Scott-Hake & Anor v Frost & Anor

In an insolvent partnership, the statutory provisions governing contributions by company contributories must be read across, with appropriate adjustments, through the Insolvency Act 1986, the Insolvency (England and Wales) Rules 2016 and the Insolvent Partnerships Order 1994.

Permission for a liquidator to make a call is distinct from a court-made call. The permission application may be made without notice. It does not conclusively establish the amount due. If payment is disputed, enforcement must proceed inter partes, when the alleged contributory may challenge liability and quantum. Conclusive effect arises only from a subsequent court order under section 150 of the 1986 Act, subject to appeal.

The appellants were partners in an insolvent partnership trading as The Edwardian. The respondents, its joint liquidators, applied without notice for permission to make a call on the partners as contributories.

District Judge Woodburn ordered that the liquidators might make calls of £292,820 against each partner. The partners appealed, contending that the order was procedurally irregular, made without jurisdiction and conclusive as to an incorrect amount. The appeal required construction of the statutory scheme governing partnership contributories, liquidator-made calls and enforcement.

1. Statutory read-across. Part V of the Insolvency Act 1986, applied to insolvent partnerships by article 7 of the Insolvent Partnerships Order 1994, must be read with the Act as a whole, particularly Part IV. Company-oriented provisions must be adjusted so that they operate coherently in relation to partners.
2. Liability of a partner contributory. Sections 74 and 79 of the 1986 Act provide the juridical basis of contributory liability. Section 9 of the Partnership Act 1890 limits liability for firm debts and obligations to those incurred while the person was a partner, but section 74 also extends liability to sums required for the expenses of winding up. The liability is directed towards establishing a statutory fund sufficient to meet the relevant debts, liabilities and expenses, with possible overshoot.
3. Two-stage process. Section 160 does not itself delegate the court’s powers to a liquidator. It enables rules to provide for such delegation. Under rules 7.86 and 7.88 of the Insolvency (England and Wales) Rules 2016, the liquidator may apply without notice for permission to make a call. The resulting order merely authorises the liquidator to make the call.
4. Enforcement. The liquidator must give notice of the call. If payment is not made, enforcement under rule 7.91 requires an application conducted inter partes. The alleged contributory may then challenge identity, liability and the amount sought, including debts incurred outside the relevant partnership period.
5. Conclusive effect. Section 152(1) applies to the later court order enforcing payment or making a call under section 150(1). It does not make an ex parte permission order conclusive as to the amount due. The Woodburn Order therefore did not prevent the partners from challenging the call at the enforcement stage. Consequential orders, including whether the Woodburn Order should be varied or set aside, were reserved for submissions.

• County Court at Bristol: District Judge Woodburn made an order on 30 August 2018 permitting the liquidators to make calls of £292,820 on each partner.
• High Court (Chancery Division): Permission to appeal was granted by His Honour Judge Paul Matthews. Marcus Smith J determined the statutory construction issues and held that the order was permissive only, without conclusive effect. Consequential orders were reserved.