Fielding & Anor v Hunt ( Liquidator of the Burnden Group Ltd)

A liquidator who unsuccessfully resists an appeal against rejection of a proof of debt is not ordinarily personally liable for the successful applicant’s costs. Under Insolvency Rules 1986, rule 4.83(6), personal liability requires a special case or good reason beyond the mere failure of the appeal defence. Personal advantage, improper conduct or unreasonable conduct may justify such an order. A connection between the proof process and contemplated misfeasance proceedings is insufficient where the liquidator is performing his statutory functions reasonably. The successful appellant’s appeal costs ordinarily fall as expenses of the liquidation, distinct from the creditor’s costs of proving the debt. The court may reduce those costs under Civil Procedure Rules 1998, Part 44.2 where both parties contributed to the length and cost of the proceedings.

The Fieldings successfully appealed against the liquidator’s rejection of their proof of debt in the liquidation of Burnden Group Ltd. The substantive decision was reported as [2017] EWHC 247 (Ch). The present judgment concerned costs.

The company had no assets presently available to meet the Fieldings’ costs, which exceeded £290,000 including VAT. The Fieldings sought an order making the liquidator personally liable, arguing that the proof of debt appeal had been used to advance contemplated misfeasance claims against them and former administrators. Alternatively, they sought treatment of their costs as expenses of the liquidation. The central issues were whether personal liability was justified and, if not, how the successful appeal costs should be borne.

1. Personal liability. Rule 4.83(6) of the Insolvency Rules 1986 creates a default position that a liquidator is not personally liable for costs of an application under the rule unless the court orders otherwise. The mere fact that a liquidator unsuccessfully rejects a proof or resists an appeal is insufficient. The court adopted the “special case” and “good reason” approach applied to rule 7.39 in Re Mordant (a bankrupt) [1995] 2 BCLC 647.
2. A finding that a liquidator acted for personal advantage could justify personal liability. The distinction between performing statutory functions and initiating proceedings in the liquidator’s own name was supported by Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274, while In re Arthur Williams & Co [1913] 2 KB 88 illustrated the relevance of acting outside statutory duty. There was no evidence that the liquidator pursued the proof process for personal advantage.
3. The liquidator was obliged to decide the submitted proof and was justified in rejecting it on the material then available. The connection with contemplated misfeasance applications, including the limitation timetable, did not make the proof process so closely or improperly entwined with those applications as to displace the default rule.
4. The costs of a successful appeal against rejection of a proof are distinct from the creditor’s costs of proving the debt. Rule 4.78(1) did not extend to appeal costs. The established approach that successful appeal costs are payable out of the estate, reflected in In re National Wholemeal Bread and Biscuit Company [1892] 2 Ch. 457, remained applicable.
5. The Fieldings’ costs were therefore expenses of the liquidation. Applying Civil Procedure Rules 1998, Part 44.2, the court reduced them by 20% because both parties had delayed the exchange of information and the Fieldings’ conduct had increased the length and cost of the appeal. The final order was that 80% of the Fieldings’ appeal costs be treated as expenses of the liquidation.

The judgment concerned costs following the Fieldings’ successful appeal against rejection of their proof of debt. The substantive judgment was given in the same proceedings at [2017] EWHC 247 (Ch). The court then ordered that 80% of the appeal costs be treated as expenses of the liquidation.