Henderson & Jones Ltd v Chambers & Anor

Henderson & Jones Ltd are a litigation finance company which is in the business of purchasing and prosecuting causes of action belonging to insolvent companies. Priors Group Ltd was a building company. From the date of its incorporation to 23 August 2019 Stephanie Chambers was its sole de jure director. She resigned in 2019 for health and other reasons, and Alastair Chambers replaced her. Mrs Chambers remained the sole shareholder of the company.

By early 2020 the company had run into financial difficulties, partly as a result of the pandemic, partly because Mr Chambers’s health had also declined. A creditor petitioned to wind up the company. Mr Chambers, as sole de jure director of the Company at the time, sought insolvency advice from an insolvency practitioner, Kieran Bourne, and on 30 July 2020 put the company into creditors’ voluntary liquidation, with Mr Bourne as liquidator. Mrs Chambers, it seems, was not informed at the time.

Faced with a succession of adjournments of the trial of their application (for health and other reasons), the applicant applied for summary judgement for some of the sums claimed.

Mr and Mrs Chambers, as litigants in person, contested the applicant’s standing. They challenged the validity of the liquidation and of the assignment under which the applicant was claiming. As to the validity of the liquidation, they denied that Mrs Chambers, as the company’s sole member, had resolved to put it into liquidation. It followed that the assignment was invalid. They denied that Mrs Chambers had been given proper notice of assignment. They  also claimed to have counterclaims against the company. The complained that the application was “cherry picking:” all matters should be dealt with at trial.

Unsurprisingly, the application was dismissed, ICC Judge Barber finding that there was clearly an issue to be tried as to the company’s going into liquidation:

“In my judgment the SJ application should be dismissed. On the pleadings and evidence before me, I conclude that the Respondents have realistic prospects of defending the Company claims in their entirety. I am also satisfied that there are in any event other compelling reasons why the whole case (that is to say, the Company claims and the Liquidator claims) should be disposed of at a trial.

“It is a fundamental part of the Respondents’ defence that, as sole member of the Company, Mrs Chambers did not vote in favour of placing the Company into CVL and was not aware of the steps being taken by Mr Chambers to place the Company into CVL until long after Mr Bourne’s purported appointment as liquidator. This puts in issue the validity of the liquidation process and subsequent assignment of claims to the Applicant.”

In the light of that, it is not difficult to understand the judge’s rejection of the Applicant’s reliance on  Manson v Smith [1997] 2 BCLC 161 (authority for the proposition that there is no set-off under the Insolvency Rules as between a debt due to a misfeasant director and his liability to repay moneys as a result of his misfeasant conduct). She was similarly unpersuaded by the Applicant’s submissions on the application to the case of  Quereshi v Association of Conservative Clubs Limited [2019] EWHC 1165 (Ch) to the effect that a mere procedural irregularity did not make a liquidation  invalid. In Quereshi, she noted, the members had voted in favour of liquidation, and none had challenged the validity of the process; only the respondent to the application, who was neither a member nor creditor, had raised the issue.  She cited extensively from the case, including this passage:

“57 Two qualifications […] are important. First, concessions are only granted by the court where there is an irregularity in following prescribed processes; the courts will not validate a decision where no effort at all has been made to adhere to the protective procedures…. To proceed otherwise might suggest the imposed protection lacks any purpose. Secondly, the rigour of the ‘inevitability’ condition [i.e. that the result would have inevitably been the same, whether or not there had been an irregularity] is important: the facts must demonstrate that the same ends would inevitably be achieved.”

ICC Judge Barber said that those two caveats were particularly pertinent in the case before her: the Respondents’ evidence was that no effort had been made to adhere to the correct procedure for putting the company into liquidation; and on the evidence as a whole, the ‘inevitability’ condition was not met:

“Mr Butler [for the applicant] sought to argue that the Company would have been wound up anyway, on the petition of Abeds. Even putting to one side the fact that a winding up order on that petition was not inevitable (the Company may have applied to set aside the default judgment on which the petition was based, for example, or may have sought an adjournment of the first hearing with a view to paying off the petitioner and the supporting creditor), the mere fact that the Company could have been placed into compulsory liquidation, rather than CVL, does not in my judgment meet the ‘inevitability’ test referred to in Quereshi at [57]. That ‘inevitability’ test requires looking at whether the same result (ie the placing of the Company into CVL, with Mr Bourne appointed as liquidator) would have been achieved had the correct procedures been followed.”

A successful challenge to the validity of the liquidation would necessarily call into question the validity of the assignment and the applicant’s entitlement to bring proceedings.

Describing the Applicant’s decision to go for summary judgment as “a hopeless stance for the Applicant to take, considered in context,” ICC Judge Barber dismissed the application.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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   • Frances Coulson

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   • Insolvency & Restructuring

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   • Associate
   • Insolvency & Restructuring

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