Trident Fashions Plc v Bairstow & Ors

Trident Fashions plc (“the Company”) was incorporated in 2001 and commenced trading in June of that year following its acquisition of the menswear chain “Ciro Citterio” from the administrators of Ciro Citterio Menswear plc. The Company traded as menswear retailers using the name “Ciro Citterio”. For the purposes of its trading the Company was in exclusive occupation of about 50 shops around the country, including premises at 240 High Street, Exeter. The local authority responsible for the levying and collection of non-domestic rates in respect of those premises were and are the Exeter City Council (“the Council”).

On 17^th September 2003 an administration order was made against the Company and three joint administrators were appointed. In December 2003 the creditors of the Company approved a proposal for a Company voluntary arrangement (“CVA”) and the joint administrators were appointed as its joint supervisors. In January 2004 the Council received an interim distribution in the CVA of £4,115.78 in respect of arrears of rates that were due as at 17^th September 2003.

Despite the approval of the CVA the administration order in respect of the Company continued. On 20^th April 2004 the original joint administrators were replaced by Vivian Murray Bairstow and James Patrick Martin, licensed insolvency practitioners and partners in the firm of Begbies Traynor (“the Begbies Administrators”). They are the respondents to these proceedings. The administration (which would have otherwise expired automatically on 17^th September 2004) was extended for six months by an order of the court until 17^th March 2005, when it expired automatically under paragraph 76 of Schedule B1 to the Insolvency Act 1986 (“the 1986 Act”). The Begbies Administrators thereupon ceased to be administrators of the Company, whose control reverted to its management. However, the Company went into administration again on 7^th April 2005, with different joint administrators. That administration ended on 27^th April 2005, when the Company was ordered to be wound up by the Court.

On 15^th March 2005, two days before the ending of the first administration, the Council issued an application in the Companies Court seeking a declaration that the non-domestic rates that had accrued to them since 17^th September 2003, together with interest thereon, fell within sub-paragraph (a), alternatively sub-paragraph (f), of Rule 2.67(1) of the Insolvency Rules 1986. Two forms of substantive relief were sought in the alternative. The statement of grounds relied on included the following:

“Throughout the administration of the Company, from 17^th September 2003 onwards and continuing, the Company has been in rateable occupation of the Premises for the purposes of its continuing trade. Accordingly, a liability for the Rates has continued to accrue in favour of [the Council].”

The arrears of rates claimed fell into four different periods, those in the first three periods being quantified at an aggregate of £75,753.21, with those in the fourth period to be ascertained in due course. It was recognised that credit would be given for the interim distribution received in the CVA.

The respondents to the Council’s application were the Begbies Administrators and the Company itself. No evidence was filed in support or opposition to the application, reliance apparently being placed only on counsel’s skeleton arguments on each side. No point seems to have been taken in regard to this informality, which, as will appear, has subsisted up to the hearing in this court.

The application came before Sir Donald Rattee, sitting as a judge of the Chancery Division, “for directions only” on 5^th April 2005. Principally for the reason that by that time the Begbies Administrators had ceased to act as such, the alternative forms of relief sought by the Council in their application were not pressed. That meant that the judge was faced with a bare application for a declaration that the rates fell within Rule 2.67(1)(a) or (f). In that state of affairs the Begbies Administrators applied to be removed as parties to the application and for the claim for relief against them to be struck out.

In his brief judgment acceding to their application, Sir Donald Rattee said:

“1.

It seems to me that, in the context of the relief which is presently sought by the Council’s application, it is no longer appropriate that the first and second respondents, former administrators of the company, should remain as parties to the Council’s application.

2.

The Council’s argument in effect is that it wishes to have an opportunity to put in an amended form of application which would justify keeping the former administrators as parties. However, the Council has had more than ample time in which to deal with the problem which it faced as a result of the termination of the administration on 17^th March. It really cannot now properly expect the court to keep the former administrators as parties, when it has not still come forward with any amended form of claim which might justify their retention.

3.

Accordingly, I shall make an order striking out the former administrators as respondents to the Council’s present application.”

Subsequently, a written application for permission to appeal was made to the judge, which he dismissed in writing on 18^th April 2005. In that application reference was made for the first time to an argument that non-domestic rates, whether they fell within sub-paragraph (a) or (f) of rule 2.67(1), ranked ahead of the Begbies Administrators’ remuneration under sub-paragraph (h).

