Cook v Mortgage Debenture Ltd

The court considered the meaning of the moratorium in paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 and whether an application by a non-party to be joined to proceedings brought by a company in administration, and an appeal against refusal of that application, constitute "legal process ... against the company". The court accepted that "legal process" is a broad expression but held that the essential feature bringing proceedings within paragraph 43(6) is that they must be "against the company". Defensive steps taken by a defendant in proceedings initiated by the company do not, in substance, fall within the moratorium. Applying authority including Humber & Co v John Griffiths Cycle Co and BPM Pty Ltd v HPM Pty Ltd, the court held that the joinder application and the related appeal were not proceedings against the company for the purposes of paragraph 43(6), and that adverse costs orders incidental to such applications do not amount to separate proceedings against the company. The appeal was dismissed.

Background and parties. The respondent, Mr Thomas Evan Cook, a former partner at Kester Cunningham John, applied under CPR 19.2 and 19.4 to be joined as a defendant to proceedings brought by Mortgage Debenture Limited (MDL) against Mr and Mrs Chapman and Basdring Limited. MDL, assignee of Basdring's loan book, had brought proceedings seeking to set aside a compromise. The joinder application was dismissed by DJ Obodai; permission to appeal was granted in respect of one ground and the appeal was ultimately allowed by HHJ Waksman QC. MDL filed a notice of intention to appoint an administrator on 12 April 2013, invoking the moratorium in Schedule B1, paragraph 43(6). An administrator was appointed on 13 June 2013.

Nature of the application and issues framed.

• Nature of relief sought: Mr Cook sought to be joined as a defendant to existing proceedings brought by MDL (relief sought via CPR 19.2/19.4).
• Primary legal issue before the Court of Appeal: whether the joinder application and an appeal from refusal of that application constitute "legal process (including legal proceedings ...) ... against the company" within paragraph 43(6) of Schedule B1 (and thus are stayed by the moratorium unless consent of the administrator or court permission is obtained).
• Ancillary issues: whether an adverse costs order arising from such an application would itself fall within the moratorium.

Reasoning. The court began by recognising the breadth of the phrase "legal process" but concluded that if the application and appeal fall within paragraph 43(6) it is because they are "legal proceedings" and, crucially, because they are proceedings "against the company". The court explained the distinct purposes of the moratorium in administration and liquidation but rejected the submission that the different purposes in administration justify applying the moratorium to defensive procedural steps. The court relied on authority that defensive measures taken by a defendant to proceedings begun by the company do not fall within moratorium provisions (notably Humber & Co v John Griffiths Cycle Co and BPM Pty Ltd v HPM Pty Ltd). The court distinguished Eastern Holdings v Singer & Friedlander because the interpleader there sought to bring the company into proceedings in which orders adverse to the company could be made. By contrast, Mr Cook's application, while not a purely defensive step in the strictest sense, sought no relief against MDL and had none of the character of legal proceedings "against the company". The court also held that an application for costs incidental to the joinder application does not constitute a separate proceeding against the company.

Conclusion and disposition. The Court of Appeal dismissed the appeal, upholding the judge's conclusion that the joinder application and the related appeal were not caught by the moratorium in paragraph 43(6).

This was an appeal and the Court of Appeal dismissed the appeal. The court held that paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 applies to legal proceedings that are "against the company"; procedural or defensive steps taken by a non-party or defendant in proceedings commenced by the company do not, in substance, constitute legal proceedings against the company for the purposes of the moratorium. Accordingly Mr Cook's joinder application and the appeal against its refusal were not stayed by paragraph 43(6). The court also held that costs incidental to such applications do not amount to separate proceedings against the company.

Appeal from the High Court of Justice, Chancery Division, Manchester District Registry (HHJ Waksman QC). The joinder application was initially dismissed by DJ Obodai; HHJ Pelling QC granted permission to appeal on one ground; HHJ Waksman QC heard the appeal on 18 April 2013 and gave a decision which prompted this appeal to the Court of Appeal (A3/2013/1225). Permission to appeal on the interpretation of paragraph 43(6) was granted by Lewison LJ. Final disposition in the Court of Appeal: [2016] EWCA Civ 103.