Michael Lennon & Anor v Health Care Resourcing Group Limited

In a directions application concerning an insolvency asset, a payment made by one group company to secure business-rates relief did not become part of the insolvent company’s general estate merely because the rebate was later credited to that company. Where the payment was made on the footing that the relief would be returned to the payer, and the insolvent estate was thereby enriched by mistake, restitutionary principles may require the rebate to be returned to the payer. The court may also make a Berkeley Applegate order so that the beneficiary of a particular realisation bears the liquidator’s reasonable costs of securing it. A voluntary liquidator cannot rely directly on the rule in Ex parte James where binding authority limits that rule to officers of the court.

The joint liquidators of HCL Social Care Limited applied under section 112 of the Insolvency Act 1986 for directions concerning a business-rates rebate. Health Care Resourcing Group Limited had paid more than £105,000 to the City of London Corporation after demands for unpaid rates were issued to it. The Corporation later credited rebates of about £87,000, with a further rebate anticipated, to an account opened in the name of HCL, which was in creditors’ voluntary liquidation.

HCRG claimed the rebate, while a principal creditor considered it part of HCL’s general assets. Neither respondent attended or advanced positive legal submissions. The central issues were whether HCRG was entitled to the rebate and, if so, whether the liquidators’ costs should be paid from it.

1. Entitlement to the rebate. The application was determined in favour of HCRG. The evidence showed that HCRG made the rates payment as a gesture of goodwill and on the footing that the resulting relief would be returned to it. The payment’s purpose proved mistaken when the rebate was instead paid into HCL’s liquidation estate. HCL had therefore been unjustly enriched at HCRG’s expense.
2. The rebate already received, together with any further rebate up to the amount paid by HCRG, was not to be treated as part of HCL’s general insolvency estate. It was to be paid to HCRG on a restitutionary basis. The judge treated fairness and common justice as consequences of the unjust-enrichment analysis, rather than as an independent basis for priority.
3. The rule in Ex parte James could not be applied directly. Court of Appeal authority established that a voluntary liquidator is not an officer of the court, even where the liquidator applies for directions. The judge nevertheless considered that a restitutionary analysis supplied the answer and could explain the priority of the payer’s claim.
4. A Berkeley Applegate order was appropriate. Those who benefited from the particular realisation should bear the costs of obtaining it. The costs of and incidental to the application were therefore to be paid from the rebate, exclusively affecting its ultimate beneficiary rather than the general body of creditors.
5. Because HCRG and Carview had not attended, the rebate was to remain in the liquidators’ account for 21 days after service of the order and approved judgment. Either party could apply within 14 days after notice to set aside or vary the order. The judge confined summary assessment to legal costs, indicating a total of £12,308 if summary assessment were chosen, with detailed assessment available if preferred.