Brett (Liquidator Of Care Community Ltd) v Adam & Anor

When determining an interim payment following judgment against company directors or office-holders, the court may take account of incurred and anticipated liquidation costs, creditor claims, interest, likely employee claims and unresolved proofs of debt. The payment should be proportionate to the judgment debt and the shortfall requiring recovery, while preserving the liquidator’s obligation to investigate and adjudicate creditor claims. A claim by the Redundancy Payment Service may replace employee claims through subrogation. Litigation-specific after-the-event insurance costs may be recoverable where the court has already determined that they form part of the recoverable costs.

The liquidator of Care Community Limited obtained judgment against Mohamed Adam and Saima Adam for £804,530.64, subject to enforcement being limited to the liquidation shortfall. The judgment followed claims concerning alleged breaches of fiduciary and statutory duties and transactions at an undervalue under sections 238 and 423 of the Insolvency Act 1986.

The court then considered the consequential form of order. Issues included the appropriate interim payment, the valuation of third-party creditor claims, anticipated liquidation costs, employee claims, the recoverability of an after-the-event insurance premium and the timetable for Mr Adam to substantiate his own proof of debt.

The court ordered the respondents to make an interim payment of £360,000 on account of the judgment debt, together with £68,000 on account of the liquidator’s costs of the proceedings.

1. Assessment of the interim payment. The court took account of the liquidator’s incurred and anticipated time costs and expenses, third-party creditor claims, interest and anticipated employee claims. The order was made on the expectation that the liquidator would obtain a creditor resolution allowing remuneration on a time-cost basis. The amount was intended to provide a reasonable payment while preserving the ability to determine the final enforceable balance after further investigations and adjudication of proofs.
2. Creditor claims. The liquidator was directed, if she had not already done so, to investigate proportionately the points raised concerning the claims of HMRC, the Care Quality Commission, Peninsula and any employee claims. The court held that contractual default damages or accelerated payment provisions might make sums falling due after cessation of trading provable.
3. Redundancy Payment Service. The first respondent’s understanding was rejected. To the extent that the Redundancy Payment Service had met employee claims, it would be subrogated as creditor in place of the employees.
4. Insurance and proof of debt. The first respondent’s objection to the after-the-event insurance premium was rejected because the insurance related specifically to litigation risks and was recoverable under the earlier judgment. Mr Adam was given until 4 pm on 21 December 2020 to serve evidence supporting his proof of debt for £1,620,667, failing which he would be precluded from relying on further evidence without permission or consent.

The liquidator was given liberty to apply for a final order specifying the balance enforceable after final proofs had been advertised and adjudicated.