SNOOZEBOX LIMITED v THE HEALTH AND SAFETY EXECUTIVE

This judgment determines whether a company voluntary arrangement (CVA) entered into by Snoozebox Limited discharged the company from any fine and any award of prosecution costs that might be imposed in criminal proceedings brought by the Health and Safety Executive (HSE). The court held that the company’s CVA, approved on 16 February 2018 (administration date 8 November 2017), discharged the company from any obligation to pay a fine arising from the prosecution because the necessary legal relationship and a sufficiently real prospect of liability existed by the time of the CVA. By contrast, an award of prosecution costs was not a contingent liability at the time of the CVA because, applying the test in Re Nortel, the legal relationship that creates an exposure to an award of costs only arises on commencement of proceedings; the prosecution commenced after the CVA.

Key legal principles applied were: (i) the Crown may be treated through its emanations for private law purposes so notice to the HSE sufficed to bind the Crown; (ii) contingent liabilities for substantive penalties (a fine) can arise from pre‑existing legal relationships established before the CVA; and (iii) contingent liabilities for costs arise only when proceedings commence, so were not caught by the CVA. The CVA’s terms and section 5(2A) of the Insolvency Act 1986 were applied to conclude that the Crown cannot now recover under the CVA because no proof of debt was filed in the required time.

The claimant, Snoozebox Limited (the Company), challenged whether a company voluntary arrangement (CVA) approved in February 2018 operated to prevent recovery of any fine and any award of prosecution costs that might be ordered in criminal proceedings brought by the HSE following the death of a contractor in August 2016. The Administrators entered administration on 8 November 2017; the CVA proposal was circulated and approved at creditors' and members' meetings on 16 February 2018; distributions under the CVA were made in August and October 2018.

Nature of the application: Part 8 proceedings seeking a declaration on whether the CVA bound the HSE and/or HM Treasury and whether the CVA discharged the Company from payment of any fine and/or prosecution costs.

Issues framed:

• Whether, as at the CVA date, the HSE and/or HM Treasury had contingent claims or debts for any fine or prosecution costs;
• Whether the HSE and HM Treasury were bound by the CVA and whether notice to the HSE sufficed;
• Whether the CVA’s terms precluded enforcement of a fine or costs;
• Whether the Company was released from such liabilities under clause 7.6 of the CVA;
• Whether the Crown could recover under section 5(2A) of the Insolvency Act 1986 where no proof of loss had been filed in time.

Facts and procedural posture: The HSE conducted a mandatory investigation after the accident in 2016; the HSE took primacy in August 2017. The Company entered administration in November 2017. The CVA proposal listed the HSE as a creditor; the Company and the Crown entities dispute whether HM Treasury required separate notice. No government department submitted a proof of debt before the CVA distributions were made; the HSE commenced the prosecution some years later and the Magistrates Court issued a summons in November 2021.

Court’s reasoning and holdings: The judge found that notice to the HSE sufficed to bind the Crown for private‑law purposes because both HSE and HM Treasury are emanations of the Crown and the HSE was the prosecuting authority and the natural recipient of CVA notice in these circumstances. Applying authorities concerning contingent liabilities (notably Re T&N, Discovery v Debenhams and Re Nortel), the court held that: (i) the legal relationship giving rise to any fine existed by at least November 2016 (the mandatory investigation) and so any fine was a contingent liability caught by the CVA; (ii) by contrast, exposure to prosecution costs required commencement of the prosecution to create the relevant legal relationship, and that did not occur until after the CVA, so costs were not caught by the CVA; and (iii) section 5(2A) of the Insolvency Act 1986 permits recovery only in accordance with the arrangement and, because no proof of debt was filed in time, the Crown cannot now recover under the CVA. The court therefore discharged the Company of any liability to pay a fine under the CVA but left open the Crown Court’s power to convict and to impose a fine (albeit not collectible) and to award prosecution costs (which remain collectible).

Wider context: The judgment applies and reconciles authorities on contingent liabilities in insolvency and CVA contexts (including Re Nortel and Re T&N) to distinguish between substantive penalties and costs for the purposes of provability and CVA effect. The court emphasised procedural protections available to Crown departments that did not receive or act on CVA notice (statutory time limits and remedies under the Insolvency Act).

At first instance the court determined the issues raised. It held that the CVA discharged the Company from any obligation to pay a fine that might be imposed in the prosecution because the legal relationship and a real prospect of liability existed before the CVA. The court held, however, that the CVA did not discharge any award of prosecution costs because the legal relationship that gives rise to liability for costs only arose when the prosecution commenced, which occurred after the CVA. The Crown (through the HSE) was bound by the CVA and recovery under section 5(2A) of the Insolvency Act 1986 is not available as no proof of debt was submitted in time.