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Business Recovery And Insolvency Bulletin

June 2010

Welcome to the first edition of Taylors’ Business Recovery and Insolvency Bulletin.

Whilst we all digest the impact of the latest QI statistics – administrations down 40%, liquidations down 17% and bankruptcies down 10% - in this issue we provide you with a helpful summary of recent Insolvency Rule changes and key case law.

Should you require any further information or guidance on any of the articles contained in this edition of our quarterly bulletin please contact Andrew:

Full Details for AndrewAndrew Livesey, Partner
Office: 0844 8000 263
Mobile: 07884 231375

» Full contact details and profile
» Insolvency and Business/Support Restructuring


In This Edition:

» Changes to Insolvency Rules
» Novel Approach to Section 212
» Rent as Administration Expense
» Insolvency Set Off and Adjudication
» An Uplifting Approach
» When is a Debt Not a Debt?
» Complaints Against the Trustee in Bankruptcy

Insolvency Bulletin

The Business Recovery and Insolvency Bulletin is Taylors regular newsletter providing the latest information and updates for all business recovery, restructure and insolvency issues and case law. - Sign up now!

New Changes to the Insolvency Rules – A Whistle-Stop Tour

On 6 April 2010, the provisions of the Legislative Reform (Insolvency)(Miscellaneous) Provisions Order 2010 and the Insolvency (Amendment) Rules 2010 came into effect and brought about major changes to the Insolvency Rules 1986. Some of the more significant changes to the rules are sign-posted as follows.

Together with the new requirements which came in to effect in April 2009, the new provisions allow officeholders to choose alternative media to publish advertisements. For example, officeholders may publish advertisements on a website address notified to creditors.

Meetings and Resolutions
The changes aim to consolidate the practice relating to meetings and resolutions in different types of insolvency process. Notable changes include:-

  1. The minimum period of notice for meetings is reduced from 21 to 14 days (other than final meetings in a liquidation or bankruptcy where the minimum notice will be 28 days).
  2. The power of the Court to order that notice of a meeting may be given by advertisement only (as in liquidation and bankruptcy) is extended to administration.
  3. Resolutions may be adopted by correspondence in liquidation and bankruptcy as is already the case in administration.
  4. Remote attendance at meetings is made easier.
  5. The requirement for annual meetings in voluntary liquidations is abolished and replaced with a requirement to send a progress report if the liquidation continues for more than a year.

Disclaimer Procedure
Disclaimer notices issued by a liquidator or a trustee in bankruptcy no longer need to be filed with the Court. Instead the disclaimer notice is signed by the officeholder at which point it becomes effective. Where the disclaimer notice relates to land a copy must be sent to the Land Registry. A liquidator must also send a copy of the disclaimer notice to the Registrar of Companies. There is also no longer a duty to keep the Court informed which is replaced with a new requirement for the officeholder to keep certain records.

Liquidators no longer require sanction to compromise calls, liabilities, debts and claims between the company and debtors or contributories. Sanction is still required, however, to make any compromise with creditors.

Likewise in bankruptcy, the trustee in bankruptcy can compromise any debts, claims or liabilities between the bankrupt and any debtor without sanction. Sanction is also not required for the compromise of any claim by the trustee in bankruptcy against any person. As in liquidation, the trustee in bankruptcy will still require sanction to make any compromise or arrangement with creditors

Court Procedure
A number of amendments are made to Court procedure. A selection of the more notable changes is listed below:-

  1. There is a new form of application notice which replaces the need for two distinct forms (ordinary application and originating application).
  2. New provisions which provide specified persons with the right to receive a copy of the complete Court file relating to the particular insolvency.
  3. Winding up petitions served by an administrator are no longer treated as petitions filed by a contributory which removes the need for a directions hearing prior to the hearing of the petition. It is not clear whether the same procedure also applies to the Supervisor of a CVA.
  4. There is now no requirement to file an affidavit in respect of any insolvency proceedings. A statement of truth in accordance with the Civil Procedure Rules 1998 will suffice.
  5. Where an IVA is proposed without the support of an interim order, the requirement to report to the Court is removed and replaced with a new requirement to report to creditors. The requirement to report to the Court remains in circumstances where an interim order has been made in respect of an IVA.
  6. Where the appointment of an administrator is required to take place outside of Court hours, the notice of appointment may be filed by e-mail. The e-mail address is required to be published on the Insolvency Service’s web-site.

