Taunton Logs Ltd (In Liquidation) & Ors v Cruickshanks & Ors

The court held that the claims the liquidator sought to pursue were, in substance, contractual debt claims to recover unpaid sums due on allotment and arose under Article 21 of the company’s articles and s.33 Companies Act 2006 rather than as a call of uncalled capital under paragraph 19 of Schedule 1 to the Insolvency Act 1986. Paragraph 19 was not engaged.

Because the applicants had issued the proceedings as insolvency applications when the claim was properly an ordinary claim, the originating process was the wrong procedure. That procedural error did not render the proceedings a nullity. CPR 3.10 applied and, in the court’s discretion, the defect was cured by directing that the substantive application continue as if commenced by a CPR Part 7 claim form; the applicants were ordered to pay the difference in issue fees within a specified period.

The court struck out paragraph 2 of the substantive application (which sought certain alternate relief) but refused to strike out the proceedings in their entirety. The proposed amendments to convert the substantive application into summary insolvency proceedings were generally dismissed as inappropriate at this stage. The removal of one applicant (Elizabeth Manley) as an applicant was ordered because she was no longer an office-holder.

This case concerned recovery of alleged unpaid sums on the allotment of A ordinary shares in Taunton Logs Ltd in March 2014. The company entered administration in June 2018 and later moved to a creditors' voluntary liquidation. The joint administrators (later the liquidator) issued an Insolvency Act Application Notice seeking declarations and orders that shareholders pay the unpaid 70% of the nominal value of their shares, relying on Article 21 of the articles, s.33 Companies Act 2006 and paragraph 19 of Schedule 1 to the Insolvency Act 1986.

Parties and procedural posture:

• The Applicants were the joint administrators who became joint liquidators; the Respondents were the 15 persons who had been allotted shares.
• The respondents applied to strike out the substantive application on the ground that the applicants had used insolvency procedure impermissibly when the claim was a simple contractual debt claim and thus the proceedings were a nullity.
• The liquidator applied to amend the pleadings to reflect the liquidation and to rely on s.74 IA 1986 and section 112 for summary remedies; there was also an application to remove one applicant following a block transfer order.

Issues framed by the court:

1. What was the true nature of the claim (a call of uncalled capital under paragraph 19 or a contractual debt under s.33 CA 2006)?
2. If the claim was a contractual debt, was it open to the administrators to use insolvency procedure rather than ordinary Part 7 procedure?
3. If the wrong procedure was adopted, did that render the proceedings a nullity or could the defect be remedied, and if so by what route and in whose discretion?
4. What remedies, if any, were available to the liquidator following the company’s entry into liquidation?

Court’s reasoning and decision:

• The court concluded the articles required payment in full on allotment and that the respondents had personally paid only 30%, so any unpaid sums were contractual debts enforceable under s.33 CA 2006; paragraph 19’s power to call up uncalled capital did not apply.
• Because the claims were ordinary debt claims, the administrators were not entitled to use the insolvency application procedure under the Insolvency Rules 2016; the originating process was therefore incorrect. However, the proceedings were not a nullity. The court held CPR 3.10 applied to remedy an error of procedure and, exercising its discretion, cured the defect by directing the substantive application to continue as if commenced by Part 7 claim form.
• The court declined to convert the proceedings into summary insolvency remedies under ss.148–150, s.149 or s.74 IA 1986 at that stage because there was no evidence the liquidator had settled a list of contributories or otherwise followed the liquidation procedures required; accordingly the proposed amendments to rely on those insolvency routes were refused except for a minor amendment to reflect the change of office-holders.
• The court conditioned the cure on payment of the unpaid element of the proper issue fee within a set period and ordered pleadings and a case management timetable. Paragraph 2 of the substantive application was struck out and Elizabeth Manley was removed as an applicant.

This was a first-instance determination. The court refused to strike out the substantive proceedings in their entirety, holding that the claims were in substance contractual debts under Article 21 and s.33 Companies Act 2006 and not calls under paragraph 19 Schedule 1 IA 1986. The originating insolvency procedure used was incorrect but amounted to an error of procedure which CPR 3.10 could cure. The court exercised its discretion to cure the defect by directing that the proceedings continue as if commenced by CPR Part 7 claim form, conditional on payment of the difference in issue fees; paragraph 2 of the substantive application was struck out and the proposed insolvency-based amendments were generally refused for lack of proper liquidation procedure; Elizabeth Manley was removed as an applicant because she ceased to be an office-holder.