Local London Residential Ltd, Re

MR JUSTICE EVANS -LOMBE: The complicated history out of which this application emerges is this: in 1998 contested divorce proceedings were commenced between Mrs Lisa Mitchell and her husband Mr Sean Mitchell. There were complicated ancillary relief disputes. Interalia a question arises in that litigation about the ownership of the former matrimonial home, once valued at £1.5 million, which has been burnt down but with insurance may still be worth approximately that figure.

After the start of those divorce proceedings the property in question in this case, a caravan park, was purchased in 1999. This is known as Middle View and Homestead Caravan Park, Normandy Road, Guildford. There is an issue as to the price at which that caravan park was purchased. It is not in issue that it was purchased in the name of the Company, Local London Residential Limited, but there is an issue as to the price at which it was purchased. It is said that it was purchased for £435,000. That is the liquidator's case. A retrospective valuation of the site values the site as at the date of purchase at £745,000. This may be significant because the Inland Revenue may be interested in the proposed sale that is to take place. In particular, the price at which it was purchased may affect the claim for capital gains tax. It may affect the appropriate rate of stamp duty.

On 19 April 2002 a bankruptcy order was made against Mr Sean Mitchell. Although there is no accurate figure because he has not co -operated with the proceedings, I am told there are debts in that bankruptcy of approximately £50,000. The company, which was incorporated for the purpose of the acquisition of the site, has two shares on issue, currently being held by Mr Mitchell's father, Joe Mitchell.

On 29 November 2003 Miss Lisa Mitchell intervened in the liquidation to prevent the caravan park being sold by obtaining a freezing injunction from Peter Smith J. As a result of making that order and the familiarity with the facts that he acquired from doing so, Peter Smith J recommended that the ensuing litigation to decide whether Lisa Mitchell had a claim to the caravan park should be determined by the Bromley County Court, where it seems the family dispute between the Mitchells was also being litigated.

On 9 April 2003 a winding -up order was made against the company. This was at the instance of a creditor. Subsequently on 2 May, on a Secretary of State's appointment, the current liquidator was appointed liquidator of the company. It emerged that the company had ordinary debtors of approximately £100,000, but on the books of the company there appeared a director's loan for £430,000, ostensibly also a creditor in the liquidation. There appears at least to be an obvious link between the amount of the director's loan and the suggested purchased price of the caravan park.

On 14 May 2003, an application was made by Sean Mitchell to rescind the winding -up on the grounds of insolvency which was dismissed by Mr Registrar Derret. On 6 June a further application by Lisa Mitchell was made to rescind the winding -up on similar grounds but which was dismissed by consent.

On 10 July 2003 an application was made by the liquidator to Lindsay J for what is known as Barclay Applegate relief, relief resulting from a case decided by Edward Nugee QC sitting in this court as a deputy judge, [1989] Ch 32, in which the Deputy Judge held that there was jurisdiction in the court to permit liquidators to have access to assets which were being claimed by others outside the liquidation and were being held in the liquidation, but on trust for those claimants.

In the result, he ordered that the liquidator was to have access to the income stream flowing from the rents payable on from the caravans situated from time to time on the caravan site. The totality of that income stream could be received by the liquidator and applied for the purposes of the liquidation. He also gave permission to the liquidator to market the property and sell it. There is no issue between the parties that the property should be sold.

On 2 October 2003 the trustee in bankruptcy of Sean Mitchell filed a defence and counter -claim in which he laid claim to either the whole or 70 per cent or 50 per cent - - these are alternative claims - - of the property. In the alternative he claimed to be entitled to one of the two outstanding shares held by his father Joe Mitchell. I should say that Lisa Mitchell's claim was to half of the property, alternatively to the other of those two outstanding shares.