Remuneration and Expenses
Various changes are implemented with reference to officeholders’ remuneration and expenses. The most relevant changes are as follows:-

  1. Officeholders may fix their remuneration as a set amount instead of or in addition to a percentage of the value of property dealt with or on a time basis.
  2. Creditors, members (in an MVL) and bankrupts have the right to apply to the Court for a review of officeholders’ remuneration and expenses. Officeholders have to supply certain information relating to remuneration and expenses on request. Similar criteria which currently apply to officeholders’ remuneration may now also be applied to expenses incurred by the officeholder. The deadline for challenging officeholders’ remuneration and expenses is within eight weeks of the report to creditors recording them.
  3. An administrator or other qualified insolvency practitioner is able to recover any remuneration charged and expenses incurred before the formal start of the administration. This means that an insolvency practitioner that has incurred pre-administration fees and expenses but is not ultimately appointed may claim reimbursement and enjoy the same priority as the appointed administrator.

Electronic Delivery
Unless otherwise specified, documents may be delivered by electronic means provided that the recipient has consented to such delivery and provides an electronic address. The provisions do not apply to petitions or applications to the Court. The document must be accompanied by a statement that the recipient may request a hard copy (which must be delivered within 5 days of the request) and give a telephone number, e-mail address and postal address for this purpose.

The new changes move away from the use of prescribed forms in insolvency proceedings. The use of prescribed forms is replaced by an information requirement which sets out the minimum information to be provided in a particular form. This change is used to facilitate the implementation of the use of electronic communication.

As regards forms to be filed with Companies House, the Registrar of Companies will apply its own rules in relation to the prescribed forms and the manner of delivery. Companies House has yet to produce its own set of rules and forms.

To further promote the use of electronic delivery, the rules adopt the concept of authentication of a document as opposed to a signature. A document is sufficiently authenticated if the identity of the sender is confirmed in a manner specified by the recipient or, where no manner is specified, if a communication contains a statement of identity of the sender and the recipient has no reason to doubt the truth of that statement.

The new rules have been designed to streamline insolvency processes by eradicating unnecessary bureaucracy and embracing modern technology. The Insolvency Service hopes that the changes will ultimately benefit creditors by improving efficiency and reducing costs.

Whilst the majority of the new changes appear purely administrative in nature, some of the amendments reflect significant changes in policy. Worthy of special mention is the enhanced facility for interested parties to apply to the Court for the review, not only of officeholders’ remuneration but also their expenses. It will become increasingly important for officeholders to monitor agent’s costs from the outset of an insolvency process in order to ensure that expenses are justified.

The Insolvency Service intends to follow up the new changes with a completely new set of Insolvency Rules scheduled to be rolled out on 6 April 2011. The intention is to tidy up the form of the present rules which have been subject to numerous amendments over the last 24 years. It is likely that the Insolvency Service will also take the opportunity to resolve any teething problems which will be encountered as practitioners get to grips with the new processes.

A Novel Approach to Section 212

For an application under section 212 of the Insolvency Act 1986 to succeed, the applicant (either the Official Receiver, liquidator, a creditor or contributory) must prove that the company in question has suffered loss. This was one of the issues in dispute in the unusual case of ED Games Limited v Cipolletta (2009) Ch.

The liquidators of ED Games Limited (“ED”) brought an action against one of ED’s directors on a number of grounds under section 212. One of the grounds stated that the director had caused loss to ED by allowing its VAT liability to HMRC to increase. The liquidators argued that the monies that should have been paid to HMRC were instead used by ED as working capital, thus enabling it to continue trading which in turn increased the deficiency to ED’s creditors. The director made an application to strike out this part of the liquidators’ claim on the basis that it had no reasonable prospect of succeeding. He argued that the increase in the deficiency to ED’s creditors did not constitute a loss to ED.

