Re Totalbrand Ltd Cage Consultants Ltd v Iqbal and another [2020] EWHC 2917 (Ch)

Overview

The applicants applied for permission to appeal against a decision of District Judge Matharu, whereby she dismissed the application by the applicants to dismiss or stay proceedings against them. Those proceedings were in relation to various rights of action including statutory rights of action (e.g. TUV and preferences) that were assigned to the respondent (CCL) by the liquidator of Totalbrand Ltd.

It was argued that the power to assign “office-holder rights of action under s. 246ZD cannot be exercised in a way that confers the sole entitlement to the proceeds of such rights of action on an assignee. Rather, he submitted, the wording of the sections which create the rights of action must be given overriding effect, so that even after an assignment under s. 246ZD, any order under the relevant sections has to provide for a payment to be made to the assets of the insolvent company for the benefit of its creditors. It follows, said Mr. McGarry, that the company needs to be kept in existence to act as the vehicle to which the court must direct the proceeds of any successful action to be paid. Thus, he argued, in a case like the present where the Company has been dissolved after assignment of the claims by the liquidator, CCL as assignee cannot pursue the claims unless or until the Company is restored to the register of companies.”

Judge Snowden REFUSED permission to appeal for a number of reasons (detailed below).

Background

The company was placed into CVL in July 2016 and was dissolved in September 2019. During the liquidation the liquidator assigned a number of rights of action to CCL, which CCL is now pursuing (fraudulent trading, TUV and preferences).

In January 2020, CCL’s application came before the District Judge for directions and case management. The applicants made an oral application that the proceedings against them should be dismissed or stayed on the basis mentioned above (“…the Company has been dissolved after assignment of the claims by the liquidator, CCL as assignee cannot pursue the claims unless or until the Company is restored to the register of companies.”).

Proceedings

The applicants submitted interesting arguments to support the reasoning behind the application; “under the terms of ss. 213, 238 and 239 the court was only empowered to order a respondent to the application to make a contribution to the assets of the company or to make some other order which would have the effect of restoring the position of the company. He referred, for example, to s. 213(2) which provides:

             “The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in manner above-mentioned are liable to make such contributions (if any) to the company's assets as the court thinks proper.”

And he further referred to ss. 238(3) and 239(3) which provide:

             “Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not [entered into that transaction] [given that preference]”.”

In summary, if the company ceased to exist the claim should be dismissed or stayed until the company had been restored to the register as the court would be incapable of making an order for a contribution to the assets of the company or to make some other order which would have the effect of restoring the position of the company.

 Judge Snowden dismissed the application for reasons below –

(1) s. 246ZD(2) makes clear that it permits the assignment of the right of action “including the proceeds of an action”.

(2) “The proceeds from any assignment or sale of the action would become assets for the distribution in the insolvency so unsecured creditors should thereby benefit.” - Creditors would not be deprived of any benefit if an office-holder assigned the entire right of action and all of the proceeds to a third party.

(3) There is no reason why the provisions for relief in the same sections should not also be read purposively so as to permit payments to be ordered to be made to the assignee rather than to the company or office-holder.

(4) The applicant’s interpretation of s. 246ZD would deprive the same of its practical utility for office-holders and thereby frustrate the clear legislative purpose.

Final point, “after the right of action was assigned by a liquidator or administrator, the company would have to be kept artificially alive and the insolvency proceeding kept open whilst the claim was on foot so as to provide a vehicle and mechanism for receipt and distribution to creditors of any proceeds of the action pursued by the assignee. That would be a speculative exercise, would likely lead to a delay in bringing the insolvency to a conclusion, and would result in further costs being incurred to the detriment of creditors. I see no reason to attribute such an impractical and unlikely intention to Parliament.”