Rochay Productions Ltd, Re

This was an application under rule 15.35 of the Insolvency Rules 2016 to challenge the admission for voting purposes of a proof of debt lodged by Rochay Elite Limited (the Third Respondent) at a creditors' meeting of Rochay Productions Limited held on 4 September 2019. The court allowed the appeal against the admission of the proof and struck the proof out. The judge concluded that the proof was indefensible: the bank statements relied upon did not evidence a net debt in favour of the Third Respondent, purported loan agreements appeared backdated or otherwise did not support the claim, and Companies House filings were inconsistent with a large intercompany loan. The court directed a fresh creditors' meeting and ordered the Third Respondent to pay the applicant's costs on the indemnity basis because the proof was unsupported and the Third Respondent had actively opposed the application until shortly before hearing. An application for a personal costs order against the chair of the meeting (the Second Respondent) was dismissed: rule 15.35(6) affords the decision-maker protection and there was no cogent evidence of bad faith, collusion or other special circumstances justifying a personal costs order.

Background and parties: Rochay Productions Limited went into creditors' voluntary liquidation shortly after an adverse judgment in favour of Opus Art Limited (the applicant) for deceit and damages. Rochay Elite Limited (Third Respondent) lodged a proof for c.£477,843.55 described as funds advanced. The meeting of creditors of 4 September 2019 was chaired by Ms Medina Williamson (Second Respondent) and the liquidator proposed was the First Respondent. The applicant objected to the admission of the Third Respondent's proof for voting purposes and, after the proof was admitted by the chair, issued an appeal under r.15.35 IR 2016.

Nature of the application: An application under r.15.35 IR 2016 to challenge the chair's decision admitting a proof for voting purposes. The substantive relief sought was that the decision to admit be set aside and the proof struck out. The ancillary contested issue was who should bear the applicant's costs of the application.

Issues framed:

• whether the Third Respondent's proof was supported by the evidence and therefore properly admitted for voting purposes;
• whether the chair's decision to admit should be set aside;
• whether the Third Respondent and/or the chair should be ordered to pay the applicant's costs, and on what basis (standard or indemnity); and
• the applicable test and protection for persons who decide whether to admit proofs under r.15.35(6) IR 2016.

Court's reasoning on the substantive issue: The court conducted a factual and evidential assessment of the material before it. The bank statements relied upon by the Third Respondent showed net payments the other way and therefore did not support a c.£477,843 creditor position; several payments said to originate from Rochay Elite in fact originated from third parties who had not proved and there was no evidential foundation tying those sums to Rochay Elite; purported loan agreements were inconsistent with contemporaneous company names and, on the available evidence, likely backdated; and Companies House filings (dormant and micro-entity accounts) were inconsistent with a large intercompany loan. The Third Respondent had ample opportunity to file evidence but did not, and ultimately abandoned its defence shortly before the final hearing. On that basis the court concluded the proof was indefensible and allowed the appeal, set aside the admission, struck out the proof and directed a fresh creditors' meeting.

Court's reasoning on costs: The court applied the statutory protection in r.15.35(6) IR 2016, analogising to authorities on office-holder protection, and held that a personal costs order against a chair or convenor should only be made in special circumstances such as self-interest, irrationality, unreasonableness or other good reason. No cogent evidence of bias or bad faith was shown against the chair; the chair had been newly appointed, reasonably relied on the liquidator's advice and followed the summary admit/reject/objected process in r.15.33 IR 2016. By contrast, the Third Respondent had presented a proof unsupported by contemporary evidence, produced documents that undermined rather than supported the claim, and actively resisted the application until late. Those features placed the case outside the norm and warranted an indemnity costs order against the Third Respondent.

Application allowed. The court allowed the appeal against admission of the Third Respondent's proof of debt, finding the proof indefensible on the available evidence (bank statements, loan agreements and Companies House filings), set aside the chair's decision to admit the proof, struck out the proof and directed a fresh creditors' meeting. The Third Respondent was ordered to pay the applicant's costs of the application on the indemnity basis. The application for a personal costs order against the chair (Second Respondent) was dismissed because r.15.35(6) affords protection to decision-makers and there was insufficient evidence of bad faith, collusion or other special circumstances to displace that protection.