Burnden Group Holdings Ltd v Hunt

A fully paid shareholder may be a contributory for the purposes of the Insolvency Rules 1986. That statutory standing does not, by itself, entitle the shareholder to inspect proofs of debt. The applicant must also show a legitimate interest in the relief sought, ordinarily by adducing prima facie evidence of a possible surplus in the winding up. A speculative possibility is insufficient. The court may control misuse of inspection rights by imposing appropriate conditions, including restrictions on contacting creditors.

Burnden Group Holdings Ltd was the sole shareholder of Burnden Holdings (UK) Ltd, which was in compulsory liquidation. The shareholder sought inspection of all proofs of debt under rule 4.79(b) of the Insolvency Rules 1986. The liquidator refused inspection, relying on confidentiality and the absence of a sufficient interest.

District Judge Benson held that the shareholder had standing and ordered inspection, also making a personal costs order against the liquidator. The appeal concerned whether a fully paid shareholder was a contributory and, if so, whether the evidence established a sufficient interest to justify inspection.

1. The appeal was allowed. The order requiring inspection of the proofs of debt and the personal costs order against the liquidator were set aside. Costs on the application and appeal were reserved for written submissions.

2. Under sections 74 and 79 of the Insolvency Act 1986, read with the wider statutory scheme, holders of fully paid shares are generally to be treated as contributories. Sections 141, 148 and 124, and rules concerning contributories’ meetings, lists and winding-up petitions, support a broad meaning akin to member. The court followed the reasoning in Re Anglesea Colliery Co and related appellate authority.

3. That conclusion establishes statutory standing under rule 4.79(b), but standing is not the end of the inquiry. A person seeking the court’s assistance must also be a proper person to invoke the jurisdiction and must show a legitimate interest in the relief sought. In this context, the shareholder had to produce prima facie evidence of a surplus or other real benefit in which it could participate.

4. The existence of a claim by the liquidator, and the possibility that it might succeed, did not establish that a surplus would remain after creditor claims, liquidation expenses and enforcement risks were considered. The applicants’ own evidence described success and surplus realisations as unlikely, and they did not provide evidence of their ability to satisfy a judgment. Their interest was therefore speculative.

5. Inspection might have been granted if evidence had shown a real prospect of a distributable surplus. Conditions could then have been imposed to prevent misuse of creditor information, including restrictions on direct or indirect contact with creditors. The court did not need to decide whether confidentiality or the appellate standard for overturning the liquidator’s decision independently justified refusal.

The judgment records an appeal from District Judge Benson’s decision of 12 January 2017. The appeal was allowed, the inspection order was set aside and the personal costs order against the liquidator was discharged.