Jackson & Ors v Suburban Property Company Ltd & Ors

There are before the court a series of applications made by the administrators which amount to applications for directions in relation to what is clearly an extremely unusual, if not unique, administration and I have had to grapple with the considerable assistance of counsel on all sides with a range of problems thrown up by the insolvency rules, the rules relating to administration, and the practice of administration.

These difficulties arise largely through, in summary, these reasons: the company in question is offshore and has until recently always maintained that it is conducting itself so that its centre of main interest is in Jersey. It has recently either moved its COMI to England and Wales or has recently acknowledged that it may have been the case all along that its COMI was not in Jersey but in England and Wales. That company is involved in the ownership and maintenance of residential property in the Lewisham area of south London and that is an area where there are a large number of terraced dwelling houses of uncertain condition and they are occupied in part by long lessees and in part by shorthold or controlled tenancies.

Therefore, the business of the company is largely the running of those properties which are held ultimately for investment purposes.

The litigation with which I am concerned has at its heart this company and there are four features of the litigation that make the administration unusual. The first is that the subject matter of the litigation involves, first of all, who owns the company. The entire share capital is currently registered in the name of an agreed nominee or trustee. The alleged beneficial owner is one of the parties to the litigation. Another party to the litigation maintains that that party, who is in fact the trustee of a bankrupt, is the owner of the company.

Secondly, the entire or virtually the whole of the apparent assets of the company, being its properties and its relatively modest portfolio by comparison with the value of the properties, is in issue and other parties to the litigation are claiming that they are the beneficial owner or have rights of restitution against almost the entire assets of the company, and that includes the income stream net of any business expenses.

Thirdly, the company is already, prior to the administration, within the shackles of court-appointed control. There is a worldwide freezing order over its assets, subject to the payment of reasonable expenses, and there has been appointed by the court under the section 37 of the Supreme Court Act a Receiver, who incidentally is not a manager as well, of the rents and profits of the company, appointed as a result of hearing evidence during the trial. This evidence led the court to be concerned that parties to the litigation were not complying with the terms of the worldwide freezing order and were still using income being generated by these assets for purposes outside the terms of the freezing order. In those circumstances the court appointed a Receiver.

The fourth feature of this litigation is that the administrators were themselves appointed in what are very contentious circumstances and the appointment was made by a resolution of the board, by three of its directors. One of these claims to be the owner of the company, but his beneficial ownership is the subject of challenge and he is, therefore, a defendant to these proceedings. A second director has played a very major role in the history of the litigation from a period starting many years ago and is a principal witness who has been extensively cross-examined.

In those circumstances, it is contended that the way that the administration decision was taken amounts to an ulterior motive and there is a heavily contested application to have the administration set aside.

Thus, I have to decide, as part of the many matters for my decision in the overall litigation, whether the appointment was made for an improper motive by the directors and I have already indicated that that application, which I am still in the course of hearing, involves a considerable consideration of the credibility of the relevant directors and of their actions in relation to the company when taken against the background of the litigation.

Therefore, it would be in the interests of justice and subject to the overriding objective that I determine that application as part of the fact-finding exercise that I am currently embarked on.

Therefore, there is no alternative but to find a working way forward that will enable with the minimum additional expense -- there have already been incurred, it is estimated, in excess of £4 million in professional fees in relation to this litigation, and that may be an underestimate -- which nonetheless enables a fair and proportionate consideration of the applications in relation to the administration as part of the fundamental issues that must be decided.

It seems to me that the appropriate way of dealing with that is to extend time for the steps the administrators have to take by statute so as to, on the one hand, balance the need for orderly administration against, on the other hand, the interests of justice in this unusual case. This points to my allowing a reasonable extension so as to provide these statutory steps, if they have to be taken, to be taken in an orderly way without unduly prolonging the administration.

In my judgment the appropriate way of dealing with that is to provide that the statement of affairs must be provided four weeks from the date of the handing down of judgment, and the meeting of creditors three weeks thereafter.

That deals with the applications that are made under paragraph 3 of the application notice.

The next question is how to provide for the working of the administration of the company in this interim period. There are in reality at the moment four separate component parts of the administration of the company. There is the Receiver of the income stream, there are the administrators, there is Acorn, who is the agent appointed by the Receiver, and, rather surprisingly, there are various members of the Thakrar family who have been opening documents sent to the offices of the limited company. The Thakrar family operates from their professional address in south London, which is the address for receipt of documents by Glen, and it is clear that a means must be found of reducing the obvious confusion that is currently in operation.

It seems to me that the way to do that, first of all, is to make an order that has the effect of any Thakrar family member ceasing to have any involvement in the affairs of Glen, not handling any of the communications that come to the address and that the administrator and Receiver should be jointly directed to take such steps as can reasonably be taken to prevent any member of the Thakrar family or any other party to the litigation handling or having any involvement in the day-to-day affairs of Glen.

That ought to reduce the potential involvement down to three parties, of whom one, Acorn, is or should be the managing agents operating under clear guidance and guidelines and there is no reason to believe that that is not presently happening.

