Manolete Partners plc v Hayward and Barrett Holdings Ltd

The court considered whether an assignee of claims arising on a company’s liquidation may pursue company claims (so-called ‘Blackwater Claims’) by way of an Insolvency Application under Rule 1.35 of the Insolvency Rules 2016, and whether the procedure may be regularised by a court order conditioned on payment of the Part 7 issue fee. The judge held that transaction-avoidance causes of action vested in the liquidators and capable of assignment may be pursued by the assignee by way of an Insolvency Application, but company claims that are property of the company (claims vested in the company) cannot be pursued by an assignee using the procedural gateway conferred by section 212 of the Insolvency Act 1986. Those claims should have been commenced by Part 7 claim form. The court nonetheless has a discretion under the Civil Procedure Rules (notably CPR 3.10) to permit an improperly commenced claim to continue on appropriate conditions, including payment of the prevailing Part 7 issue fee.

Background and parties: Blackwater Plant Limited and a connected company Hayward & Barrett Ltd entered creditors’ voluntary liquidation in August 2018. The joint liquidators of Blackwater assigned certain transaction-avoidance causes of action and other company claims (the ‘Blackwater Claims’) to the applicant Manolete Partners Plc. The applicant commenced an Insolvency Application under Rule 1.35 that included both transaction-avoidance claims and the Blackwater Claims against the third and fourth respondents.

Nature of the application: There were three applications before the court. The reserved judgment concerned the third application brought by the third and fourth respondents seeking an unless order requiring the applicant to pay the issue fee that would have been payable had the Blackwater Claims been commenced by Part 7 claim form.

Issues framed:

• whether an assignee of claims vested in the company (the Blackwater Claims) can use the Insolvency Application procedure (Rule 1.35) and the procedural gateway of section 212 IA 1986;
• whether hybrid claims comprising both insolvency/statutory office-holder causes of action and ordinary company claims may properly be issued by way of an Insolvency Application;
• whether the court may remedy procedural error and, if so, on what conditions, including payment of the higher Part 7 issue fee introduced by the 2015 fees order.

Reasoning and legal conclusions: The judge analysed the nature of transaction-avoidance provisions (sections 213, 214, 238, 239, 244 and related provisions) and the effect of the Small Business, Enterprise and Employment Act 2015 (section 246 ZD) permitting assignment of certain office-holder causes of action. He distinguished causes of action that are statutory rights of the office-holder from claims that are property of the company (company misfeasance/breach of duty claims vested in the company). Section 212 (the summary misfeasance gateway) falls within Part IV of the Insolvency Act and is available to office-holders, creditors or contributories; it does not permit an assignee who is neither a creditor nor contributory to use that gate. Accordingly, claims that properly belong to the company (the Blackwater Claims) should have been commenced by Part 7 claim form, not by an Insolvency Application, and a claim under section 423 is similarly not an insolvency proceeding and requires Part 7 procedure.

The court nonetheless has a broad discretion under the Civil Procedure Rules to remedy procedural errors (CPR 3.10). Prior authorities show the Companies Court may exercise such discretion in the interests of procedural convenience, but the discretion is constrained by the statutory framework and by concerns about abuse of process. The judge concluded that, in the circumstances of this case, the appropriate remedy was to permit the improperly commenced claims to continue on condition that the applicant pay the prevailing Part 7 issue fee within seven days, thereby placing the applicant in the same position it would have been had it issued a Part 7 claim originally.

Wider comment: The judge observed regretfully that the result is procedurally inefficient and may force office-holders and assignees to adopt multiple procedural routes within the Business and Property Courts, but that the statutory scheme must be followed.

The court ordered that the applicant must pay the prevailing Part 7 issue fee within seven days. The judge held that (i) transaction-avoidance claims vested in the joint liquidators and capable of assignment may be pursued by the assignee by way of an Insolvency Application, but (ii) company claims that are property of the company (the Blackwater Claims) cannot be pursued by the assignee via the procedural gateway conferred by section 212 IA 1986 and should have been commenced by Part 7. Exercising the court's procedural discretion under the Civil Procedure Rules, the court permitted the claims to continue conditionally upon payment of the appropriate Part 7 fee.