A creditor and former director of a property development company has failed to set aside the liquidator’s assignment to a third party of claims against her because she had no standing to bring the claim in Lock v Stanley (liquidator) and Edengate Homes (Butley Hall) Ltd [2022] EWCA Civ 626; [2022] PLSCS 74.
The claimant and her husband formed the second defendant company to acquire and develop property at Butley Hall in Cheshire in March 2012. The development involved converting the main building into flats and building three town houses. Cruden Construction Ltd was retained to carry out the development work. The claimant’s parents lent money to finance the project and leases of two residential units were granted to a company in their control. Ultimately, despite directors’ loans of more than £2m, Edengate was unable to raise sufficient funds to meet its liabilities. A dispute arose with Cruden, which petitioned to wind up Edengate, claiming it was owed in excess of £2.3m. A winding-up order was made in March 2016.
Following investigations, the liquidator – the first defendant – concluded that he and Cruden had claims of around £1.2m against the claimant, her husband, parents and their company, alleging transactions at an undervalue, preference and misfeasance. The claims were strongly disputed. Edengate had no funds to pursue the claims and Cruden was not prepared to fund or purchase them. In September 2019, the claims were assigned to Manolete Partners plc on the basis of an upfront payment of £30,000 and the subsequent division of recoveries, net of costs and reimbursement of the upfront payment. If the claims succeeded in full, the estate would receive around £800,000.
In January 2021, Manolete brought proceedings against the claimant, her husband, parents and their company. At that stage, the claimant then sought to set aside the assignment under s168 of the Insolvency Act 1986, which provides: “If any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.”
The claim failed at first instance and the Court of Appeal upheld the judge’s decision. An applicant under s168 has to be a creditor or debtor with a legitimate interest in the relief sought. This will be satisfied if it is acting in the interests of creditors generally and the relief sought will maximise the assets of the estate.
There was never any suggestion that the claimant would be willing to match or beat the offer from Manolete and this remained the position. The claimant could not simultaneously be a creditor and a defendant: the class interest of the creditors was for the claims to succeed and to maximise recovery, but that of the defendants was precisely the reverse. The claimant did not have standing to make the application.
While the liquidator’s explanation for not offering the claimant the opportunity to buy the claims was unsatisfactory, the liquidator’s decision was not perverse in the sense that it was so utterly unreasonable and absurd that no reasonable person would so act.
Louise Clark is a property law consultant and mediator
