Vote metaphor

Creditors do not have the right to vote at a creditors’ meeting if their claim in the liquidation is unliquidated until the chairman of the meeting agrees to put an estimated minimum value of their debt for voting purposes (rule 4.67(3)). This amount is usually £1.

If the creditor’s claim is for a liquidated sum, the creditor is entitled to vote provided that the chairman of the meeting admits the claim. If there is any doubt about whether the debt should be admitted or rejected, the chairman should mark the claim as objected to but allow the creditor to vote, subject to the vote being declared invalid subsequently if the objection to the claim is upheld (rule 4.70(3)).

A chairman cannot put an estimated minimum value on a liquidated claim and he cannot mark a claim as objected to if the claim is unliquidated.

The Role of the Court

Rule 4.70 provides creditors with the ability to challenge a chairman’s decision to admit or reject their claim for the purposes of voting.

Previous case law (in particular, the Chelsea FC case), determined that the task of the Court in these circumstances was to simply examine the evidence and conclude on balance, whether the creditor’s claim was established and in what amount. However, there have been contradictory cases as to how the Court should reach its conclusion.

In the latest case[1], the Court considered the liquidation of a property development company (K) and a construction company that had been contracted to build a development of flats (A).

A (the creditor) submitted a proof of debt prior to a creditors’ meeting of K which included an amount it was owed under a consent order, approximately £800,000 for damages for delay, damage, loss and expense under the construction contract and further liquidated sums arising out of a retention fund.

The chairman, a director of K, only admitted A’s proof of debt to the extent of the sums owed under the consent order and the liquidator was appointed (being the liquidator of choice by the directors of K).

At a further creditors’ meeting, the liquidator placed a minimum value of £1 on the claim relating to the retention fund (despite it being a liquidated sum) and reduced the value of A’s claim for damages by setting it off against a claim by K for alleged defects in the construction work carried out by A. Had the liquidator not reduced A’s claim in this way, a resolution would have been passed to appoint a joint liquidator. A appealed.

The Court upheld A’s appeal. It held that the factual enquiry that the Court had to undertake depended on the specific issues raised in the appeal. The Court was required to resolve appeals efficiently, in good time and to keep the scope of any factual enquiry to the minimum required to dispose of the matter justly.

In this case, the Court had only to consider whether or not the liquidator was justified in principle in not admitting the retention claim for voting purposes and reducing A’s claim by way of set-off.

The liquidator was wrong to place a minimum value of £1 on a liquidated claim. The liquidator should have either admitted or rejected it or, if there was any doubt, admit the claim but mark it as objected to.

It was not for the Court to decide the validity of K’s cross claim for damages which the liquidator employed to reduce A’s claim by way of set-off.

As to the standard of proof, the Court considered whether A’s claim was made out on the balance of probabilities.

This case is a reminder that, with such appeals, the role of the Court is not to investigate the conduct of the liquidation and determine every dispute between the parties. A minimal role should be undertaken in determining the specific issues as efficiently as possible.

This post was edited by Emily Drake. For more information, email blogs@gateleyplc.com.

[1] Adlon Limited -v- Sale (as Liquidator of Kingstons Investments Limited) and another [2015] EWHC 1619


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.