L & N D Development and Design Ltd

On an application under paragraph 74 of Schedule B1 to the Insolvency Act 1986, the applicant must show unfair harm caused by the administrator’s refusal to assign a company cause of action. In the usual case, this requires showing that the proposed claim has a real prospect of success. A claim with no real or reasonable prospect of success is frivolous and therefore vexatious for this purpose.

The court determines that question on the evidence and arguments available at the hearing. It is not confined to the administrator’s original reasons for refusing assignment. Issue estoppel also prevents an applicant from reopening an issue already finally determined in related proceedings. Even a meritorious claim may properly remain unassigned where assignment would provide no useful benefit, the consideration is inadequate, or adequate protection against adverse costs is absent.

The applicant was the sole shareholder and director of a company placed into administration by its qualifying floating charge holder. She applied under paragraph 74(1)(a) of Schedule B1 to the Insolvency Act 1986, seeking an order requiring the administrators to assign causes of action allegedly held by the company against the lender.

The proposed claims concerned alleged delays in making loan advances and alleged intimidation or economic duress in connection with a later facility agreement. The latter issue had already been rejected in possession proceedings brought by the administrators as receivers. The central questions were whether the proposed claims had a real prospect of success, whether refusal to assign caused unfair harm, and whether assignment would benefit the company or its creditors.

1. The application was dismissed. The applicant had not shown that refusal to assign the causes of action caused unfair harm.

2. The applicant bore the burden of showing that the claims could properly be pursued. In the ordinary case, that required a real prospect of success. The expressions frivolous or vexatious, and no reasonable or real prospect of success, were treated as materially synonymous in this context. This approach was consistent with Hockin v Marsden [2014] EWHC 763 (Ch), LF2 Ltd v Supperstone [2018] EWHC 1776 (Ch) and Citicorp Australia v Official Trustee in Bankruptcy [1996] FCA 1115.

3. The court was entitled to determine the merits on the evidence and submissions available at the hearing. An application under paragraph 74 was not merely a review of the administrator’s earlier decision, and the administrators were not confined to their initial reasons for refusing assignment.

4. The alleged breach of contract claim had no real prospect of success. The facility agreement entitled the lender to undertake detailed checks concerning development progress, planning compliance, costs, valuations and loan-to-value ratios. The evidence did not establish that the periods taken for those checks were unreasonable or caused recoverable loss.

5. The intimidation and economic duress claim was barred by issue estoppel and, at minimum, constituted an impermissible collateral attack on the earlier judgment in the possession proceedings. There was no extant appeal when the application was heard. In any event, the evidence showed commercial negotiation between arm’s-length parties, with no real prospect of proving illegitimate pressure. The July 2017 agreement expressly required final credit approval.

6. Even if the claims had had a real prospect of success, the proposed assignment would not necessarily have caused unfair harm. The lender was insolvent, the offered consideration was insufficient to cover the likely costs of valuation and assignment, and no adequate protection had been provided against adverse costs exposure affecting the administrators or the company.

First-instance decision. The judgment records that permission to appeal the related possession proceedings had been sought but had not been granted at the time of this hearing.