Leyland Printing Company Ltd v Leyprint Ltd

This is my reserved judgment in two related matters that came before me in the Applications List in Manchester on Friday 6^th August 2010. Mr Giles Maynard-Connor of counsel appears for the Applicants, Leyland Printing Company Limited (“LPC”) and Leyprint Limited (“Leyprint”). Both companies entered into administration on 22^nd May 2002 as a result of orders made by His Honour Judge Roger Cooke (sitting as a Judge of the High Court). The purposes for which the administration orders were expressed to be made were, in each case, (1) a more advantageous realisation of the company’s assets than would be effected on a winding-up and (2) the survival of the company and the whole or some part of its undertaking as a going concern. The administrator originally appointed by the court was Mr Gordon Craig of Begbies Traynor. He was subsequently replaced by Mr Daniel Paul Hennessy by a Block Transfer Order made by me on 17^th February 2009. Mr Hennessy was then replaced by Mr Martin Shaw by a further block transfer order dated 15^th April 2010 made by His Honour Judge Pelling QC. Under the applicable transitional provisions, both administrations are governed by the law in force prior to the reforms introduced to the statutory scheme for the administration of companies by the Enterprise Act 2002.

Before the Court is an application issued on behalf of LPC and Leyprint by Mr Shaw, as the current administrator of both companies, on 19^th July 2010, seeking relief pursuant to sections 14 and/or 18 and/or 20 of the Insolvency Act 1986 and/or the inherent jurisdiction of the court as follows: (1) Directions as to the proper treatment of creditors’ claims and, specifically, whether the administrator or subsequent liquidator of the companies can and should accept any claims that have become statute-barred since the making of the administration orders in respect of the companies for the purpose of proving and receiving a dividend from the realisations that have been made during the course of the administrations. (2) Insofar as necessary, that (a) the administration orders be discharged with effect from such date as the court considers appropriate; (b) the administrator be authorised to and do, prior to such discharge taking effect, agree the claims of and make payments to the companies’ preferential and unsecured creditors; (c) the administrator do write to the Registrar of Companies informing him of the Court's order and asking him what, if any, assistance or costs he should provide in connection with causing the companies to be struck off after the discharge of the administration orders has taken effect, and do provide such assistance and costs, if any, to the Registrar of Companies as he shall reasonably require for that purpose; and (d) the administrator do have his release from liability with effect from such date as the court considers appropriate. (3) Further or alternatively, such other directions as the court thinks fit. (4) Provision for the costs of the application. No-one has been served with the application. The evidence in support is contained in Mr Shaw’s witness statement of 15^th July 2010 together with Exhibit MS1.

The factual background to this application is as follows: LPC was incorporated on 6^th December 1939 and operated from premises in Leyland, Preston as a family printing and packaging business. Prior to its entry into administration, it was a wholly-owned subsidiary of Ditchfield British Books Ltd ("Ditchfield”). Leyprint was incorporated on 7^th November 2001 to replace LPC as the trading entity of the business. Because of the lack of proper company books and records, it is not clear whether it is Ditchfield or individual members of the Mould family (who owned Ditchfield and provided the boards of directors of the two companies) who are the legal and/or beneficial owners of the shares in Leyprint.

There have been substantial realisations during the long period of the companies’ administrations. As Mr Shaw relates (in paragraph 26 of his witness statement) some £985,000 has been realised in respect of LPC and some £793,000 in respect of Leyprint. In addition, the sale of the companies’ business and assets have secured the continued employment of some 80 staff members, thereby minimising creditors’ claims. To this extent, the administrations have been successful. The administrator currently holds some £757,000 in respect of LPC and some £363,000 in respect of Leyprint. There are no secured creditors of either company. On the basis of current information (and subject to the outcome of this application), it is anticipated that both the preferential and the unsecured creditors of LPC will be paid in full; that the preferential creditors of Leyprint will be paid in full; and that the unsecured creditors of Leyprint will receive a dividend of approximately 27 pence in the £ (although this dividend may fall to be reduced to 17 pence in the £ if certain presently disputed claims should be agreed or established).

