors v Marsden & Ors

On an application under paragraph 74 of Schedule B1 to the Insolvency Act 1986, the statutory test is whether the administrator has acted, or proposes to act, so as unfairly to harm the applicant’s interests. The court must apply that test without adding a requirement of perversity or restricting unfairness to differential treatment. An administrator’s refusal to pursue claims may be reasonable, while refusal to assign potentially viable claims may nevertheless cause unfair harm if the claims would otherwise be lost and an assignment would benefit creditors. The court should not direct assignment of claims that are frivolous or vexatious, but should scrutinise their apparent merits without conducting a mini-trial.

London & Westcountry Estates Limited was in administration. Its shareholders and directors alleged that banks had mis-sold an interest-rate swap and sought an order directing the administrators to assign the company’s claims to them under paragraph 74 of Schedule B1 to the Insolvency Act 1986.

Only Diane Hockin had standing as a creditor. The proposed claims concerned an alleged advisory duty and alleged misrepresentations about future interest rates and a cost-free credit break. The central issues were the scope of the court’s jurisdiction under paragraph 74, whether the claims were frivolous or vexatious, and whether refusing assignment would unfairly harm creditors.

1. Standing and statutory test. Only Diane Hockin, as a creditor of the company, was entitled to apply. Paragraph 74 concerns unfair harm to an applicant in the capacity of creditor or member. The court rejected the submission that intervention required perversity. Paragraph 74 contains its own test, which cannot be replaced or supplemented by the different approach developed under sections 167, 168 and 303 of the Insolvency Act 1986.
2. Meaning of unfair harm. Unfairness under paragraph 74 is not confined to unjustifiable discrimination between creditors or members. Harm affecting creditors generally may be unfair where it lacks commercial justification and is not a disadvantage they should be expected to suffer. The relevant question was whether refusal to assign the claims, rather than merely refusal to pursue them, would unfairly harm creditors.
3. Merits of the claims. The alleged advisory duty was unsupported by evidence showing that the banks had assumed a general advisory role. The prediction that interest rates would rise was not a representation of existing fact and, on the evidence, pursuing that claim would be vexatious. The alleged representation that the swap could be terminated without cost on the third anniversary was supported by the contemporaneous documents and was viable.
4. Assignment and terms. The court should not direct assignment of a frivolous or vexatious claim. It should scrutinise the proposed causes of action sufficiently to identify whether at least one has serious prospects, without conducting a mini-trial. Since the viable claim was closely connected with the other proposed mis-selling claims, the assignment could refer generally to claims arising from the alleged mis-selling. Refusal to assign would cause unfair harm because the claims would otherwise be lost, whereas recoveries would benefit creditors. The administrators were directed to effect an assignment, subject to appropriate consideration and indemnity protection.