Campbell and another (as joint liquidators of Aronex Developments Ltd) v Purchasers of flats at 47 Clarence Street and 44 Conduit Street, Leicester – Real property – Insolvency – Relief – Company acquiring site for development as student accommodation – Respondent individuals contracting to purchase units and paying deposits – Company going into liquidation before development built – Applicant joint liquidators making application under section 112 of Insolvency Act 1986 – Whether applicants entitled to relief in respect of costs and expenses incurred in sale of properties – Application granted in part
The company was a property developer which built, developed and sold student and other letting accommodation. Individual units were sold “off-plan” to purchasers, with long leases permitting subletting for income generation.
The company purchased properties known as 44 Conduit Street and 47 Clarence Street (the Leicester properties) which were empty sites with planning permission to build student accommodation. Units were sold off-plan to the respondent purchasers who entered into sales contracts and most paid a reservation fee and a substantial deposit. The respondents’ investments had not yielded any return, since the proposed developments on the sites were never built because the company entered into creditors voluntary liquidation before work began.
As liquidators of the company, the applicants were under a duty to get in, realise and distribute its assets, in accordance with the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. Pursuant to their duties as liquidators, the applicants made arrangements for the sale of the Leicester properties.
The applicants applied to the court under section 112 of the Insolvency Act 1986 for directions and an order based on the jurisdiction identified in Re Berkeley Applegate (Investment Consultants) Ltd (No 1) [1989] 1 Ch 32, where it was held that, in giving effect to an equitable interest in trust property, the court had a discretion to require an allowance to be made for costs incurred and for skill and labour expended in administering the property (Berkeley Applegate relief).
Held: The application was granted in part.
(1) A purchaser of an interest in land had a lien over that land for any deposit or other pre-payments made under a contract. The lien was confined to the vendor’s interest in the area of land which was the subject matter of the contract, rather than the land as a whole, so that no question of competing priorities between the liens arose: Eason (as liquidator of Alpha Student (Nottingham) Ltd v Wong [2017] EWHC 209; [2017] PLSCS 89 applied. Chattey v Farndale Holdings Inc [1997] 06 EG 152; (1998) 75 P & CR 298 and Whitbread and Co v Watt [1902] 1 Ch 835 considered.
In Easson, Arnold J devised a helpful formula for valuing the extent of the purchasers’ security, given that it did not extend to the vendor’s interest in parts of the legal estate corresponding to units which were not sold or in respect of which no deposits were paid. Essentially a three-stage process was proposed: (i) deducting the final costs and expenses related to the sale and the application (once calculated and approved); (ii) calculating the percentage value to be attributed to the unsold and sold units, to work out the parties’ respective entitlement to share in the net proceeds; and (iii) calculating the purchasers’ entitlement to share in the fund set aside for the purchasers on a pari passu basis by reference to the amount of the deposits and reservation fee that they had paid.
In relation to the costs of expenses to be deducted from the proceeds of sale prior to distribution, the judge granted Berkeley Applegate relief (on an unopposed basis).
(2) In the present case, as a matter of law, the lien enjoyed by each of the respondents was confined to the vendor’s interest in the area of land which was the subject matter of each contract and did not extend to any greater area. It did not attach to the unsold units. That in turn meant that the purchasers were only entitled to look to a proportion of the proceeds of sale realised on sale of those properties. Given the sums realised for the properties, none of the respondents would receive back the entirety of the sums which they invested from the proceeds of sale alone. However, they could prove in the liquidation for any shortfall as unsecured creditors.
The exercise of the Berkeley Applegate jurisdiction was discretionary. It was unlikely to be exercised where an office holder had officiously intermeddled or where his actions were adverse to the interests of the security holder. It was exercised on the basis of fairness, specifically the principle that those who had benefited from the realisations should contribute to the costs of the same. Whilst the question of free assets was a relevant factor, it was not necessarily conclusive. The court might, having regard to all the circumstances, decide to exercise its discretion in respect of a proportion of the fund: Re Sports Betting Media Ltd (in administration) [2007] EWHC (Ch); [2008] BCC 177, Townsend v Biscoe (unreported, 10 August 2010), Green v Bramston (Liquidator of Kingshouse Developments Ltd) [2010] EWHC 3106 (Ch); [2010] PLSCS 314, MK Airlines Ltd [2012] EWHC 1018 (Ch); [2013] 1 BCLC 9 and Patel v Barlows Solicitors (a firm) and others [2021] 1 BCLC 231 considered.
In the present case, it was appropriate to grant Berkeley Applegate relief, in respect of some but not all of the costs and expenses claimed. Amongst other things, the applicants’ time costs incurred in administering the general property portfolio should be treated as a general liquidation expense; and legal costs relating to the activity stream described as “general advice” would not be included within the relief.
(3) While the fact that the applicants had lawful recourse to other funds for the payment of their costs, expenses and remuneration was a factor to take into account when determining whether or not to grant relief, it was not the only factor. The other funds currently available were fairly modest and, if the court did not grant relief, the effect would be that the costs were borne disproportionately by the unsecured creditors.
As a matter of common sense, justice and equity, the respondents should pay collectively a reasonable sum towards the cost of identifying, preserving and realising their interests in the Leicester properties. The proportion of permitted costs to be borne by them should mirror the proportion in value of their interests in each property when compared to the value of the whole, to be deducted from the proceeds of sale before they were divided between the company and the respondents in accordance with the court’s order.
Christopher Brockman (instructed by Lester Aldridge LLP) appeared for the applicants; the respondents appeared in person.
Eileen O’Grady, barrister
