Assignees cannot use Section 212 “shortcut”

Assignee’s claims for breach of duty brought by insolvency act application under Section 212 IA 1986 should have been brought by Part 7 Claim Form.

Section 246 ZD Insolvency Act 1986 enables the assignment of “transaction avoidance” office holder claims.

Where transaction avoidance claims are available to an office holder, there often also exists breach of duty claims arising from the same facts. Such claims are assets of the company which existed prior to liquidation.

Where both office holder claims and company claims have been assigned to a third party, it has been common practice for assignees to advance all claims within one Insolvency Act application notice.

In Manolete Partners Plc v Hayward and Barrett Holdings Ltd the respondents challenged the applicant’s ability to bring company claims for breach of duty via Section 212 IA 1986.

Chief ICC Judge Briggs held that as assignee, the applicant did not have standing to bring company claims via Section 212 IA 1986. The office of liquidator is not assignable. The company claims should have been brought by separate Part 7 claim.

However, it was held that, unless the court orders otherwise, a claim made by way of Insolvency Act application that should have been made under CPR Part 7 does not invalidate the proceedings. In this case the judge exercised his discretion under CPR 3.10 to allow the claims to continue, on the condition that the applicant paid the £10,000 court fee which would have been payable had Part 7 proceedings been issued. It was noted that a court was likely to exercise its discretion against allowing claims to continue if there was evidence of an abuse of process.

In practice, this means that any assignee wishing to bring company claims as well as transaction avoidance claims, must bring those claims via two separate sets of proceedings. They would then seek to apply for transfer and consolidation of those claims.

The judge expressed his regret at reaching these conclusions, stating that “the result fails to ensure that claims of this nature are dealt with expeditiously, allotting an appropriate share of the court’s resources”.

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