Please note that the Insolvency Rules 1986 as quoted in this article reflect the law as it stood prior to 6 April 2017 and the introduction of the new insolvency rules.
The case concerned an appeal against the rejection of a proof of debt by a liquidator and who should be liable for the appellants’ costs of the appeal.
The appellants, Mr and Mrs Fielding, submitted a proof of debt (claiming £1.3m) in the liquidation of The Burnden Group Limited (“BGL”), a company which they effectively ran and controlled.
The liquidator of BGL, Stephen Hunt (“the Liquidator”) rejected that proof. The Fieldings’ successfully appealed the rejection but the question of costs was the subject of great debate; the Fieldings claimed the Liquidator should be personally liable for their costs of around £290,000.
The question of the costs of the Fieldings appeal was the subject of a costs judgment separate from that handed down in respect of the actual appeal itself.
Underlying the rejection of the proof, the Fieldings alleged, was the Liquidator’s strong desire to bring misfeasance claims against both the Fieldings and the former administrators of BGL, who had paid a dividend of £1.3m to the Fieldings. If the Fieldings’ proof were valid then BGL would have suffered no loss and the misfeasance claims would fall away.
It is noteworthy that there were no funds in the liquidation estate to enable the Fieldings to receive a dividend if their proof were valid, nor to enable their costs to be paid, unless the Liquidator were held personally liable for those costs.
Counsel for the Fieldings contended that the Liquidator fiercely defended the appeal against his decision to reject because it was necessary for his rejection to stand so that the proposed misfeasance proceedings could get off the ground.
As a consequence of the motives alleged for Liquidator’s stance, the Fieldings argued there should be a personal costs order against him, or at least the costs should be an expense of the liquidation. Counsel for the Liquidator argued that there should be no order as to costs at all.
Insolvency Rules 1986 rule 4.83 applies to appeals concerning the rejection of a proof of debt. This rule is separate from that at rule 4.73 concerning how the costs of proving will be met.
Rule 4.83 (6) states: “The official receiver is not personally liable for costs incurred by any person in respect of an application under this Rule; and the liquidator (if other than the official receiver) is not so liable unless the court makes an order to that effect.”
There was no case law on all fours with the facts in this case, however, several cases were examined:
In the case of Re Arthur Williams & Co (1913), whilst the facts were not analogous to this case, the Court of Appeal held that the official receiver should be personally liable for the costs of the case since in bringing the case he was acting not in discharge of his statutory duty but in the exercise of his power.
The court held in Re Mordant (a bankrupt) (1995) that only with good reason to do so and, not otherwise than in a special case, should the court depart from usual rule that personal costs orders are not made against officeholders.
The notable points can be summarised as follows:
The Insolvency (England and Wales) Rules 2016 (“the 2016 Rules”) came into force on 6 April 2016. The provisions in the 2016 Rules that correspond to those mentioned in this article are:
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Posted on Tue, 16th May 2017