Nimat Halal Food Ltd & Anor v Patel & Anor

The court considered an appeal under rule 14.8(1) of the Insolvency Rules 2016 against an administrators rejection of two proofs of debt and a related application about costs. The central legal principle was that, under rule 14.9(2) (and rule 12.47), an office-holder is not ordinarily personally liable for costs unless the court orders otherwise, and that such an order requires conduct amounting to a special case (for example irrational, unreasonable conduct or acting for personal advantage).

The judge analysed the administrators investigatory duties when adjudicating proofs of debt (drawing on established authorities such as Re Home and Colonial Insurance Co, Re Fraser and Re Van Laun) and applied that standard to the facts: the applicant-creditors had provided inadequate documentary evidence, statutory accounts did not accord with claimed sums, no written assignment was produced, and the account of events changed and improved only at trial. On the balance of probabilities the court found the management-fee agreement proved and allowed that element of the appeal, but concluded the administrators rejection of the meat-supply claims was justified on the material available at the time. There was no special case to displace the starting point: the administrator was not ordered to bear personal liability for costs and the usual rule that successful appeal costs be paid out of the insolvent estate applied, subject to limited adjustments for discontinued elements and allocation of certain costs between the parties.

Background and parties:

• The matter arose after a section 994 Companies Act 2006 petition concerning Tariq Halal Meat (Ilford) Ltd and related personalities. The company entered administration on 25 June 2018 and Mr Patel was appointed administrator. The applicants, Nimat Halal Meat Limited and Nimat Halal Food Limited, submitted proofs of debt which Mr Patel rejected by a Notice of Rejection dated 30 November 2018.

Nature of the application:

• By application dated 20 December 2018 the applicants appealed the administrators rejection under rule 14.8(1) of the Insolvency Rules 2016. Two main claims were challenged: a claim for supply of meat (circa 140,696.34 broken down between supplies and claimed management fees) and a claim for 250,000 for estimated loss of profits (the latter was discontinued at the January 2020 hearing). The applicants re-presented proofs for the supply claim and sought a determination on the management-fees claim. The court was also asked to decide whether Mr Patel should be personally liable for costs or indemnified from the estate.

Issues framed by the court:

1. Whether the administrators rejection(s) of the proofs of debt were justified on the available material and whether the court should overturn those decisions on appeal.
2. Whether the administrator should be personally liable for the applicants costs of the appeal (and thus deprived of an indemnity from the insolvent estate) contrary to the ordinary position in rule 14.9(2) and rule 12.47 of the Insolvency Rules 2016.

Reasoning and findings:

• The judge reviewed authority on the threshold for making an order "otherwise" (including Re Silver Valley Mines, Capital Films, Coyne and Promontoria) and articulated that a mere mistake or ordinary investigative judgment will not suffice; a "special case" founded on serious misconduct, irrationality, unreasonableness or acting for personal advantage is required.
• On the facts Mr Patel had carried out investigation steps: interviews, review of company records, requests for documentary evidence and enquiries as to settlement and assignment. The applicants statutory accounts did not match their proofs; no written assignment was produced; material new evidence only emerged at trial; and unsupported allegations against the administrator were rejected as gratuitous. The administrators approach was consistent with his duty to examine proofs, seek satisfactory evidence and probe apparent discrepancies.
• The court found on the balance of probabilities that the management services claim under the 1 February 2016 agreement was properly due and allowed that part of the applicants challenge. The rejection of the meat-supply proofs was justified on the available material and the administrators conduct in that respect was reasonable.
• Given the absence of a special case the court declined to make a personal costs order against the administrator. Costs of the successful appeal are to be paid out of the companys assets in the usual way, subject to adjustment for the discontinued claim and allocation of certain costs between the parties; costs were ordered against the second respondent for unrelated conduct and he was refused permission to appeal.

Procedural posture and outcome:

• The challenge was heard on 2122 January 2020 and 4 March 2020. The oral decision on 4 March 2020 found for the applicants on the management fees claim; judgment reserved on detailed costs questions and this reserved judgment determined that no personal costs order should be made against the administrator. The judge invited the parties to submit an agreed order.

This first-instance application was allowed in part: the court found that the applicants were entitled to the claimed management fees on the balance of probabilities but that the administrators rejection of the meat-supply proofs was justified on the material he had. The court refused to make a personal costs order against the administrator under rule 14.9(2)/rule 12.47 of the Insolvency Rules 2016 because the conduct did not amount to a "special case" (irrational, unreasonable or for personal advantage). Costs of the successful appeal are payable out of the insolvent estate in the usual way, with specified adjustments; costs were awarded against the second respondent for his conduct and he was refused permission to appeal.

The matter originated in a section 994 Companies Act 2006 petition. The company entered administration on 25 June 2018 (paragraph 22 of Schedule B1 to the Insolvency Act 1986). Mr Patel, as administrator, rejected proofs on 30 November 2018. The applicants appealed under rule 14.8(1) of the Insolvency Rules 2016 by application dated 20 December 2018. The appeal was heard on 212 January 2020 and 4 March 2020 in the High Court (Business and Property Courts, Insolvency and Companies List). The judgment under this neutral citation was handed down on 3 April 2020. ICC Judge Jones had earlier given judgment in related proceedings on 3 July 2018 (background petition stage).