The Council having applied to this court, permission to appeal was granted by Lord Justice Neuberger on consideration of the documents on 28^th July 2005. The Council now seek the reinstatement of the Begbies Administrators as respondents to their application for a declaration, so that the matter can be restored to the High Court. We have not been asked to make a declaration ourselves. In this court the Council and the Begbies Administrators have been represented by Mr Paul French and Mr Lloyd Tamlyn respectively, neither of whom appeared below.

So far as material, Rule 2.67(1) of the Insolvency Rules 1986 provides:

“The expenses of the administration are payable in the following order of priority -

(a)

expenses properly incurred by the administrator in performing his functions in the administration of the company; …

(f)

any necessary disbursements by the administrator in the course of the administration (including any expenses incurred by members of the creditors’ committee or their representatives and allowed for by the administrator under Rule 2.63, but not including any payment of corporation tax in circumstances referred to in sub-paragraph (j) below); …

(h)

the remuneration of the administrator agreed under Chapter 11 of this Part of the Rules…”

It is also necessary to refer to paragraphs (2) and (3) of Rule 2.67:

“(2)

The priorities laid down by paragraph (1) of this Rule are subject to the power of the court to make orders under paragraph (3) of this Rule where the assets are insufficient to satisfy the liabilities.

(3)

The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the administration in such order of priority as the court thinks just.”

Although it has taken some time to get to it, the point at issue is a short one. Mr Tamlyn accepts that the court has jurisdiction, in the exercise of its discretion, to make a binding declaration whether or not any other remedy is claimed; see CPR Part 40.20. However, he submits that if a claim for declaratory relief is not coupled with a claim for substantive relief, it must be examined with caution. Usually a declaration can only be claimed as a step in the process of claiming substantive relief and, if such relief was to be sought notwithstanding the ending of the administration, then justice and fairness demanded no less than that the claim for relief should have been properly pleaded at the time of the hearing before the judge. Mr Tamlyn adds that the judge’s decision was a simple exercise of his case management powers, which, on conventional principles, cannot be interfered with by this court.

Had it not been for the emergence, since the date of the hearing before the judge, of the matter of the Begbies Administrators’ remuneration, it is possible that Mr Tamlyn’s submissions would have prevailed. But it now appears that the Begbies Administrators had paid themselves a sum of £440,018.87 in respect of their remuneration during the course of the administration. That matter has not been dealt with in evidence in these proceedings, though we are told in Mr Tamlyn’s skeleton argument that the Begbies Administrators “of their own volition undertook, several months ago, to repay the remuneration.” We are also told that there was a witness statement before Judge Behrens QC on an application in October 2005 in the winding up proceedings, in which they confirmed that the sum paid to them by way of remuneration would be repaid. We have not been shown a copy of that witness statement. In any event, the position is that the remuneration has still not been repaid.

The consequence is that at the date of the hearing before the judge the Council had, by virtue of Rule 2.67(1), alternatively under paragraphs (2) and (3) of that rule, a potential right to claim or to be awarded priority over the Begbies Administrators to the extent of the amount that had been taken by them by way of remuneration. Since that raised an issue between them, it was and remains a sufficient basis for the Council to claim the declaration they seek against the Begbies Administrators, notwithstanding that it was not coupled with any claim for substantive relief. There can be little doubt that, if the point had been taken by the Council before the judge, he too would have regarded it as a sufficient basis, in his own words, to “justify their retention”.

Mr Tamlyn has emphasised that the Begbies Administrators’ undertaking to repay their remuneration was on the basis that the amount thereof should be paid to those entitled to the benefit of the statutory charge arising on their vacation of office under paragraph 99 of Schedule B1 to the 1986 Act. He says that it must have been apparent to the Council from evidence in the proceedings before Judge Behrens in October 2005 that, even if the Council were expense creditors as they claim, the quantum of such creditors ranking in priority to the Council under paragraph 99 and Rule 2.67(1) far exceeded such assets as fall to be distributed to expense creditors by the liquidator. That may well prove to be the case. But, at any rate while the remuneration has not been repaid, it is not a good ground for disallowing the Council’s claim for the declaration they seek against the Begbies Administrators. Nor is it a good ground that the Council may have an alternative claim in the liquidation of the Company.

For these reasons I would allow the appeal and set aside the judge’s orders that the Begbies Administrators be removed as parties to the application and that the claim for the declaration sought against them be struck out.

I agree.

I also agree.