Paperback Collection & Recycling Ltd, Re

A fine imposed on a company after liquidation is provable in the winding-up or administration where it arises from offences committed before liquidation. It is treated as a contingent or future debt or liability, notwithstanding that fines are no longer provable in personal bankruptcy. The fine remains unsecured. Where the insolvency estate is already insufficient to meet floating charge claims, the fine will not affect the distribution available to those chargeholders. The court may therefore direct distribution of the remaining assets under section 112 of the Insolvency Act 1986 where that course is just and beneficial.

The joint voluntary liquidators of Paperback Collection & Recycling Ltd sought directions under section 112 of the Insolvency Act 1986 concerning distribution of the company’s remaining assets. The company had pleaded guilty to seven environmental offences committed before its creditors’ voluntary liquidation, but sentencing had been deferred. The liquidators contended that any subsequent fine would not affect the insolvent estate. The respondent prosecuting authority did not oppose the relief and had no intention of seeking confiscation or compensation orders. The central issue was whether a fine imposed after liquidation would be a provable debt in the company’s winding-up and, if so, whether it would affect the proposed distribution.

1. The application was granted. The liquidation funds, subject to the claims of the floating chargeholders, were directed to be distributed to those chargeholders. The costs of obtaining a transcript of the judgment were made costs in the liquidation.

2. Under Rule 14.2(2)(a)(iv) of the Insolvency Rules 2016, obligations arising under confiscation orders are not provable against a company in liquidation or bankruptcy. The evidence also established no realistic prospect of a confiscation or compensation order being made.

3. The distinction between personal bankruptcy and corporate insolvency was material. Although Rule 14.2(2)(c)(i) expressly excludes fines from provability in bankruptcy, the insolvency legislation and rules do not make the same exclusion for a company’s winding-up or administration.

4. Following Re Pascoe [1944] Ch 310, a fine imposed for offences committed before liquidation is a debt provable in the company’s winding-up or administration. The fine may be characterised as a contingent or future debt or liability, even where the criminal sentence is imposed after the liquidation begins.

5. Any fine would rank as an unsecured debt. Since the evidence showed a substantial deficiency owed to floating charge creditors, the fine would not affect the insolvent estate or the amount available for distribution to them. It was therefore just and beneficial to give the direction sought under section 112 of the Insolvency Act 1986.