In The Court's Control Of Office-Holders

• Published date: 12 January 2024
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Gatehouse Chambers
• Author: Alaric Watson

This year has seen a development in insolvency law that will be welcome to every insolvency practitioner (IP): a further tightening of the already restrictive circumstances in which the court will intervene under the Insolvency Act 1986 (IA 1986) to control the decisions of office-holders.¹ Two landmark decisions were decided, both arising out of the bankruptcies of a Mr and Mrs Brake: Patley Wood Farm LLP v Kicks² in the Court of Appeal (Patley Wood) and Brake v Chedington Court Estate Ltd³ in the Supreme Court (Chedington).

Any impression that the courts might be willing to consider a slightly more relaxed interpretation of these provisions⁴ has been decisively rejected by these two decisions.

The court's express power to intervene to control office-holders is contained in various provisions of IA 1986, depending on the type of insolvency process.

Thus, in bankruptcy, upon the application of the bankrupt, any of the bankrupt's creditors or any other person who is dissatisfied with any act, omission or decision of the trustee, the court is empowered to review any such act, omission or decision and may confirm, reverse or modify it or give directions to the trustee or make any other order it considers fit.⁵

Equivalent provisions apply to controlling the supervisor of a voluntary arrangement, whether individual (IVA)⁶ or company (CVA),⁷ and the liquidator of a company in compulsory liquidation.⁸ A similar provision applies in relation to administrators.⁹

The wording of these provisions is intentionally broad, but the courts have consistently interpreted them narrowly, evidencing a great reluctance to interfere with the office-holder's performance of their duties so as to allow IPs to carry out their duties efficiently without having constantly to look over their shoulders.

The consensus is that something exceptional is required, bordering on perversity, before the court would be willing to interfere.¹⁰

Thus in Patley Wood,¹¹ the criticism by a creditor of the refusal by the trustees to get involved in litigation against the bankrupts regarding a property within the estate was regarded as misplaced in circumstances where there would be little gain for the estate that would remain deeply in deficit and where the indemnity of the trustees' "reasonable" costs by the creditor was inadequate. The Court of Appeal found the judge's reasoning flawed and allowed the trustees' appeal.

In particular, the courts have limited the ambit of these provisions by...