Brake & Ors v Lowes & Ors (Ruling on strike out of Liquidation Application)

Insolvency standing depends on a claimant having a legitimate interest in the relief sought. An outsider to a liquidation, including a disappointed bidder, ordinarily has no standing to challenge the liquidators’ sale process. A creditor must also be pursuing its own interests as creditor, rather than acting as another person’s nominee.

The court rejected a proposed two-stage test requiring proof both that the creditor could gain no benefit and that the application was adverse to the liquidation. An application to vary disclosure under the disclosure pilot requires compliance with the procedural safeguards in CPR Practice Direction 51U, including an adequate explanation of the original order and the proposed variation. The court struck out the liquidation application, struck out the cottage application for want of prosecution, and dismissed the disclosure application.

The Brakes, acting as trustees of the Brake family settlement, sought relief concerning the sale of West Axnoller Cottage by the liquidators of Stay-in-Style. Chedington Court Estate Limited applied to strike out the principal relief, arguing that the trust was an outsider to the liquidation and that the supporting creditors were acting as the Brakes’ nominees.

The court also determined an application concerning a separate cottage claim brought by the former trustee in bankruptcy, a disclosure application concerning the Brakes’ occupation of the cottage, costs, and applications for permission to appeal. The central issues were standing, the meaning of legitimate interest, the evidential basis for finding nominee status, and the requirements for varying an existing disclosure order.

1. Liquidation Application. The Brakes had no standing. They claimed only as trustees and were not creditors or contributories. Their interest was that of disappointed bidders seeking to acquire property, not an interest in the relief sought as participants in the liquidation. Re Edennote [1996] BCC 718 and Mahomed v Morris [2001] BCC 233 established the applicable approach.
2. Hellard v Michael [2009] EWHC 2414 (Ch) did not assist because standing had not arisen in that case. Nor did Hickox v Brilla Capital Investments Master Fund SPC Ltd [2015] 2 BCLC 387, which concerned creditors and did not address outsiders. The High Court was bound to follow the Court of Appeal authorities in preference to the Privy Council decision.
3. The other creditors also lacked standing because the evidence showed that Mrs Brake funded and instructed their lawyers. The court applied the ordinary test of legitimate interest from Walker Morris v Khalastchi [2001] 1 BCLC 1 and rejected the proposed two-stage test derived from Re Fairfield Sentry Ltd and Re Core VCT [2019] BCC 845. The creditors were advancing the Brakes’ case, whether or not they agreed with it.
4. The court declined to apply the security-for-costs concept of a nominal claimant in this context. Chuku v Chuku [2017] 1 WLR 3137 concerned a distinct jurisdiction requiring deliberate duplicity or window dressing. Long v Farrer & Co [2004] EWHC 1774 (Ch) did not prevent the finding because the underlying factual allegations were unchallenged; the dispute concerned their legal characterisation.
5. Cottage Application. The former trustee in bankruptcy did not appear to support his application, had no continuing interest, and his successors did not seek to continue it. The court therefore treated the matter as want of prosecution and struck it out without determining the merits.
6. Disclosure Application. The request sought to vary an existing Model B disclosure order. Under paragraphs 18.2 and 18.3 of CPR Practice Direction 51U, the applicant had to show necessity, reasonableness and proportionality, and provide a witness statement explaining both the original order and why variation was required. The witness statement did not explain why Model B had been ordered or why the proposed variation was justified. The application was dismissed.
7. Permission to appeal was granted on the standing decisions and on specified grounds concerning the creditors’ status and the evidential findings.

First-instance decision. The judgment records earlier insolvency applications and disclosure orders, but no appellate decision concerning the applications determined here.