The Court concluded that whilst the liquidators might experience considerable difficulty in establishing a causal link between ED’s failure to pay VAT and the losses claimed, it was satisfied that an increased deficiency to creditors represented a loss to ED. Accordingly, the liquidators were entitled to bring a claim on this basis under section 212 and the director’s application to strike out the liquidators’ claim was dismissed.

The Court was only asked to consider whether there existed reasonable grounds for the liquidators to bring a claim. The Court did conclude that there were significant evidential difficulties for the liquidators regarding causation. Nevertheless, the Court entertained the possibility that an increase in the deficiency to creditors, if caused by the directors could give rise to a company loss sufficient to justify an action under section 212.

It is not clear whether this matter proceeded to a final hearing although, given the obvious attraction that this argument will have to HMRC, it is possible that further cases will be brought for determination by the Court. Given that the liquidators’ claim focused on the director’s decision to continue trading at the expense of creditors, it is surprising that the Court did not comment that a claim should have been brought for wrongful /fraudulent trading. It remains to be seen whether the Court would criticise a liquidator for bringing an action under section 212 where other statutory claims are more appropriate.

Rent as an Administration Expense

In the relatively recent case of Sunberry Properties Limited v Innovative Logistics Limited [2009] 1 BCLC 145 the Court stated that the administrators and the Court had discretion to consider how much it would be fair to pay to a landlord in respect of rent claimed as an administration expense.

In the case of Re Toshoku Finance UK Plc [2002] 1 WLR 671 it was determined that, where a liquidator retains or uses property for the purpose of the liquidation, the rent incurred ought to be regarded as an expense of the liquidation pursuant to rule 4.218 of the Insolvency Rules 1986 (“the Rules”) which is mandatory and does not involve the exercise of discretion.

These cases demonstrate the previously held view that the incurrence of administration expenses is a discretionary matter for determination by the administrators or the Court, whereas the incurrence of liquidation expenses is subject to the strict application of rule 4.218. This derives from the fact that, before the Enterprise Act 2002, no equivalent to rule 4.218 existed in relation to administration, leaving administrators free to exercise discretion. The changes brought about in 2003 went some way to consolidate the rules on expenses by the new provisions contained in paragraph 99 of Schedule B1 to the Insolvency Act 1986 and rule 2.67 of the Rules. Nevertheless, the view remained that by virtue of the differences between administration and liquidation, the approaches for dealing with expenses should remain distinct. The case of Goldacre (Offices) Limited v Nortel Networks UK Limited [2009] EWHC 3389 Ch has now brought the two types of insolvency process closer together.

Prior to entering into administration, Nortel Networks UK Limited (“Nortel”) occupied two commercial properties subject to leases with the landlord Goldacre (Offices) Limited (“Goldacre”). Upon entering administration, Nortel continued to use part of the leased premises for the benefit of the administration. The administrators had paid rent for the period of Nortel’s use of the premises whilst in administration. Goldacre requested payment of the December quarter and applied to the Court for a determination of whether future rent is payable as an administration expense.

Goldacre argued that the question of whether the rent was payable as an administration expense should be decided by reference to the Rules. The Court agreed with Goldacre’s submission and stated that if rent fell within the Rules such would be payable as an administration expense on a mandatory basis and not as a matter of discretion exercisable either by the administrators or by the Court.

The Court referred to the decision in Toshoku and determined that the liability to pay rent was an expense of the administration in accordance with the Rules. The Court stated that rent was either in the expense category in rule 2.67(1)(a) as an expense ‘properly incurred by the administrator in performing his functions in the administration of the company,’ or in the expense category in rule 2.67(1)(f) as a necessary disbursement. The Court did not make a final determination on the question of which category applied given the decision in Exeter City Council v Bairstow [2007] 4 ALL ER 437 which provides that such an expense would fall under rule 2.67(1)(f).

