Daniel McAteer v Hat & Mitre Plc (in creditors’ voluntary liquidation) & Ors

The appeal concerns standing to seek court intervention in a creditors' voluntary liquidation and the construction and effect of disputed private agreements relied upon to confer standing. The court considered the requirements of the Insolvency Act 1986 (notably sections 108, 112, 147 and 195) and the statutory definitions of "contributory" (sections 74, 79, 250 and 251).

The judge below was held to have been wrong in one technical respect: an unregistered transferee of shares during administration can, by operation of section 250 read with sections 74 and 79, be treated as a contributory for the limited statutory purposes that require contributory status. However, the court concluded that that technical standing did not help the appellant substantively because his beneficial interest was de minimis (10 shares, 0.02% of the issued capital) and the other members opposed his proposals, so his views would be "drowned" and any stay or other relief sought in the appellant's capacity as a contributory would be unjustified and commercially unrealistic.

The court further held that the memorandum of understanding and the option agreement relied upon by the appellant gave only remote pre-emption rights or contingent option rights that were not presently exercisable and did not fall within the narrow category of third-party rights that the Supreme Court recognised as giving standing in insolvency contexts (Brake v The Chedington Court Estate Ltd). Procedural complaints about late production of documents and the conduct of the hearing did not establish unfairness or injustice.

Background and parties: The company, Hat & Mitre Plc, owned a substantial office property that was placed into administration on 19 December 2018 and subsequently into creditors' voluntary liquidation. The administrators became the joint liquidators (respondents). The appellant, Mr Daniel McAteer, was an adviser to two principal shareholders and later purportedly acquired 10 shares (an unregistered transfer) and relied on a Memorandum of Understanding and an Option Agreement with a shareholder, seeking court intervention in the liquidation.

Nature of the application:

• Relief sought included directions for qualifying decision procedures under section 195 IA 1986, a stay of the liquidation (including indefinitely), removal and replacement of the liquidators under section 108 IA 1986, and disclosure of certain liquidator information; alternatively conversion to a members voluntary liquidation.

Procedural history: The substantive application was heard below by ICCJ Jones (decision and order 25 and 31 May 2023). Earlier hearings occurred before ICCJ Barber (13 June 2022). Joanna Smith J directed a wrapped-up permission/appeal process on 17 October 2023. This is the appeal from ICCJ Jones's decision.

Issues framed:

• Whether the appellant had standing to bring the application: as a contributory by reason of an unregistered transfer of 10 shares; or otherwise by reference to contractual rights under the MOU or the Option Agreement.
• Whether the MOU or the Option Agreement conferred a present enforceable interest sufficient to found standing to seek liquidation remedies, including a stay or removal of liquidators.
• Whether any procedural irregularities at the hearing (late production of members' responses; tenor of the judge's remarks) rendered the decision unjust.

Court's reasoning:

• Statutory standing: The court accepted that, by following the statutory definitions (section 250 read with sections 74 and 79), a person to whom shares have been transferred (even if not registered) can be regarded as a "contributory" for the Parts of the Insolvency Act that require that status. The judge below was therefore technically wrong to hold that the appellant was not a contributory at all.
• Practical effect of contributory status: On the facts the appellant's beneficial interest (10 shares, c.0.02%) was trivial and, moreover, the other shareholders with the vast majority opposed his proposals and favoured distribution. Even if the appellant had technical contributory status, his voice would be drowned and he could not properly seek a stay or other relief in that capacity; the relief sought was not appropriately related to the status in which he sought it.
• Contractual rights (MOU and Option Agreement): The MOU conferred pre-emption rights that are contingent on a shareholder deciding to sell; the rights are remote and not presently exercisable. The Option Agreement created a time-limited option period which only arises if the "present liquidation arrangements" end; that had not happened and the agreement did not oblige the shareholder to bring about that event. Both agreements therefore failed to give the appellant the direct and legitimate interest required by the Supreme Court's analysis in Brake for non‑contributory third parties seeking relief in insolvency proceedings.
• Procedural complaints: Late production of short pro forma responses from other shareholders and the judge's robust style did not amount to unfairness or an unjust decision. The appellant had knowledge and opportunity and no real prejudice was shown.

Disposition: Permission to appeal was granted but the appeal was dismissed on substantive grounds: although the appellant had a narrow technical standing as a contributory in respect of the 10 shares, that did not entitle him to the relief sought and his other bases for standing (MOU and Option Agreement) were too remote and contingent.

This is an appeal from ICCJ Jones’s decision. The court granted permission to appeal but dismissed the appeal. The court accepted that an unregistered transferee can be a contributory for the limited statutory purposes (by operation of sections 250, 74 and 79 read with sections 112 and 147), so the judge below was technically wrong on that narrow point. However, the appellant’s 10-share interest was de minimis and would be "drowned" by the other members' majority views; his purported contractual interests under the Memorandum of Understanding and the Option Agreement were contingent, remote and not presently exercisable and therefore did not confer the direct and legitimate interest required to found the relief sought. Procedural complaints were rejected as not producing injustice. Accordingly the appeal is dismissed.

Appeal from the decision and order of ICCJ Jones delivered 25 May 2023 (order 31 May 2023). Earlier hearings included a hearing before ICCJ Barber on 13 June 2022. Joanna Smith J directed a wrapped-up permission/appeal hearing on 17 October 2023. This judgment is the appellate decision in [2024] EWHC 1601 (Ch).