Nero Holdings Ltd v Young

In an insolvency application, a person within the statutory class entitled to apply must also show a legitimate interest in the relief sought. That interest need not be directly financial, but the applicant cannot use insolvency proceedings for a roving review of office-holders’ conduct or for purposes adverse to the creditor class.

The question is ordinarily part of the court’s discretionary assessment of whether relief should be granted. Strike out or summary judgment is appropriate only where the application is bound to fail or there is no realistic prospect of establishing the necessary interest. A third party’s funding or commercial motive does not, without more, displace the applicant’s own legitimate purposes. An abuse based on collateral purpose must be clear.

Nero Holdings Limited applied to strike out, or obtain summary judgment on, Ronald Young’s challenge under section 6 of the Insolvency Act 1986 to the approval of the company’s voluntary arrangement. The challenge concerned the directors’ refusal to postpone an electronic creditors’ decision procedure after a late takeover offer which proposed materially better treatment for landlord creditors.

The company argued that Mr Young was pursuing the challenge for the collateral commercial purposes of the third-party funder, EG Group Ltd, and that contractual arrangements with EG deprived him of any legitimate interest in the relief sought. The central issues were whether those arguments could be determined conclusively before trial and whether the challenge was an abuse of process.

1. Application dismissed. The challenge application was to proceed to its expedited trial.
2. On a strike-out application, pleaded facts were assumed to be true unless independent credible evidence, such as contemporaneous documents, showed otherwise. The application could be struck out only if it was bound to fail. On summary judgment, the question was whether the claimant had a realistic, rather than fanciful, prospect of success; the court must not conduct a mini-trial. The principles in In re Regis UK Limited (in administration) [2019] EWHC 3073 (Ch) and Swain v Hillman [2001] 2 All ER 91 were applied.
3. Under section 6 of the Insolvency Act 1986, Mr Young was within the statutory class entitled to apply. Separately, the court had to consider whether he had a legitimate interest in the relief sought. That requirement concerned judicial restraint and the exercise of discretion, rather than jurisdiction. A direct financial interest was unnecessary, but an applicant could not act as a creditors’ policeman or pursue relief adverse to the creditor class.
4. The principles in Deloitte & Touche AG v Johnson [1999] 1 WLR 1605, Discovery (Northampton) Ltd v Debenhams Retail Ltd [2019] EGLR 47 and Brake v Lowes [2021] PNLR 10 supported that approach. Where the application was not clearly contrary to creditors’ interests, legitimate interest would normally be assessed with the other discretionary factors after factual findings at trial.
5. EG’s funding and its wish to acquire the Nero Group did not establish that EG’s purpose was Mr Young’s only purpose. His evidence that he wished to obtain a better commercial and financial outcome for himself, and potentially other creditors, could not properly be rejected at this stage. The challenge therefore was not shown to be pursued for an improper collateral purpose.
6. Mr Young remained owed rent arrears by the company. The £100,000 paid by EG did not discharge that debt, and the possible restoration of his lease under section 6(6) provided a further possible interest. The company had not shown that there was no realistic prospect of relief being granted.
7. The alternative abuse arguments also failed. The collateral-purpose argument added nothing. The proposed “game is not worth the candle” argument was abandoned, and in any event the court’s scrutiny of whether the modified CVA had obtained the statutory majority involved a legally significant issue whose value could not be quantified.