The administrators argued that in the event that rent was payable as an expense under the Rules, the Court should exercise discretion when deciding the amount of rent claimable. The administrators referred to the Sunberry decision and argued that rent should be apportioned with reference to the period of Nortel’s occupation and the extent of the premises occupied. Ordinarily, the Court would have been bound to follow the decision in the Sunberry case, however, the Court felt that it was not so bound as the decision in Sunberry was made following a concession by the landlord in that case that it did not have an automatic right to rent.

The Court found that all liabilities due under the terms of the leases during the period of Nortel’s occupation whilst in administration were payable as an expense of the administration. Accordingly, the Court ordered that the full quarter’s rent due in December was payable as an expense of Nortel’s administration and would not be apportioned even if the administrators vacated during the quarter. The Court indulged the administrators by clarifying that if the matter had involved the exercise of discretion, the same outcome would have been achieved. Nevertheless, the clear principle espoused by the Court in this case is that where property is used by a company in administration, all liabilities under any applicable lease, including rent, are payable in full as an administration expense.

The Court provided further guidance on this new approach by stating that the liability to pay rent is not treated as an expense having priority until (and lasts only so long as) the administrators make use of or decide to retain the property. Furthermore, the Court stated that upon vacation of the property the rental liability ceases to be payable as an administration expense. It was also explained that just because rent is payable as an expense it does not impose an obligation on the administrators to pay rent straight away if there is some doubt as to whether there are sufficient assets.

As is conceded by the Court at the outset, this judgment was prepared in haste at the request of the parties. Accordingly, the decision has left many questions unanswered which have caused some confusion amongst insolvency professionals. The following issues remain open to debate:-

  1. If the liability to pay rent as an administration expense is mandatory as opposed to discretionary then this presumably presents a level playing field as between administrators and landlords. Accordingly, the administrators should be able to take advantage of any rent free periods which may apply under the terms of the lease.
  2. It is assumed that the leases considered in this case did not contain a rent apportionment clause as, presumably, this would have allowed some scope for apportioning rent to the period of occupation.
  3. Most leases stipulate that rent is payable, not as a continuing obligation, but on the quarter day. It must follow, therefore, that where a company in administration occupies premises during a period where the quarter day does not fall, there is no liability to pay rent as an administration expense. In such circumstances, the landlord may be justified in applying to the Court for leave to forfeit, but will still have to satisfy the test in the case of Re Atlantic Computer Systems Plc [1992] Ch 505.

It is likely that these and other issues will be resolved either by further determination by the Court or by clarifying legislation. Until then, here is some practical guidance:-

  1. When granting licences to occupy to purchasers of the company’s business and assets, care must be taken to ensure that, where possible, the licence period falls short of a quarter day to avoid triggering liability. Administrators should insist on payment of the licence fee in full on completion if the incurrence of a full quarter’s rent is unavoidable.
  2. Practitioners will have to consider the company’s full liability for rent before appointment which may impact on the timing of the appointment. It may be possible to negotiate a variation of the lease terms with the landlord in appropriate cases.
  3. It should be borne in mind that this case will have retrospective effect and accordingly existing licence arrangements may need to be reviewed.

This case requires practitioners to consider all possible expenses which might be incurred during the course of an administration and, in an appropriate case, it is recommended that advice be taken before agreeing to take an appointment.

Insolvency Set Off and Adjudication

Although Enterprise Managed Services Limited v Tony McFadden Utilities Limited [2009] EWHC 3222 is a decision of the Technology and Construction Court, it has some interesting implications for practitioners.

