Clarity on proofs of debt

Overview

In this case, the High Court upheld a decision by joint administrators to reject a proof of debt claiming over £1 million. The Court dismissed the claimant’s appeal, finding that the nature of the debt claimed had changed significantly over the course of the proceedings from what had been asserted in the proof of debt. However, the Court declined the administrators’ request to rule on the issue of whether the claimant was a creditor and, if so, the quantum of the debt. Although the Court had considerable sympathy for the administrators’ attempt to resolve the issue to avoid further costs and delays, it ruled that it was unable to do so on the basis of the evidence before it.

Background

On 26 March 2021, David Shambrook of RSM UK (previously with FRP) and Anthony Wright of FRP were appointed joint administrators of BV9 Limited ("BV9") by Kookmin Bank Co. ("Kookmin"), the major creditor and holder of a qualifying floating charge. BV8 Limited ("BV8") submitted a proof of debt in the amount of £1,074,036.91. The proof of debt claimed the liability resulted from an assignment of debts from BV8 to BV9, which gave rise to an interest margin to which BV8 claimed to be entitled in accordance with the lending facilities provided by Kookmin. The proof of debt included a document titled "Retained Interest Margin", which set out in tabular form how the claim was calculated. The joint administrators rejected the claim and BV8 appealed.

On appeal, BV8 presented its claim differently, arguing that the amounts were due on a loan made on 16 December 2020 and on the taking of an account of a running intercompany balance. The joint administrators took the position that this change took place shortly before the trial without prior warning, while BV8 argued that the administrators had been given reasonable notice of BV8’s real claim, which was set out in the skeleton argument.

The Court’s Decision

While the Court considered various ancillary issues, its decision was largely driven by its determination on whether the altered formulation of the claim could be relied upon on the appeal. The Court ultimately concluded that the appeal, based upon the proof of debt, which asserted a claim by reference to an unpaid interest margin of £1,074,036.91, had to be dismissed as framed. That claim had been superseded by a new claim, which relied upon (1) an unpaid loan and (2) an intercompany account. This could not be read into the proof of debt, since the basis of the new claim emerged only through BV8’s skeleton argument and submissions.

In an effort to avoid further costs and delays, the joint administrators requested that the Court determine if BV8 was a creditor of BV9 based upon the revised claim and the evidence as a whole and, if so, to quantify that debt. The Court was sympathetic to the administrators’ approach, but stated that it could not resolve these matters on the evidence before it. There had been no application to amend the proof of debt. It was incorrectly framed and a different cause of action (an outstanding loan or monies due upon the taking of an account) was now relied upon.

In addition, the administrators had not addressed the appeal from the perspective of the superseding claims. Their statutory role was to investigate, determine and on an appeal raise matters relevant to the interests of the creditors of the whole. That role would have been overridden if the Court had made a decision on the material presented on the appeal. Although the Court has an overall supervisory role and control of all insolvencies, it was not possible in this case to give directions to the administrators simply because there were too many uncertainties (i.e. insufficient evidence) and investigatory matters, questions or issues which had not been addressed.

The Court concluded its decision by stating it was for BV8 to decide what to do next, and for the administrators to decide what steps, if any, they should take in response.

Conclusion

This case underscores the need to submit a detailed proof of debt which accurately sets out the nature of the claim and includes sufficient evidence for the administrators and/or a court to adjudicate the claim. A party cannot simply file a proof of debt, take a widely different position on appeal and expect the other parties and the court to adjust. A formal amendment, accompanied by proper notice, is required to support a change in position.

Judge: ICC Judge Jones

Counsel: Christopher Boardman KC of Radcliffe Chambers (instructed by Addleshaw Goddard) for the Joint Administrators

Andrew Mace of 9 Stone Buildings (instructed by Ellisons Solicitors) for the Applicant