ScottHake v Frost

The appeal concerned the jurisdictional basis and procedure for calls on partners treated as contributories under the Insolvency Act 1986, the Insolvent Partnerships Order 1994 and the Insolvency (England and Wales) Rules 2016. The court held that article 7 of the 1994 Order and section 226 read with Part IV of the Insolvency Act 1986 require a read-across of company winding-up provisions to partnerships, but adjusted to reflect partnership law (including section 9 of the Partnership Act 1890). Section 74 of the Insolvency Act is the statutory basis for the contributory liability; section 150 is the court's power to make a call, and section 160 permits delegation to rules. The Rules (rr.7.86–7.91) permit a liquidator to apply to the court ex parte for permission to make a call (rule 7.88), but that permission does not equate to a conclusive court determination under section 152. Enforcement of any call requires inter partes proceedings under the Rules (rule 7.91), where the contributory may raise substantive defences and objections to quantum.

Accordingly the Woodburn Order operated as permission for the liquidators to make a call under the Rules rather than as a conclusive judicial order of the amount payable; the partners may challenge the amount at the enforcement stage. The court reserved making any immediate variation or setting aside of the Woodburn Order and invited submissions on consequential orders.

Background and procedural posture. The partnership trading as "The Edwardian" entered liquidation. The liquidators obtained an ex parte order from District Judge Woodburn permitting them to make a call on the two partners each for £292,820 (the "Woodburn Order"). The partners appealed, contending lack of jurisdiction, irregularity and abuse of process because the order was made ex parte and because the quantum was incorrect.

Nature of the application and issues.

• (i) The relief sought on the application that produced the Woodburn Order was permission for the liquidators to make a call on the partners as contributories.
• (ii) Issues framed: whether Part V read with the Insolvent Partnerships Order permits such an ex parte permission; the extent to which provisions in Part IV must be read across; whether the Woodburn Order was a conclusive determination of the sum due; and whether the partners could challenge the call and its quantum.

Court's construction and reasoning. The court analysed the statutory scheme: section 226 (contributories in winding up of unregistered companies) and the 1994 Order (in particular article 7) operate by read-across from Part IV of the Insolvency Act 1986. Definitions and liabilities (including contributory defined in section 79 and the liability regime in section 74) must be adapted to partnership circumstances, bearing in mind partnership liability under section 9 of the Partnership Act 1890 and protections such as those reflected in section 228.

Section 150(1) gives the court power to make calls; section 160 permits delegation by rules; the delegation was effected by the Insolvency (England and Wales) Rules 2016. The Rules (rr.7.86–7.91) make the power exercisable by liquidators as officers of the court but provide a process: rule 7.88 allows an ex parte application for permission to make a call; rule 7.89 contemplates notification of the permitted call; and rule 7.91 requires an inter partes enforcement application if the contributory does not pay. The court emphasised that permission to make a call (obtained ex parte) is not the same as a final court order making a call under section 150 and attracting the conclusive effect in section 152(1). Section 152's conclusive character is appropriate where the court itself has determined and ordered payment after an inter partes process, but it would be unjust if an ex parte permission carried the same conclusiveness.

Subsidiary findings. The judge accepted that some of the figures used in the Woodburn Order appeared incorrect (for example a sum said to be due to a bank), but held that such points can be raised at enforcement and did not by themselves justify immediate setting aside of the Woodburn Order. The judge declined to treat the Woodburn Order as conclusive; he reserved making any variation or setting aside and invited submissions on consequential orders.

Wider context. The judgment emphasised the difficulty of transposing company winding-up machinery to partnerships and the need to read rules and statutes together to ensure fairness where ex parte steps are permitted.

Appeal allowed in part. The High Court held that article 7 of the Insolvent Partnerships Order 1994 and section 226 of the Insolvency Act 1986 must be read with Part IV of the 1986 Act; the Insolvency Rules 2016 (rr.7.86–7.91) validly permit a liquidator to apply ex parte for permission to make a call (rule 7.88), but such permission does not amount to a conclusive court determination under section 152. Enforcement of any call requires an inter partes application (rule 7.91) where the partners may challenge liability and quantum. The judge did not set aside the Woodburn Order immediately but will hear submissions about consequential orders.

Appeal from an order of District Judge Woodburn made 30 August 2018 in the County Court at Bristol. Permission to appeal was granted by His Honour Judge Paul Matthews. This judgment is the High Court determination: [2020] EWHC 3677 (Ch).