Landlord and tenant — Tenant company in administration — Voluntary arrangement — Creditors approving terms — Landlords claiming future rent and dilapidations — Chairman of creditors’ meeting valuing claim at £1 — Whether chairman wrongly failing to put higher value on claim — Appeal dismissed
The third respondent company ran a school from premises that it held under two leases from C. The appellant landlords were C’s personal representatives. In 2004, the appellants considered that the third respondent was not properly repairing the premises under covenants contained in the leases and they obtained a schedule of dilapidations listing all the breaches of the repairing covenants, with a total estimated value of £875,000. It was subsequently confirmed that the repairs had not been carried out.
In April 2006, the school was closed; the third respondent went into administration and the first and second respondents were appointed as joint administrators. The statement of affairs provided to the administrators by the directors did not mention the alleged liability to the appellants for the failure to repair. The administrators proposed a company voluntary arrangement (CVA) to enable the school to continue its activity. It provided for the payment of a dividend to creditors other than the appellants, who were excluded on the basis that their future claims would be paid in full should the school continue in existence. Most creditors approved the CVA.
The appellants contended that they were entitled to vote and that their vote should be valued at the aggregate of two years’ future rent and the amount of their claim for dilapidations, which totalled £1.175m. At the creditors’ meeting, the chairman considered that r 1.17(3) of the Insolvency Rules 1986 applied since the claim was for an “unliquidated amount” or a “debt whose value is not ascertained” and that there was insufficient evidence to agree a higher value than the £1 nominal amount provided for such claims in default of the chairman agreeing to a greater amount.
The appellants appealed to the High Court, arguing that their claim was not “unliquidated” or “not ascertained” but was “disputed”, so that they should be allowed to vote for the whole amount claimed under r 1.17(4). They submitted that even if this were not a disputed claim, the chairman’s failure to place a significant minimum value on the claim amounted to a “material irregularity”.
Held: The appeal was dismissed.
The chairman had to refuse to put any higher value upon the appellants’ claim.
That claim was unliquidated and unascertained so that r 1.17(3) applied to the exclusion of r 1.17(4), which dealt with the claim for future rent by definition. If the claim for dilapidations were in debt arising under the leases, it would depend upon the cost to the appellants of carrying out the repairs required by the lease. If the claim were for damages for breach of covenant, it would be necessarily unliquidated and unascertained until quantified by judgment.
In considering whether to place a higher value on a claim, the chairman should not speculate. Nor was he obliged to investigate the creditor’s claim. However, he had to examine such evidence as the creditor put forward and any relevant evidence provided by any other creditor or debtor. If the totality of that evidence led him to conclude that he could safely attribute to the claim a minimum value higher than £1, he should do so.
Although, in the present case, the minimum value of the appellants’ claim might have been greater than £1, there was no basis upon which the chairman could have so decided. There was no evidence upon which to conclude with confidence that the value of the claim was at least £x. In any event, there was nothing to indicate that the claim would have been for a sum sufficient to make a difference and lead to the CVA not being approved, which was the minimum required to give rise to a material irregularity.
Roger Smithers (instructed by Cheyney Goulding, of Guildford) appeared for the applicants; Raquel Agnello (instructed by Bond Pearce, of Plymouth) appeared for the respondents; Christopher Boardman (jnstructed by ASB Law, of Brighton) appeared for the third-party creditor, Michael Holland.
Eileen O’Grady, barrister
