Cook v Mortgage Debenture Ltd

The administration moratorium applies only to legal process against the company. A party may take essentially defensive steps in proceedings commenced by a company in administration without the administrator’s consent or the court’s permission.

Whether an appeal is against the company depends on the character of the original application, rather than the company’s formal designation as respondent. An interested non-party’s application to join proceedings commenced by the company, solely to be heard on an issue affecting that person’s interests and without seeking relief against the company, falls outside the moratorium. A costs order incidental to such an application is also outside it.

Mortgage Debenture Ltd commenced proceedings concerning a secured loan. Mr Cook, a former partner in solicitors potentially affected by the result, applied under CPR 19.2 and 19.4 to join those proceedings as a defendant. A district judge refused joinder, but His Honour Judge Waksman QC allowed Mr Cook’s appeal.

Before that appeal was heard, Mortgage Debenture Ltd filed notice of intention to appoint an administrator. The moratorium under Schedule B1 to the Insolvency Act 1986 therefore took effect. The judge held that Mr Cook’s joinder appeal was not legal process against the company requiring permission.

Mortgage Debenture Ltd appealed on the construction of paragraph 43(6). The central issue was whether the joinder application and the appeal from its refusal constituted legal process against the company.

1. Appeal dismissed. Paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 did not prevent Mr Cook’s joinder appeal from proceeding without the administrator’s consent or the court’s permission.

2. The controlling requirement was that the legal process be against the company. Proceedings commenced by a company in administration fall outside the moratorium. Basic fairness permits defendants to defend themselves without restriction, and essentially defensive steps do not become proceedings against the company merely because they involve active procedural measures. The broader rescue and preservation purposes of administration did not justify a different approach from the established position in liquidation. Parliament had used substantially the same statutory language.

3. The character of an appeal depends on the nature of the original application. If that application sought relief against the company, an appeal from its dismissal would likewise require permission. If the original application was outside the moratorium, the company’s formal status as respondent to the appeal did not bring the appeal within it. The court applied Humber & Co v John Griffiths Cycle Co (1901) 85 LT 141 and BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857.

4. Mr Cook’s application was not strictly defensive because he was not already a defendant. Nevertheless, it had none of the character of proceedings against the company. Mortgage Debenture Ltd had commenced the existing proceedings, and Mr Cook sought no relief against it. He wished only to be heard on an issue affecting his firm’s interests in possible proceedings by a third party.

5. Eastern Holdings Establishment of Vaduz v Singer & Friedlander Ltd [1967] 1 WLR 1017 was distinguishable. The interpleader process there brought a company in liquidation into proceedings in which it was not already a party and exposed it to an adverse determination.

6. A request for costs was incidental or consequential to the joinder application, not a separate application against the company. The applicant could seek, and the court could make, a costs order against the company without infringing the moratorium.

McCombe LJ and the Master of the Rolls agreed with David Richards LJ.

1. Court of Appeal (Civil Division): In Cook v Mortgage Debenture Ltd [2016] EWCA Civ 103, unanimously dismissed the company’s appeal on the construction of the administration moratorium.
2. High Court, Chancery Division, Manchester District Registry: His Honour Judge Waksman QC allowed Mr Cook’s appeal from the refusal of joinder and held that the moratorium did not require permission for that appeal.
3. High Court, Manchester District Registry: District Judge Obodai dismissed Mr Cook’s application to be joined as a defendant. His Honour Judge Pelling QC granted permission to appeal on one ground.