SNOOZEBOX LIMITED v THE HEALTH AND SAFETY EXECUTIVE

A company voluntary arrangement binds the Crown where the relevant government body has received proper notice. A contingent liability exists where an earlier step has legal effect, places the company within the scope of the liability regime, and creates a real prospect of liability, even if further discretionary steps remain.

A potential criminal fine may therefore be covered before prosecution or sentencing where the underlying statutory duties have arisen and a sufficiently advanced investigation exists. A potential prosecution-costs liability is different: the necessary legal relationship arises only when proceedings commence. The arrangement may discharge collection of a fine without preventing prosecution, conviction or sentencing. Recovery under Insolvency Act 1986, section 5(2A), remains subject to the arrangement’s proof and time-limit provisions.

The claimant company entered administration on 8 November 2017 and subsequently approved a company voluntary arrangement on 16 February 2018. The Health and Safety Executive had already begun investigating a fatal workplace accident and was later to prosecute the company. The company sought declarations concerning the effect of the arrangement on any fine and prosecution costs.

The HSE and His Majesty’s Treasury disputed whether they were creditors in respect of those potential liabilities, whether notice to the HSE was sufficient notice to the Crown, and whether the liabilities were contingent claims within the arrangement. The central questions were whether any fine or costs order was covered, and whether either could later be recovered despite the failure to submit a proof.

1. Notice and Crown status. The HSE and HM Treasury were emanations of the Crown. For private-law purposes, the Crown was the relevant creditor, and notice of the arrangement to the HSE was sufficient. There was no need for duplicate notice to HM Treasury, whose role in receiving and administering fines was administrative. The Crown was bound under Insolvency Act 1986, sections 5(2) and 434.
2. Contingent liabilities. Applying the approach in Re Nortel GmbH (in administration) [2013] UKSC 52, a contingent liability ordinarily requires:
   1. a step having legal effect, creating a legal duty or relationship;
   2. vulnerability to the specific liability, such that there is a real prospect of it being incurred; and
   3. consistency with the regime imposing the liability.
3. Fine. The company’s statutory health and safety obligations had arisen by August 2016. By November 2016 the HSE’s mandatory investigation had advanced beyond a routine inquiry, placing the company within the penumbra of criminal prosecution. A fine was therefore a contingent liability at the relevant date, notwithstanding the need for a decision to prosecute, conviction and sentencing. The purpose of a fine did not justify special treatment. The CVA discharged the obligation to pay any fine, but did not prevent its imposition or the prosecution.
4. Costs. Under Re Nortel, the legal relationship giving rise to a contingent costs liability arises when proceedings commence. The criminal prosecution began after the CVA, so any prosecution-costs order was outside its scope and remained recoverable if ordered.
5. Recovery. Section 5(2A) provided recovery only in accordance with the arrangement. As no proof had been filed within the CVA’s time limit, neither a fine nor costs could be recovered under that provision. Any challenge for want of notice under section 6 was subject to an absolute 28-day limit, which had expired.