A simple debt claim or an insolvency proceeding?

The company entered into administration in June 2018 and in June 2020 moved to a creditors’ voluntary liquidation. In March 2020, the administrators (now liquidators) sought a declaration from the court that the shareholders of the company pay to the company the balance of 70% of their share capital. The shareholders applied to strike out the liquidators’ claim.

The court considered:

  1. The true nature of the claims brought and that the liquidators are seeking to continue.
  2. Whether the administrators were entitled to bring insolvency proceedings.
  3. If the wrong form of procedure was adopted, what the effect of this is and if so, whether the court ought to exercise its discretion in favour of the liquidators.
  4. The claims the liquidators can pursue now as liquidators, in respect of the alleged unpaid allotment amount.

The court held that paragraph 19 of Schedule 1 IR 2016 was not engaged, so the administrators were not entitled to rely upon it. Therefore the administrators had incorrectly used insolvency proceedings and instead should have been brought proceedings under CPR Part 7.

Although the proceedings were issued incorrectly, the court considered there was no reason in principle why the proceedings should be treated as a nullity. The court rejected the shareholders’ request to strike out the claim and used its discretion to save the proceedings. The court held the proper way to cure the procedural error was to direct the proceedings to continue as if commenced by CPR Part 7 claim form, on condition that the liquidators paid the appropriate issue fee.

Re Taunton Logs Ltd (In Administration) [2020] EWHC 3480 (Ch)

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