However, following Mr Hennessy's appointment it was discovered that there appeared to be a problem with the status of creditors’ claims given the longevity of the administrations. Essentially, given the manner in which creditors’ claims had been dealt with by Mr Craig and his staff during his period of office, it would appear that, apart from one unsecured creditor of LPC, Mr Coghill, who had legal proceedings pending at the commencement of its administration, all other creditors’ claims had become statute-barred under the provisions of the Limitation Act 1980, by, at the latest, 22^nd May 2008, some 9 months before Mr Hennessy's appointment. It would appear that Mr Craig or his staff had mistakenly confused the effect of liquidation (which, for the purposes of the Limitation Act, causes time to cease running as against creditors’ claims at the date of the commencement of the winding up) with an administration which, under the law applicable to pre-Enterprise Act administrations, does not. Further, according to paragraph 38 of Mr Shaw’s witness statement, given the nature of the administrations, no formal acknowledgment of any creditors’ claims appears to have taken place which could have operated to stop time running for Limitation Act purposes.

In these circumstances, Mr Hennessy considered that he should seek appropriate directions from the court as to the proper treatment of creditors’ claims. But before making such an application, and on legal advice, it was felt necessary first to notify the companies’ creditors and members in order to seek their views. Consequently, an appropriate passage was included within the body of the administrator's progress report dated 26^th February 2010 (at section 4.5); and the covering letter dated 26^th February 2010 specifically referred creditors’ (but not members’) attention to that section and invited any creditor who wished to make any representations to contact the administrator before 12^th March 2010. Following his appointment, Mr Shaw has considered the issue and he agrees with the plan formulated by Mr Hennessy whilst he was in office. Mr Shaw confirms in his witness statement that no objections or other negative responses have been received from creditors or members, and he therefore believes “that they concur with the approach suggested". The adoption of that approach would produce the result indicated in paragraph 4 above.

In his witness statement, Mr Shaw asserts that if, apart from Mr Coghill's unsecured claim, the claims of the companies’ other creditors are indeed statute-barred, the result will be “unfair” and will represent "an unexpected windfall to a single unsecured creditor and the shareholders". He therefore believes that creditors’ claims should be accepted; but he acknowledges that he cannot determine that issue, which must fall to be resolved by the court. He also suggests that "given recent changes in the law dealing with the powers of administrators to make distributions to creditors in what may be termed ‘old-style’ administrations, there is an argument that the liquidation principles should now apply thereby avoiding the effects of the Limitation Act as currently understood. That argument has not been tested by the Court and I leave all relevant legal submissions to my Counsel."

Apart from the issue of the status of creditors’ claims, the application also seeks permission for Mr Shaw, as administrator, to agree and to pay the claims of creditors. As the administrations commenced before the Enterprise Act 2002 came into force, he does not have the powers afforded by schedule B1 to the Insolvency Act 1986 (as amended); but he is advised that the Court can empower him to agree claims and to make the subject payments pursuant to section 18 of the 1986 Act in conjunction with an application for the discharge of the administrations. He seeks such an order because it will be more cost-effective for him so to act without the companies being placed into liquidation; and he says that that will enhance the level of dividends actually payable to creditors. On present information, he asserts that there will be a costs saving of approximately £25,000. Moreover, the process will be quicker; and he is keen to ensure the claims are paid as soon as possible after the Court resolves the substantive issue as to the status of creditors’ claims. He is not aware of any other reason why the companies should be placed into liquidation; in particular, there is no action that needs to be taken which could only be taken by a liquidator. As for his release from liability, he confirms that no objections have been made to him as to his conduct of the administrations generally.

At the hearing, Mr Maynard-Connor produced (1) an e-mail from Edward Mould, one of Ditchfield’s directors, confirming that the directors of Ditchfield had received the administrators’ February 2010 Progress Report "and we have no objection to the application to court"; and (2) a letter from Wallwork Nelson & Johnson, Leyprint’s accountants before it entered into administration, confirming their understanding that that company “was to be a wholly-owned subsidiary” of Ditchfield.

