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

An alleged failure to pay the subscription price for shares issued as fully paid gives rise, subject to any defence, to a simple contractual debt under Companies Act 2006, rather than a call on uncalled capital. Administrators cannot use insolvency proceedings to recover such a debt where the statutory power to call up uncalled capital is not engaged.

Using the wrong originating process does not necessarily make proceedings a nullity. Where the correct parties have been joined and the claim is sufficiently identified, the error may be remedied under CPR 3.10. The court should consider the nature of the error, prejudice, proportionality and the overriding objective. Here the proceedings were directed to continue as if commenced by CPR Part 7 claim form, subject to payment of the appropriate additional issue fee.

The company’s administrators issued an Insolvency Act Application Notice against former shareholders, claiming payment of 70% of the nominal value of shares allotted in 2014. The company’s articles required shares to be paid for in full on issue. The company later entered creditors’ voluntary liquidation, and the administrators became liquidators.

The respondents sought strike-out, arguing that the claims were ordinary debt claims, that insolvency proceedings were unavailable, and that the application was a nullity. The liquidator sought amendments reflecting the liquidation and relief under the insolvency legislation. The central issues were the true nature of the claims, the effect of the wrong procedure, whether the error could be cured, and what relief remained available after liquidation.

1. Nature of the claims. The articles contained no power to make calls and required payment in full on allotment. If the respondents had failed to pay the subscription price, the claims were simple contractual debt claims enforceable under s. 33(2) of the Companies Act 2006. They did not concern uncalled capital in the ordinary sense.
2. Administrators’ procedure. Paragraph 19 of Schedule 1 to the Insolvency Act 1986, which permits an administrator to call up uncalled capital, was not engaged. The administrators therefore had no proper basis for using insolvency proceedings. The claims should have been commenced under CPR Part 7, or possibly Part 8.
3. Procedural error. The application was not a nullity. CPR 12.64 of the Insolvency Rules 2016 did not apply because the proceedings were not properly insolvency proceedings. CPR 3.10 did apply: the wrong form was an error of procedure, not an absence of effective parties or proceedings. The court applied the reasoning in Phillips v McGregor-Paterson by analogy.
4. Discretion. The error was genuine, the claim was sufficiently identified, the respondents were served within time, and no significant procedural prejudice was established. Striking out claims worth approximately £3.3 million would be disproportionate. The error should therefore be cured.
5. Liquidation and orders. Potential remedies under ss. 74, 112 and 149 of the Insolvency Act 1986 could not presently justify continuation as insolvency proceedings because no properly settled list of contributories had been shown. The proceedings were directed to continue as if commenced by CPR Part 7 claim form, conditional on payment of the additional issue fee. Paragraph 2 of the Substantive Application was struck out; the remaining strike-out applications were dismissed. Amendments were allowed only to reflect the liquidation and change of office-holder. Elizabeth Manley was removed as an applicant.