Nimat Halal Food Ltd & Anor v Patel & Anor

Under rule 14.9(2) of the Insolvency Rules 2016, an office-holder is ordinarily not personally liable for costs incurred in an appeal against a proof-of-debt decision. A personal costs order requires conduct going beyond a mere mistake or a neutral, good-faith decision. The court assesses the office-holder’s conduct in the circumstances as a whole. Personal advantage, irrationality or unreasonable conduct may constitute the special case or good reason required to order otherwise. An office-holder is entitled, and ordinarily obliged, to investigate a proof, require satisfactory evidence, examine the creditor’s accounts and clarify the identity and amount of the debt.

The applicants appealed the administrator’s rejection of proofs of debt under rule 14.8(1) of the Insolvency Rules 2016. They claimed sums for meat supplied to the company and management services. The applicants discontinued their loss-of-profits claim, and the administrator agreed to reconsider fresh proofs concerning meat supplies. The court found that the management-fee claims were due and that revised meat-supply claims could be admitted. The remaining issue was whether the administrator should personally bear the costs, and whether he should be denied an indemnity from the insolvent estate.

1. The usual costs position applied. Rule 14.9(2) of the Insolvency Rules 2016 provides that an office-holder is not personally liable for costs incurred in an application under rule 14.8 unless the court orders otherwise. Rule 12.47 adopts a materially similar approach.

2. The authorities used different terminology, including blunder, serious mistake, irrational conduct, unreasonable conduct, special case and good reason. They established a principled approach. A mere mistake is unlikely to suffice. Neutral conduct in resisting an appeal is also unlikely to suffice. Conduct undertaken for personal advantage is very likely to justify personal liability.

3. An office-holder deciding a proof of debt must investigate it and require satisfactory evidence that the debt is genuine. The office-holder may examine the creditor’s accounts, require a paper trail, question relevant directors and assess the company’s records. The creditor bears the burden of demonstrating sufficiently clearly the debt said to be owed.

4. The administrator acted in good faith and consistently with those duties. He was entitled to investigate the alleged settlement, discrepancies in the accounts, the absence of order forms, the alleged assignment and the genuineness and scope of the management agreement. The applicants’ later evidence and improved explanations did not make the earlier rejection irrational or unreasonable.

5. The conduct had to be assessed holistically rather than by isolating each criticism. This was not a special case and there was no good reason to order otherwise. The successful appeal costs were payable from the insolvent estate in the usual way. The applicants were ordered to pay the administrator’s costs of the costs argument, with an agreed order invited.

First-instance decision. The judgment determined the costs consequences of the applicants’ proof-of-debt appeals and related applications.