Tony McFadden Limited (“TM”) went into administration in 2006 and subsequently entered into voluntary liquidation in 2007. Following administration, TM’s administrators submitted a final account for payment under a sub-contract in the sum of £2.5m to Enterprise Managed Services Limited (“Enterprise”). Following TM’s liquidation, Enterprise counterclaimed for monies due in relation to a separate sub-contract against TM for overpayment of approximately £3m. In June 2009, TM’s liquidators entered into a deed of assignment with Tony McFadden Utilities Limited (“TMU”) assigning the net balance arising from the account of mutual dealings between TM and Enterprise under rule 4.90 of the Insolvency Rules 1986 (“the Rules”). Following the assignment, TMU referred the sub-contract under which the net balance was due for adjudication. The relevant sub-contract contained a clause which stated:-

“The Sub-Contractor shall not assign, novate, sub-contract or otherwise dispose of this Agreement without the previous written consent of the Contractor which may be withheld at the sole discretion of the Contractor.”

Enterprise issued an application to the Court seeking (amongst other declarations) a declaration that the assignment was not valid and that the adjudicator did not have jurisdiction and, therefore, the adjudication should be discontinued.

The Court concluded that the prohibition on assignment prevented the assignment of the sub-contract itself and also of the fruits of the performance of the sub-contract. However, in this case it was the net balance under rule 4.90 which was the subject of the assignment which was not prohibited by the contractual prohibition on assignment in the sub-contract. The Court relied on the decision in Stein v Blake [1996] 1 AC 243 which provides that rule 4.90 is mandatory and applies automatically on liquidation. Furthermore the original claims cease to exist and are replaced by a claim to the net balance.

As regards the question of whether this matter was suitable for adjudication, the Court concluded as follows:-

  1. An adjudicator can only deal with one dispute under one contract, and as the case involved more than one contract, it was not suitable for adjudication

  2. As Enterprise’s counterclaim was against TM it would be necessary to join in the liquidators and it is not possible to adjudicate when there are three parties

  3. As stated in Stein v Blake, rule 4.90 envisages the taking of a single account which rules out the adjudication process as such could only be achieved by conducting a piecemeal approach, contract by contract.

  4. Adjudication was impossible as the claims arising out of the separate sub-contracts had ceased to exist.

  5. The adjudication procedure is not the appropriate forum for taking account of mutual dealings under rule 4.90 as adjudication proceedings can be re-opened which would lead to uncertainty.

This case provides a useful restatement of the principles laid down in Stein v Blake in relation to insolvency set-off. It also provides helpful guidance on how contract terms prohibiting set-off will be applied in relation to rule 4.90 and further the unsuitability of the adjudication process to determine such issues. It is likely that similar considerations will also apply in administration pursuant to the equivalent insolvency set-off provisions contained in rule 2.85 of the Rules.

An Uplifting Approach

Dealing with claims for the return of customer deposits is rarely straightforward. Claims often require detailed analysis of records and accounts and may involve consideration of complex issues of trust law. Officeholders must ensure that the legitimacy of such claims is investigated fairly and properly.

If the officeholder makes the wrong decision it could lead to either a breach of trust claim by those claiming the deposits or, alternatively, complaints by the creditors. In such circumstances, and where there is genuine doubt as to the correct position, the officeholder is best advised to apply to the Court for directions. Such an application will provide the officeholder with protection from liability going forward and security for costs given that such are usually ordered to be payable out of the assets which form the subject of the dispute. In the recent case of Re Equilift Limited [2009] EWHC 3104 Ch the Court faced a dilemma concerning the proportionality of the costs which would be involved in resolving a dispute over customer deposits and adopted an innovative approach.

Equilift Limited (“Equilift”) supplied and installed stair-lifts and went into administration on 12 December 2008. Upon entering administration Equilift operated four bank accounts which held approximately £171,000. Equilift subsequently entered into voluntary liquidation and the liquidators received 484 separate customer claims for the return of deposit monies.

There were three categories of claimant, namely, consumer customers, trade customers and those who had paid for service contracts. Equilift had no uniform policy in place for dealing with customer deposits and consequently there was real doubt as to the validity of the customer claims. The liquidators applied to the Court for directions as to whether the customer claims should be accepted or whether the fund was available for distribution to creditors.