This application was made on 24 November for further Barclay Applegate relief. What I am asked by the liquidator to do is to sanction access to the proceeds of sale of the caravan park when sold as a matter of principle, leaving to a later stage whether the sums which the liquidator in consequence pays out from the proceeds of sale to finance her operations, were properly so paid out or are recoverable. The result of Lindsay J order is that the liquidator has received £110,000 from the income stream which was diverted to her by the order of the judge. That sum has been more than spent. The liquidator accordingly says if the property is to be sold imminently, and thus the income stream cut off, that her funds will be cut off and she will have to resign and certainly not pursue the litigation which is pending in the Bromley County Court. That case is listed to start on 7 March 2004 and it will take four days to try.

I am not prepared to give to the liquidator permission to help herself to the proceeds of sale of the property. That was the attitude of Lindsay J on the last occasion when an application was made to him, and I respectfully adopt his approach.

Counsel for the liquidator divided the costs for which she was seeking cover under four heads. The first was the costs which directly relate to the administration of the property, the caravan park, and to the sale of that property, i e, marketing and conveyancing costs. It is not in issue that costs of this type, being costs incurred by a liquidator administrating property which might or might not be the property of the company over which he is liquidator, are payable to the liquidator not of that property.

Secondly she asks for cover for the costs involved in investigation of the beneficial interests in the caravan park, in particular, up to 2 October 2003, at the time when the Trustee in Bankruptcy's defence was served, when it became apparent that he was also claiming an interest in the property, indeed all the property. I can see no reason why this particular classification of costs should be allowed. It seems to me that the submissions made on behalf of the second and third respondents are correct. It should have been apparent from the moment that Mrs Mitchell commenced her proceedings that the liquidator was in the position of a litigant in dispute with the respondents over whether the creditors in the liquidation were entitled be paid interalia from the proceeds of sale of this caravan park or not; or whether the persons entitled to the park were either Lisa Mitchell or Sean Mitchell or both of them.

The third classification of expense was liquidation expenses. The fourth classification was the costs of contesting the proceedings on behalf of the company in liquidation at the hearing to take place in the Bromley County Court. Those are undoubtedly expenses that the liquidator faces, but they are plainly not expenses which a liquidator is entitled without more to have access to disputed assets for the purpose of obtaining payment.

One thing that is absent, as was pointed out to me in the course of submissions on behalf of the Trustee in Bankruptcy, is any indication that the liquidator has approached the creditors in the winding -up, some £100,000 worth, to raise from them a fighting fund with which to fight the litigation in the Bromley County Court. That of course would be the normal course where a liquidator is in the position of having a claim to make which may well be well -founded, but no assets with which to fund the claim. The appropriate course, as is well -known, is to consult the creditors as a body, and to seek to raise from them funds with which to pursue the claim. It is a matter for the creditors whether they supply those funds. If they do not, they have to face the prospect that the liquidator may decide to withdraw.

I have come to the conclusion that I ought not to face the liquidator with the prospect that, in the event that the sale takes place next week or the week after, and it is possible that it may, her source to support her costs and expenses and the costs of the litigation may be shut off precipitately.

I have come to the conclusion that I should make such order as permits the order of Lindsay J to run, i e an order which has the effect of continuing the income flow so long as the property remains unsold. I should impose a cap of £50,000. The cap will work in the following way. The income flow will continue and will be received by the liquidator and available to her, as it has been hitherto, and if that continues so that she receives more than £50,000 before it shuts off, she can continue to receive it in a sum greater than £50,000.

However, if before the figure of £50,000 is reached the flow of money is cut by reason of the sale, then she may recoup herself from the proceeds of sale, so that the total that she has received amounts to £50,000. Lindsay J commented that the liquidator's expenses, having regard to the task with which she was entrusted to perform, looked expensive, but he said that he was no position to determine whether money had been wasted on unnecessary costs. Accordingly, he did not attempt to come to any conclusion on that point. I also think that the liquidation looks expensive, but like Lindsay J, I am in no position to conclude that that is the case. That is for another tribunal to judge if necessary.

However, I do think it is appropriate to apply the cap that I suggest. It will be open to the liquidator hereafter if those funds are insufficient to fund her operations, including the trial in the Bromley County Court to apply again to the court for further access to the proceeds of sale of the caravan park if it has been sold in the interim. It follows that to that extent, I allow the application.