In the recent case of Parker V Nicholson and others  EWHC 3881 (Ch) the Bankruptcy High Court dismissed an application for directions by a Insolvency Practitioner, in their capacity as Trustee in Bankruptcy, on whether they should admit a proof of debt and convene a meeting of creditors at a creditor’s request on the basis that IP’s role was to make hard decisions and such applications, unless made under exceptional circumstances, should be discouraged.
The facts of the case are as follows:
• The Insolvency Practitioner in the case was appointed Trustee in Bankruptcy of Debtor estate with effect from 3 December 2014.
• Whilst the administration of the Bankruptcy commenced, claims filed were not adjudicated upon, not even for voting purposes.
• The most significant claim received, for the sum of £4.4m, was from the joint liquidators of one of the Debtor’s former companies.
• The joint liquidators demanded in correspondence that: their proof at least be admitted for voting purposes, a meeting of creditors be called and resolutions be sought at that meeting to replace the Debtor’s Trustee in Bankruptcy.
• Rather than do as requested by the joint liquidators, the Trustee issued an application to the court for directions as to whether the proofs of debt should be admitted and a meeting convened.
• The Trustee stated in his supporting evidence that he sought protection of the court, fearing a complaint from the Debtor or an application by the joint liquidators, who were in disagreement in respect of the claim, depending upon his decision in the matter.
In its decision, the court helpfully clarified the law on an office holder’s ability to seek the court’s assistance and protection when tasked with difficult decisions.
Whilst the court noted that the Trustee’s motivation in applying to court was to avoid criticism from either the Debtor or the joint liquidators, the view was that it is the role of the Trustee to make difficult decisions in respect of the case, including adjudicating the claims received. It was not deemed acceptable for an office holder to delegate the decision making process to the court.
Such applications were discouraged by the court and it was noted that they should only be made in exception circumstances where the court’s assistance is required, which was not the case here.
The application was further criticised on the basis that had it prevented a creditors’ meeting from being called for eight months.
As such, the court dismissed the application, as well as refusing permission to appeal, and costs were awarded in favour of the joint liquidators.
The clarification provided by the case is significant as it reconfirms that, in all but the most exceptional cases, the office holders must proceed to make decisions, such as those relating to the adjudication of claims, and not seek to delegate or abdicate their responsibility.
The rationale against this is that doing so causes further expenses to both creditors and the estate and therefore does not maximise the return available to creditors.
Office holders in the future should take note in order to avoid the risk of costs being awarded against them personally where the court considered that they have behaved improperly by making an unnecessary application for directions.
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February 22nd, 2016