The Court expressed its concern that the costs of resolving the customer claims could exhaust the fund. The Court directed, therefore, that the liquidators obtain the opinion of leading Counsel on the merits of the various customer claims. The liquidators complied with this direction and Counsel advised that, because of the manner in which Equilift had dealt with customer deposits such, no trust arrangement existed in favour of any of the customers.

The matter came back before the Court where Counsel’s opinion was considered. The Court did not endorse the opinion, however, found that the opinion was fair, balanced and well reasoned. In the circumstances, the Court decided that the liquidators should follow Counsel’s opinion, however, because Counsel’s opinion was not binding as an authority, the Court accepted that the liquidators might still face an action for breach of trust. In this regard, the Court referred to section 61 of the Trustees Act 1925 which provides a defence where it can be demonstrated that a trustee has acted honestly and reasonably. The Court concluded that it was inconceivable that this defence would not be open to the liquidators given that Counsel’s opinion has been sought at the direction of the Court. To further improve the prospects of a defence to a trust claim, the Court directed that the liquidators notify customers of Counsel’s opinion and that distribution be delayed for two months after such notification.

This is a welcome example of the Court working with officeholders to achieve a positive result. It is likely to only apply in cases where the complexity of the issues and the likely costs are disproportionate to the value of the asset in dispute. In all cases, where Counsel’s opinion is to be relied upon, the officeholders should always make an application to the Court for directions. It should also be remembered that such applications will only be entertained by the Court in cases of genuine doubt. Where the issues involved in a dispute are straightforward, the Court will not intervene and will expect the officeholder to have sufficient competency to resolve the matter. This approach should also be considered with caution. In this case, if Counsel’s opinion is later shown to be wrong, the protection afforded by this ruling may not save the liquidators from a breach of trust claim. Furthermore, because Counsel’s opinion is not binding authority, such protection may be lost if there is a change in the law. Nevertheless, this case remains of interest as an exercise and may prove a useful tool for officeholders faced with similarly difficult cases.

When is a Debt Not a Debt?

The case of Casson and Wales v The Law Society [2009] EWHC 1943 provides useful clarification on the definition of a bankruptcy debt.

Messrs. Casson and Wales were practising solicitors who were made bankrupt. After they were discharged, they were ordered by the Legal Complaints Service (“LCS”) to pay compensation to certain of their clients for the provision of inadequate professional services. The bankrupts failed to comply with the LCS’s order and the matter was referred to the Solicitors’ Disciplinary Tribunal. The bankrupts argued that because the compensation awards related to conduct that had occurred before their bankruptcy such awards were bankruptcy debts from which they had been released under sections 281 and 382 of the Insolvency Act 1986. The Tribunal disagreed with the bankrupts and found that the awards made by the LCS were not bankruptcy debts and that the bankrupts remained liable. The bankrupts appealed and the matter came before the Court for determination.

The Court accepted the Law Society’s submissions that the awards were not bankruptcy debts. The Court did not create a new species of debt excepted from the statutory definition of bankruptcy debt but found that the liability was incurred after the date of the bankruptcy. It was determined that the power of the LCS to make compensation awards was a matter of discretion. Before bankruptcy, there existed the risk of a complaint and the possibility of an award being made, but no actual liability or debt and nor was there any contingent liability or debt. The liability in issue arose upon the making of the compensation awards by the LCS and accordingly post dated the bankruptcy. The bankrupts, therefore, remained liable to pay the awards.

It is worthwhile noting that whilst the bankrupts remained liable to pay the LCS compensation awards, pursuant to the statutory definition of a bankruptcy debt, they were released on their discharge from any liability arising out of any breach of contract or negligence occurring before bankruptcy. It is submitted that there is very little distinction between the two types of liability and the Court could easily have found that the compensation awards were linked to an obligation incurred before bankruptcy pursuant to the definition in section 382. The Court will undoubtedly have been influenced by policy considerations and the obvious injustice which would have arisen if the bankrupts had been able to avoid liability to pay the LCS awards. It may have been relevant that the bankrupts’ liability for negligence is likely to have been insured whereas the liability to pay the compensation awards was not. That said, following the Court’s reasoning, liability would have been avoided if the awards had predated the bankruptcy and may be avoided yet if the bankrupts are made bankrupt again.