The potential difficulty is that there are the Receiver and the administrators, who may be subject to potential overlapping duties and interests, although broadly speaking there has already begun to evolve a clear working relationship that has reduced that overlap. If, as I suggest should happen, although I will not make this an order, the Receiver and the administrators sit down together and draw up a Memorandum of Understanding or a working code of Practice that governs the relationship between them and as to who has what responsibilities with regard to receiving rents, making payments, managing the property portfolio and taking any other executive decision in relation to the property portfolio, I have no doubt that any practical problem that may arise or has arisen in the past will be eliminated.

In those circumstances, there seems no reason why the order as proposed in paragraph 2 with the addition of the word "net" before "all" and "monies" should not stand and I will not make any additional order, save in a moment I will deal with certain potential costs that may arise if the administrators inspect books and records in the control of the Receiver.

I should add in parenthesis that I would imagine if a working arrangement is drawn up, a Code of Practice or Memorandum of Understanding between the two IPs or the three IPs, that will no doubt cover what inspection ought reasonably to be available by the Receiver of the administrators' books and records and vice versa.

Then turning to paragraph 4, I will not make an order in terms of subparagraph (1). I will make an order in terms of subparagraph (2) and in the terms of subparagraph (3), with the deletion of the words:

I now turn to what is in truth the only contentious issue: namely, the extent to which, pending the decision as to whether the administrators are to remain in post at all has been handed down, the administrators can reasonably expect to recover from Glen, in the event that their role is discharged following the handing down of judgment in the Rule 81 application, their costs and expenses from the affairs of the company.

The company and those advising the company -- and this is yet another very unusual feature of the litigation -- have already incurred considerable expenses on three separate phases of the litigation involving professionals to read themselves in and advise the company on its role in the litigation, and, furthermore, until recently, has adopted a position of neutrality and not made any positive assertions or sought to make any positive assertions in the Thakrar litigation.

Furthermore, I see the possible concern -- I will not express any view at this stage as to how likely this is -- that the administrators may be in the position in which, at the end of the litigation, they find that some of their costs are not recoverable from Glen and may not be recoverable from the directors who had, on this view, wrongly appointed them in the first place.

In those circumstances, and in particular given the very considerable cash and cost and financial constraints under this which litigation has been conducted by many of the parties, and in human terms there must be real concern at hearing costs such as £350 an hour being incurred by professionals when there are parties to this litigation who are in very severe cash constraints with regard to their living expenses.

In all those circumstances, the court is bound to have a real concern as to expenditure, and I do not propose to provide any express guidance as to what costs may reasonably be incurred, but what I will do is make an order that it is agreed should be made, that the administrators should supply, by close of play on Friday next, an estimate going forward of their costs and expenses and disbursements down to the end of the stage that I have directed: namely, the creditors' meeting and also their work in progress estimate and I will also give permission to apply generally and I will also direct that it will be open to any party to apply at the end of the first stage of the Thakrar litigation to this court for any direction as to the payment of costs and expenses to the administrators and also a direction which is, I understand in any case, part of the statutory framework, that the administrators' costs and expenses, the reasonable amounts to be paid to the administrators, will be subject to assessment by the registrar, who will of course have available to him the views that I have expressed in this judgment, if ever the need arose, for him to make an assessment.

So in those circumstances, I leave it to the administrators to put forward their estimate. If the estimate is regarded as unreasonably high, notwithstanding the matters I have referred to in this judgment, then it is open to any party to apply on notice but in writing to the court for a direction to cap or to provide a limitation on any further going forward expenses. But subject to that, it seems to me that it is a matter for the administrators and in relation to the inspection of the books and records in the possession of the Receiver, the working arrangements between the administrators and the Receiver as to the actual incurring of time and costs.

So far as the application by the directors is concerned for further funding, it is clear that this is a highly contentious matter and it already has been accepted by Mr Arden that he must in the first instance approach the administrators. I therefore do not propose to make an order in relation to funding. If, following his approach to the administrators, the directors are dissatisfied and wish to renew their funding application, then they may do so on notice in writing, but they must provide reasons in writing as to why they require funding at this stage, which will involve them in providing some indication of what, if any, funding difficulties they have in meeting their costs on an interim basis before the resort to what ought to be available to them: namely, the indemnity that the company will provide them with their costs, and also a statement as to the extent to which they will accept an obligation to repay the money that is funded if that is ordered at the end of the trial.

If that application is made on notice, it will again be dealt with in writing.

So I therefore stand that application over.

I understand that there is no objection to the costs of the transcript of the three days on which the Rule 81 application has been made, which includes today being met out of the monies in the hands of the Receiver. So that order will also be made. And in view of the matters that have arisen during the course of today, I will not make an order in relation to Mr Shelton's witness expenses. I will stand that over for further order, and if it has not been dealt with before, that will be one of the many matters that have been accumulated during the course of the Thakrar litigation to be dealt with at the costs hearing that is already envisaged.

I hope that those matters have dealt with all the ingredients of the application and that an order can now be drawn up to give effect to those provisions.