LexisNexis Corporate Rescue and Insolvency: Case Alerter – September 2024

At-a-glance cases provided by Gatehouse Chambers’ Insolvency Team, featuring:

• The Secretary of State for Business and Trade v Mustafa Hassanali Abdulai & Anor [2024] EWHC 1722 (Ch)
• McAteer v Hat & Mitre Plc (In CVL) Anors [2024] EWHC 1601 (Ch)
• Re Festicket Ltd (In Administration) [2024] EWHC 1554 (Ch)

Read the latest CRI Cases Alerter authored by John Clargo, Sarah Clarke and Aileen McErlean

The Secretary of State for Business and Trade v Mustafa Hassanali Abdulai & Anor [2024] EWHC 1722 (Ch)

Facts

Many sub-postmasters had been required to pay significant sums of money to Post Office Limited (POL) in relation to shortfalls identified by the notorious Horizon accounting system.

In 2013 POL set up mediation scheme knows as the Complaint Review and Mediation Scheme (CRMS) but which was terminated by POL in February 2015.

In March 2016 a number of sub-postmasters launched group litigation against POL (the GLO Litigation) funded by Therium Litigation Funding (Therium).

Many of the sub-postmasters were bankrupt and had to take assignments of causes of action against POL in order to participate in the CRMS Scheme and/or the GLO Litigation. In relation to the CRMS Scheme the consideration was £1 and 49% of the fruits (as defined). In relation to the GLO it was £11,000 and 49% of the fruits (as defined).

In December 2019 the parties to the GLO Litigation compromised the same by entering into a settlement deed which provided for:

• £42m to be paid to the GLO Claimants;
• POL to establish the Historic Shortfall Scheme (HSS) for those sub-postmasters who had not been GLO Claimants.

Of the £42m payable to the GLO Claimants £31m was paid to Therium leaving only £11m for distribution. Claimants under the HSS, by contrast, were not required to contribute to the costs of funding the GLO Litigation. In order to remedy this perceived unfairness the government set up the GLO Scheme.

Ms Palmer (a GLO Claimant) was made bankrupt in May 2015 and discharged in May 2016.

The Respondents were her trustees in bankruptcy on 31 October 2016 and they entered into a deed of assignment with her in November 2016.

Her bankruptcy was not annulled following the settlement of the GLO Litigation and she claimed under the GLO Scheme.

The Respondents contended that they were entitled to be paid all or part of her compensation thereunder either:

• by statute, because it formed part of her estate; or
• by contract, pursuant to the assignment.

Held

• The fruits of the government’s GLO Scheme were not sufficiently connected with Ms Palmer’s claims against POL (which had vested in the Respondents and been assigned back to her) so as to be “arise out of ” or be “incidental to” them and were not therefore “property” within the meaning of the second limb of s 236 Insolvency Act 1986 (IA 1986) (and, if that was wrong, it was not property which existed at the date she was made bankrupt).
• It would unduly strain the language of the assignment to construe the consideration given by Ms Palmer for the assignment of causes of action necessary for her to take part in the GLO Litigation as extending to the fruits of the separate GLO Scheme.

McAteer v Hat & Mitre Plc (In CVL) Anors [2024] EWHC 1601 (Ch)

Mr McAteer (M) applied for a stay of the liquidation of the respondent company. M’s application was dismissed at first instance on the basis that he lacked standing. On appeal, to establish his standing to bring the application, M relied on:

• a memorandum of understanding (MOU) which conferred certain pre-emption rights in respect of the Company’s shares;
• an option agreement to purchase the shares of a majority creditor; and
• an unregistered transfer to him of 2% of the shareholding prior to the administration of the Company.

Held

For the purposes of s 112 and s 147 of the IA 1986, an applicant must be either a liquidator, contributary or creditor of the Company.

Neither the MOU or the Option Agreement purported to confer any beneficial interest in the shares to M. M’s case therefore relied on the transfer of the 0.2% shareholding (notwithstanding that he did not appear on the register of members).

Section 79 of the IA 1986 defines contributory as:

“every person liable to contribute to the assets of the company in the event of its being wound up.”

 Section 74 provides that:

“every present and past member is liable to contribute to its assets …”

Section 250 provides that (for the purposes of the relevant parts):

“a person who is not a member of the company but to whom shares have been transferred or transmitted by operation of law, is to be regarded as a member of the Company.”

M was held to be a person to whom shares were transferred within the meaning of s 250. M was therefore treated as a member “liable to contribute” therefore had standing to bring the application.

However, the lower court’s decision to dismiss the application to stay was upheld on alternative grounds because a stay was not justified given size of M’s shareholding and the unanimous opposition of the other shareholders.

Re Festicket Ltd (In Administration) [2024] EWHC 1554 (Ch)

Festicket was a ticket sales platform which had gone into administration. Various concert promotors had made proprietary claims against monies held by Festicket comprising the proceeds of ticket sales. The Administrators applied for directions. The court directed that the issue of whether a trust was created by four variants of Festicket’s standard form ticket sales agreement should be determined as a preliminary issue.

Held

The standard form agreement did not create a trust over the monies held.

• The agreement was commercial agency agreement between a promoter and a ticket Its terms were clear and no additional terms needed to be implied for it to make sense.
• The detailed provisions concerning remission of net ticket receipts to the promoter were silent about the use of those sums while retained by This was particularly significant due to the lengthy period for which those sums could be held before being paid over. There was no obligation to keep the sums retained in separate accounts or even separate from company monies. There was no provision in relation to interest on the sums held. These were powerful factors pointing against the existence of a trust which outweighed the factors relied upon by the promoters.
• The inclusion of an obligation upon Festicket to act conscientiously and in good faith towards the promoter did not necessarily imply a trust being created over the proceeds of ticket sales. Equally, a trust was not created by reason of Festicket’s limited role in relation to warranties provided and in selling the tickets.
• The provision limiting Festicket’s liability to the total value of booking commission, although somewhat restrictive in relation to contractual liability, did not logically lead to the creation of a trust. Parties are free to agree the terms of the agreement between them, including any limit on their liability.
• Whilst the use of the words, “retain”, “account for”, “remit” can be indications of an objective intention to create a trust, this language was outweighed by the fact that the Company was entitled to retain ticket sale proceeds for prolonged periods without any restrictions on their use.
• There was nothing in the terms to prevent Festicket from using the ticket sale receipts and then, when it had to account to the promoter in question, using any funds it has to make that payment. This is a debtor/creditor relationship which may arise in relation an agency agent as in any other scenario, without requiring a trust.