It would be interesting to see how this issue would be dealt with in the context of a corporate insolvency. One of the policy considerations for the Court in this case will have been to ensure that the awards survived the bankruptcy to prevent the bankrupts from escaping liability. The same policy consideration would not apply where the Court is asked to consider whether a fine levied by an industry regulator after liquidation is a provable debt. In a liquidation scenario, the industry regulator would be at pains to argue that the liability is provable in order to partake in any distribution. It may enhance the value of any dividend, however, if the liquidator is able to argue that such a liability, as in this case, survives the liquidation. It is doubtful that the Court would so keen to follow a similar line of reasoning in a liquidation.

Complaints Against the Trustee in Bankruptcy

Section 303 of the Insolvency Act 1986 enables a bankrupt, creditor or any other person dissatisfied by any act, omission or decision of a trustee in bankruptcy to apply to the Court for an order confirming, reversing or modifying any act or decision of the trustee or for directions or any order as the Court thinks fit. In the recent case of Miller v Bayliss [2009] EWHC 2063 Ch, the Court had cause to consider this provision when dealing with the concerns of an associate of the bankrupt.

One of the main assets in the bankrupt’s estate consisted of 300 shares in a private company. Prior to the bankruptcy, the bankrupt had transferred a further 187 shares to Mrs Bayliss and the bankrupt’s wife for nil consideration. The trustee in bankruptcy applied under section 339 of the Insolvency Act 1986 for an order declaring that the transfer of these shares was a transaction at an undervalue and a declaration that the shares formed an asset in the bankruptcy. Mrs Bayliss defended the application seeking an order under section 303 for relief on the basis that the trustee in bankruptcy had sold the 300 shares held in the estate for a sum less than offered by Mrs Bayliss. Mrs Bayliss had offered to buy the shares for £30,500. The trustee eventually sold the shares to a third party for £20,000.

The Court concluded that the trustee was entitled to accept the lower offer. It was right to say that Mrs Bayliss had made a substantially increased offer, however, she had not substantiated her offer with any proof that the funds were available. The Court, therefore, concluded that the trustee in bankruptcy was entitled to continue to market the shares and effect a realisation to a third party who could demonstrate the availability of funds. To use the Court’s own expression, the trustee in bankruptcy was at liberty to take the “bird in the hand”.

The Judge referred to the test adopted in Osborn v Cole [1999] BPIR 251 that the Court will only intervene if the trustee in bankruptcy has acted in bad faith, or perversely or fraudulently, or so unreasonably or absurdly, that no reasonable person could have acted in that way. The Court determined that the threshold to be met for such challenges was stringent and vey difficult and that Mrs Bayliss’s procrastination in failing to provide evidence that she was able to pay for the shares enabled the trustee in bankruptcy to deal with other interested parties whose offers were met with funds. The Court concluded that such actions were neither unfair nor unreasonable, but instead were professional, prudent and well judged. Having dismissed the application, the Court did not have cause to consider whether Mrs Bayliss had standing to bring it. Nevertheless, the Court commented that had it needed to consider this point it would have declined Mrs Bayliss standing on the basis that she was not a person with an interest in the bankruptcy.

This case provides a useful reminder as to the limited scope for parties to utilise the procedure in section 303 to complain about the conduct of a trustee in bankruptcy. It also provides a touchstone for how officeholders should deal with offers to purchase assets. It appears that the Court sanctioned the trustee’s approach in this case of finding the best realistic proposal as opposed to the highest offer. The Court also appeared to approve of the trustee acting quickly to realise assets, presumably in an effort to reduce the costs incurred in the bankruptcy. It appears incumbent on third parties, especially those connected with the bankrupt, to provide sufficient evidence of funding before the trustee will be bound to apply due weight to any offers they make.

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