Re Paperback Collection & Recycling Ltd [2020] EWHC 1601 (Ch)
Paperback Collection & Recycling Limited (the company) was in the recycling business carrying on business in Wales. Its regulator for waste activities was Natural Resources Wales (NRW), the respondent to the application.
NRW commenced criminal proceedings against the company (and its directors) for offences relating to the storage of controlled waste at its premises committed prior to the company going into liquidation under the Environmental Protection Act 1990 and the Environmental Permitting Regulations 2016. The company, acting by its joint liquidators had served notices of disclaimer pursuant to section 178 Insolvency Act 1986 in respect of the leases and the waste, and so were released from any liability for the waste (except that any person suffering loss and damage in consequence of the disclaimer was entitled to prove for such loss in the liquidation. In April 2020, the company pleaded guilty to various charges on an agreed basis of plea and sentencing was deferred until the case against the directors was determined. The liquidators were not guilty of anything as the acts had been all pre their appointment.
The liquidators had disposed of the assets of the company and wished to distribute the net funds to the floating charge creditors. NRW did not oppose the application.
The liquidators sought directions pursuant to section 112 of the Insolvency Act 1986, that although a fine imposed by a criminal court triggered by offences committed prior to the entry into liquidation was a debt provable in the liquidation, even if imposed after the onset of insolvent liquidation, where there was a substantial deficiency as regards floating charge creditors, the fine would not affect the amount to be distributed to floating charge creditors since the fine was an unsecured liability of the company. The judge directed that the liquidation funds representing the proceeds of sale of the company’s assets should be distributed to the floating chargeholders (with the appropriate amount set aside for the prescribed part).
Whilst the floating charge holder took its funds in priority the importance of this case is the finding that the fine imposed on a company by a criminal court was a provable debt in the liquidation. (The same would apply if the company were in administration). This is because where the criminal offence leading to the fine is committed prior to the insolvency, the fine is a contingent, or future debt or liability within the meaning of chapter 1 of Part 14 of IR 2016, SI 2016/1024.
Whereas Rule 14.2(2)(c)(i) Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024 (IR 2016) provides that, in bankruptcy, a fine imposed for an offence is not provable in the debtor’s bankruptcy, the Insolvency Act 1986 and the IR 2016 are silent as to the position in relation to the winding-up of a company. The Cork Committee had suggested the law should be changed for all insolvency proceedings, but in the event it was only changed for bankruptcy. So in the case of corporate insolvency a fine is a debt provable in a company winding-up or administration (even though it is no longer provable in personal bankruptcy).
So far as confiscation orders are concerned, it was not disputed that the effect of Rule 14.2(2)(a)(iv) IR 2016 was that a confiscation order under the Proceeds of Crime Act 2002 were not provable as a debt against the company.
