Re North Point Global Ltd [2020] EWHC 1648 (Ch) (26 June 2020) is an example of the court adopting a principled approach to an apparent lacuna in our insolvency legislation to produce what we suggest most people will regard as a just and pragmatic result.
In 2017 North Point Global Limited entered into a company voluntary arrangement with its creditors. The question raised by the application heard by HHJ Davis-White QC, sitting as a judge of the High Court, was whether the applicants, the joint liquidators of Baltic House Developments Limited, were bound by, and able to participate in, the CVA as contingent creditors of the company. The liquidators had submitted a proof in the CVA in respect of a claim that certain payments by BHD to the company amounting to just over £841,000 were preferences. The supervisor had rejected their proof. The liquidators appealed to the court against that decision.
The judge identified three issues to be decided:
- Were the liquidators bound by the CVA under s 5(2) Insolvency Act 1986?
- Were they entitled to prove as creditors in the CVA?
- If so, what was the value of their claim?
As to the first, he decided that whether the liquidators were bound depended on the construction of s. 5(2)(b)(ii) Insolvency Act 1986. The section, as is well known, provides that a CVA binds every person who in accordance with the rules “would have been… entitled [to vote in the qualifying decision procedure by which the creditors’ decision to approve the CVA was made] if he had had notice of it”.
The supervisor’s position was that, at the time of the decision-making procedure that resulted in approval of the CVA the individuals who later became the liquidators of BHD were not liquidators. If notice had been given to them at that time they would not have had any entitlement to vote. The liquidators submitted that they were bound by reason of s. 5(2)(b)(ii): the section was to be construed as applicable to them not simply as individuals at the decision date, but as individuals with the claims that they acquired in their capacity as liquidators. They relied, among other cases, on In Re T&N Limited [2005] EWHC 2870 (Ch), [2006] 1 WLR 1728 for three main propositions: first that contingent debts were capable of being bound by a CVA, even if the debts were not provable in a liquidation; secondly, that contingent debts were generally provable in a liquidation; and thirdly, that provable debts were capable of being bound into a CVA.
The judge decided that the first question in favour of the liquidators. In his view,
“At the end of the day, it seems to me obvious that it is desirable that as a class contingent claims are bound. The policy arguments […] lead to that conclusion, as stated by David Richards J in Re T&N.[…] In my judgment, it does no violence to the language of [the language of section 5(2)] and promotes the underlying policy of Part 1 IA 1986, if it is read as focussing on the term ‘creditor’ so that the condition to be fulfilled is read (as it says) as being that the creditor would have been entitled to vote if the creditor (as creditor) had had notice of the meeting, not as being whether at the time of the decision making process the individual was then a creditor who would have been entitled to vote. In my view, if the Liquidators had been in office at the time of the CVA being approved, they would have been bound. S 5(2) IA 1986 should be read as if the reference to creditor is the creditor in that capacity and, if they had then had that capacity, whether they would have been bound. Put another way, the focus of the section is whether the claim would have been bound (through the person asserting it being bound)”.
The answer to the second issue turned, in the judge’s view, on the terms of the CVA as well as on the law. His answer followed from the one he had already given to the first question: the wide scope of the term ‘creditor’ in the CVA necessarily had the meaning that he had already attributed to it which the CVA itself did not purport to limit. Alternatively, in his view, even if the CVA did restrict the definition of creditor to one with a provable debt (by reason of the incorporation into the CVA of Part 14 of the Insolvency Rules 2016), then that definition still encompassed contingent debt. The judge considered the definition of ‘relevant date’ in r. 14.1(3) Insolvency (England and Wales) Rules 2016 (noting, however, that it did not itself operate in the case of a CVA). It was, however, relevant because of the terms of the CVA and by reason of the supervisor’s view expressed when rejecting the liquidators’ claim that there could have been no relevant date in relation to it before the appointment of a liquidator.
The judge decided that it was only relevant to valuation. He further noted,
“[T]hat it is also well established that under the ‘hindsight principle’, the valuation as at the relevant date can be affected by evidence and events which occur after the event of formal insolvency: see e.g. In re Northern Counties of England Fire Insurance Co; Macfarlane’s Claim (1880) 17 ChD 337. In that case, a contingent claim under an insurance policy was valued in the light of subsequent events […]” (a fire).
On those bases, he answered the question raised again in favour of the liquidators.
On the last issue he simply decided that the matter should be remitted to the supervisor for him to carry out the valuation.