In the course of his argument, I was taken by Mr Maynard-Connor to the decisions of Wynn-Parry J in Re Art Reproduction Co Ltd [1952] Ch 89 and of Judge Paul Baker QC (sitting as a judge of the Chancery Division) in Re Cases of Taffs Well Ltd [1992] Ch 179 at 190B for the proposition that in liquidation “debts already statute-barred are not admissible to proof even if it transpires that the company is solvent, unless the contributories agree". Towards the end of his judgment in the latter case, at 195D-E, Judge Paul Baker QC considered “whether an administration order prevents time running. This is a new remedy, short of liquidation, introduced by the Insolvency Act 1986. The question does not arise in the present case, though it has been debated before me. As no statutory trust in favour of creditors has been established by such an order, it seems to me that time would not cease to run against creditors, but I express no concluded view." Those observations were both inconclusive and obiter. But they were effectively endorsed (without express mention) by Mr Jules Sher QC (sitting as a deputy judge of the Chancery Division) in Re Maxwell Fleet and Facilities Management Ltd [1999] 2 BCLC 721, especially at 725-7. According to the headnote, the granting of an administration order did not stop time running for limitation purposes. It was settled by case law that a compulsory winding up stopped time running under the Limitation Acts. That was because of the statutory scheme of rateable distribution imposed in a compulsory winding up. But although administration involved a moratorium, there was no distribution to creditors, and no implication that the Insolvency Act 1986 intended to disapply the limitation periods during administration. Judge Paul Baker QC’s view “that an administration, unlike a liquidation, did not stop time running" was cited by Patten J, without any expression of disapproval, in the later case of Re Cosslett (Contractors) Ltd [2004] EWHC 658 (Ch) at paragraph 31. Mr Maynard-Connor also cited McGee on Limitation Periods, 5^th edn (2006) at paragraph 2.018 for the proposition that in an action founded on contract, the effect of the expiry of the limitation period is to bar the remedy, but not to extinguish the claimant’s right. I do not consider that that is of any assistance to the administrator in the context of the present application.

For the administrator, Mr Maynard-Connor accepts that the authorities establish that the making of an administration order under the pre-Enterprise Act 2002 regime does not stop time from running against a creditor under the Limitation Act 1980. This is because the entry of a company into administration confers no power upon the administrator to distribute the company's assets. His only authority to do so is as an adjunct to an application for his discharge, in accordance with the procedure sanctioned by the Court of Appeal in the case of Re Lune Metals Limited [2006] EWCA Civ 1720; [2007] Bus LR 589 at paragraph 47 (and following) per Neuberger LJ. That case established that under an ‘old-style’ administration, the administrator’s functions did not extend to paying out creditors. However, the ambit of section 18 (3) of the 1986 Act was wide enough to permit the court to sanction an administrator satisfying the claims of the company’s creditors, provided this was done in order to facilitate a desirable exit route for the company from administration. Thus, an administrator might apply for an order under section 18 discharging an administration order on the basis that payments should first be made to the company's creditors; and the administrator’s proposed distribution to creditors could properly be sanctioned so long as it was made in connection with an application for his discharge. Mr Maynard-Connor has not sought to argue that the procedure sanctioned in the Lune Metals case, enabling the court to authorise an administrator to effect a distribution to creditors in order to facilitate the company’s exit from administration, has affected the existing law, so as to assimilate the position of a company in administration to that of a company in liquidation for the purposes of the running of time under the Limitation Act 1980. In my judgment, he was right not to do so because, unlike a liquidation, an ‘old-style’ administration gives rise to no trust in favour of the company’s creditors, and the availability of the procedure sanctioned in the Lune Metals case has not assimilated the two corporate insolvency regimes for the purposes of the running of time under the Limitation Act 1980.

