Ensure compliance with distribution plan terms (Re Premier FX (in liquidation)) – Karl Anderson writes for Lexis®PSL

March 1, 2022

This analysis was first published on Lexis®PSL on 17 February 2022 and can be found here (subscription required).

Restructuring & Insolvency analysis: Creditors of a company in creditors’ voluntary liquidation (CVL) must ensure that they fully understand what is required of them under the terms of any distribution plan, especially with regards the time limit for lodging proofs of debt. The respondent company had been placed into CVL. The court had sanctioned the terms of a ‘Distribution Plan’, which provided that all creditors needed to submit a proof of debt by 28 June 2021, even if one had previously been submitted, unless the joint liquidators had previously acknowledged the proof in writing. The applicant creditor missed the deadline and applied to the court for an order reversing the joint liquidators’ decision to reject his proof. The court rejected his application. In doing so, it emphasised the fact that the terms of the Distribution Plan were clear, and that to allow the applicant to prove without a proper justification for missing the deadline would potentially allow all creditors to prove out of time and would delay distributions from the estate. Written by Karl Anderson.

Re Premier FX (in liquidation); Hutchings v Khalastchi and another [2022] EWHC 232 (Ch)

What are the practical implications of this case?

There are both procedural and substantive implications to this decision, both for liquidators and creditors of insolvent companies (and those advising them).

Procedural implications

Liquidators and creditors will note that the court here acceded to a request by the liquidation committee to determine the application on the papers in order to reduce costs. It did so because the underlying facts were substantially agreed.

If there is unlikely to be any dispute as to the facts underlying an application to review a liquidator’s decision to reject a proof of debt, the parties should consider requesting a determination on paper in order to reduce cost risks.

Substantive implications

Creditors should be aware that the court here took a strict approach to compliance with the time limits set out in the Distribution Plan for lodging proofs of debt.

It will not be enough for a creditor attempting to prove out of time to simply state that they mistakenly missed the deadline, especially where the deadline had been made clear in the terms of any distribution plan. That would allow any creditor without a justification to prove out of time. Something more will be required to show justification for having failed to file in time.

Further, an out-of-time creditor should also be prepared to explain to the court why allowing their claim would outweigh the prejudice to the other creditors in delaying distributions.

What was the background?

The respondent had been carrying on business beyond its Financial Conduct Authority (FCA) authorisations. The respondent was placed into administration on 13 August 2018 following an application by the FCA. It was then placed into CVL on 7 December 2018.

The joint liquidators applied for directions in relation to their proposed Distribution Plan of the sums held by them. The Distribution Plan was approved by the court on 19 May 2021.

The terms of the Distribution Plan provided that all claimants were required to submit a proof of debt by 28 June 2021, unless they had previously submitted a claim which had been acknowledged as received by the joint liquidators prior to 19 May 2021. This was reflected in a ‘FAQ’ document which was uploaded to the online creditors’ portal.

The applicant failed to lodge a proof of debt before that date, and his proof was rejected by the joint liquidators on 27 August 2021. He asked the joint liquidators to reconsider their rejection of his proof, but they refused to do so. He therefore applied to the court to reverse or vary the joint liquidators’ decision.

What did the court decide?

The court rejected the application. It held that the terms of the Distribution Plan were clear— creditors were required to submit proofs of debt even if they had previously submitted proofs to the administrators. The only exception to this was where a creditor had already submitted a proof to the joint liquidators and the joint liquidators had acknowledged receipt of that proof in writing before 19 May 2021. This had been made clear on the creditors’ portal and in communications to creditors.

The court rejected the applicant’s submission that the terms of the Distribution Plan were unclear. It also held that documents and communications created by the joint liquidators which pre-dated the Distribution Plan could not be relied upon by the applicant and were not misleading. The applicant had access to the portal and had received documents which explained how he needed to lodge his proof after the Distribution Plan had been approved by the court.

Finally, the court also held that although its ruling would deprive the applicant of his claim, that needed to be balanced against:

  • the clear terms of the Distribution Plan
  • the fact that there was no real justification as to why the applicant did not meet the deadline (other than that he had made a mistake)
  • the delay which would result to any distributions, and
  • it would allow further late claims to be made out of time even if there were no justification for missing the deadline

Case details

  • Court: Business and Property Courts of England and Wales, Insolvency and Companies List (ChD)
  • Judge: Deputy Insolvency and Companies Court Judge Agnello QC
  • Date of judgment: 7 February 2022

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