Mr Maynard-Connor also acknowledges that the effect of the authorities is that a creditor whose claim is statute-barred can only prove in a company’s liquidation or administration with the consent of the creditors and members whose position would be adversely affected if his proof were to be allowed. Instead, his submission is that this condition is satisfied in the circumstances of the present case. Apart from the creditors whose claims are statute-barred, the only other creditor of either company is Mr Coghill, who will be paid in full in any event, so that he cannot properly claim to be adversely affected by the admission of statute-barred claims to proof. So far as the company’s other creditors, and its contributories, are concerned, Mr Maynard-Connor contends that they should be treated as having agreed to the admission of statute-barred claims because they have not objected, or responded negatively, to the proposal in the February 2010 Progress Report that the administrator should “seek the directions from the Court as to the proper treatment of creditors’ claims” and, specifically, whether the administrator or a subsequent liquidator could and should “accept any claims that are statute barred for the purpose of proving and receiving a dividend from the realisations that have been made during the course of the Administrations”. Nor has any creditor or shareholder of either company responded to the invitation in the Report to indicate a wish “to be formally joined as a respondent to the application and/or to make representations as to the envisaged application”. Mr Maynard-Connor makes the point that it is manifestly in the interests of all the creditors whose claims are statute-barred that their claims should be admitted to proof. He also points to the email of 4^th August 2010 (referred to at paragraph 9 above) confirming that the directors of Ditchfield have no objection to the present application to the court.

Were I able to do so, I would wish to accede to Mr Maynard-Connor’s invitation to direct the administrator, or any subsequent liquidator, of LPC and Leyprint to admit statute-barred claims to proof, and to authorise a distribution to all the creditors of each company. I agree with the administrator that the alternative approach of distributing the surplus assets (after satisfaction of Mr Coghill’s claim in full) amongst the companies’ shareholders would produce an unfair result, and would represent an unexpected windfall to the shareholders. However, I can see no proper alternative to this course. I am entirely unable to translate the failure to object, or to respond negatively, to the course proposed in the Administrators’ latest Progress Report into an agreement to the admission to proof of statute-barred claims. What was proposed was merely an application to the Court “as to the proper treatment of creditors’ claims”. Whilst the administrator indicated, in the Progress Report, his belief that creditors’ claims should be accepted, he acknowledged that he could not determine that issue himself, and that the matter must be resolved by the court. Consistently with that entirely proper approach, in paragraph 1 of the application, the administrator merely invited “directions as to the proper treatment of creditors’ claims”. That approach was mirrored by the terms of paragraph 1 of Mr Shaw’s supporting witness statement, which was expressed in entirely neutral language. Mr Mould’s email of 4^th August 2010 (referred to at paragraphs 9 and 12 above), confirming that the directors of Ditchfield “have no objection to the application to court”, must be construed against that background, and cannot be taken as doing any more than indicating that Ditchfield’s directors have no objection to the administrator seeking the court’s directions as to proper treatment of statute-barred creditors’ claims. In my judgment, it cannot be elevated to the status of an agreement on the part of Ditchfield to the admission of statute-barred claims.

With regret, I therefore conclude, on the evidence presently before me, that there is no justification for the administrator admitting to proof any claims that have become statute-barred since the making of the administration orders on 22^nd May 2002. In the absence of consent from the shareholder or shareholders of each company, neither the administrator, nor a subsequent liquidator, of that company can or should accept any of the statute-barred claims for the purpose of proving and receiving a dividend from the realisations that have been made during the course of the relevant administration.

I confess to having felt troubled by the lack of any evidence (referred to at paragraph 5 above) of any formal acknowledgment of creditors’ claims having taken place which could have stopped time from running. The decision of the Court of Appeal in Jones v Bellgrove Properties Ltd [1949] 2 KB 700 (affirming Birkett J at [1949] 1 All ER 498) is authority for the proposition that an acknowledgment of indebtedness in a company’s accounts in the form of a composite item for creditors, without distinguishing the particular debt owed to the individual claimant, may be a sufficient acknowledgment of the debt to stop time running for the purposes of section 29 of the Limitation Act 1980 if the court is satisfied, by extrinsic evidence, that the claimant’s debt was amongst those referred to in the balance sheet. It would seem to me, by analogy, that an admission of a company’s indebtedness in an administrator’s progress report, albeit in a composite sum, might be capable of amounting to a sufficient acknowledgment of a particular company debt if it could be shown, by extrinsic evidence, that the particular debt was included within that composite sum. However, all of the Progress Reports of Mr Craig, culminating in his Interim Report dated 5^th June 2008 for the period 22^nd May 2002 to 13^th February 2008, merely refer to him “having received notification of creditors’ claims” totalling various sums, without any indication of the extent to which any of those claims were admitted. I cannot regard such references as amounting to a sufficient acknowledgment for the purposes of section 29. It is unnecessary for me to consider the terms of the Progress Reports which post-date the termination of Mr Craig’s period of office because, by the time of Mr Hennessey’s appointment, more than 6 years had elapsed since the entry of the companies into administration; and (by section 29 (7) of the 1980 Act) once barred, a right of action cannot be revived by any subsequent acknowledgment.

When Mr Maynard-Connor attended before me earlier today for me formally to hand down judgment in this matter, he invited me to afford the administrator an opportunity to communicate the terms of this judgment, and of my Order, to the shareholder or shareholders of each company; and to invite them to confirm in writing, by a date to be specified in my Order, that they had received and understood the terms and effect of this judgment and of my Order, and whether or not they consented to the admission to proof of the statute-barred claims. If all of the shareholders in either company did so consent, then the administrator was to be at liberty to re-apply for his discharge from office as administrator of that company and, as ancillary thereto, and in order to facilitate that companies’ exit from administration, for authority to agree the claims of, and to make payments to, the companies’ preferential and unsecured creditors. If, in relation to either company, no response was received from the shareholders, or if none of the shareholders confirmed that they consented to the admission to proof of the statute-barred claims, then the administrator was to apply for the discharge of the relevant administration order, to place that company into liquidation, and for such consequential relief as was appropriate. In view of the uncertainty attending the precise identity of the shareholders in Leyprint, the administrator was to apply for further directions if some, but not all, of the potential shareholders of that company should confirm that they consented to the admission to proof of the statute-barred claims. I am content to accede to this invitation. As I have already indicated, distributing the companies’ surplus assets amongst the companies’ shareholders, and without regard to the claims of all of the companies’ creditors, will produce an unfair result since it would appear to be through no fault on the part of the companies’ creditors that their claims have become statute-barred.. Further, and notwithstanding its strict purport, the terms of the February 2010 Progress Report may have led the shareholder or shareholders of each company to understand that, in the absence of any response from them, the court hearing the administrator’s proposed application would have free rein to achieve a fair and just resolution of the present state of affairs by directing the administrator to accept the creditors’ claims even though they were statute-barred. I regret that, in this matter, the court has no general power to do justice according to the merits of the case.

I am conscious that I have arrived at my decision following a hearing at which I have heard only from the administrator, and not from any of the creditors of either company who, in the event, may be adversely affected by my decision. This is not the fault of the administrator who, in his February 2010 Progress Report, had invited any creditor or shareholder wishing either to be formally joined as a respondent to his proposed application, or to make representations to the court in connection therewith, to contact him by 12 March 2010. He has received no communication in response. Nevertheless, in view of the sums of money involved, I shall direct that, within 16 days, the administrator shall serve copies of my Order, and of the transcript of this judgment, upon the companies’ creditors. The administrator shall also be required to notify the creditors of each company of its shareholders’ response to his invitation to them to consent to the admission to proof of the statute-barred claims. Any creditor shall have permission to apply, on not less than 3 days’ notice to the administrator (supported by evidence), to vary or set aside this Order. In order to avoid any unnecessary applications, any such application shall be issued no earlier than 7 days after notification of the shareholder’s response and no later than 28 days after such notification.