Staying proceedings while appointment of administrators challenged?

Manolete Partners Plc v Jones & Anor (Re Traxx (Aggregates) Ltd) [2023] EWHC 236 (Ch)Should proceedings against a company’s director be stayed while he challenges the appointment of joint administrators?

Overview

This case considers whether proceedings against the sole director of a company in administration and his wife should be stayed pending determination of a challenge to the validity of the joint administrators’ appointment.

Background

Traxx (Aggregates) Limited (the “Company”) carried on the business of extracting and selling sand from leasehold quarries in Newport, Shropshire and Birmingham. The first Respondent, Nigel Jones, was the sole director of the Company, as well as one of two shareholders. The second Respondent, Andrea Jones, is his wife.

In October 2016, the Company was placed into administration by the holder of a qualifying floating charge. The administration has been extended on several occasions and is ongoing.

In May 2020, the Company and the joint administrators assigned any claims that the Company and/or the joint administrators may have against the Respondents to the applicant, Manolete Partners PLC.

In September 2022, Manolete commenced proceedings against the Respondents seeking to recoup a series of payments made by the Company between 2014 and 2016 to the Respondents. In October 2022, the first Respondent and (acting by him) the Company issued an application seeking to challenge the validity of the joint administrators’ appointment (the “Validity Application”). The issue before the Court was whether the proceedings against the Respondents should be stayed pending determination of the Validity Application.

The Parties’ Positions

The Respondents argued that a stay of the proceedings against them a should be ordered, as it would avoid the Respondents having to incur substantial legal fees which would be entirely wasted if the Validity Application is successful, as the appointment of the Administrators would be set aside and the assignment to Manolete would be a nullity. They also argued that there was factual overlap between the proceedings against them and the Validity Application, such that the success of the Validity Application would afford the Respondents a complete answer to the proceedings against them.

Manolete disagreed, contending that the Respondents could have challenged the administration in 2016 instead of standing by whilst five extensions were granted. Even now, the Respondents had not prepared their evidence in support of the Validity Application against the administrators, and had made clear that they intended to provide the application and the evidence to the administrators on the last day possible, 14 days prior to the hearing. Accordingly, Manolete argued that the manner in which the Respondents had conducted themselves and the timing of the Validity Application led to the conclusion that the challenge to the administration was merely a tactical manoeuvre designed to forestall the Respondents having to formally address the claims being made against them.

The Court’s Decision

The Court agreed with Manolete, finding that the Respondents had been aware of Manolete’s proposed claims since June 2020, when a letter before claim was sent. The payments spanning 2014-2016 which form the subject matter of the proceedings against the Respondents have been explored in correspondence exchanged between the parties and their respective solicitors since 2020.

Similarly, the grounds upon which the first Respondent sought to challenge the validity of the joint administrators’ appointment were first raised in 2016. They are largely document-based and have been aired at length in correspondence exchanged over several years. Again, in preparing evidence in support of the Validity Application, the first Respondent and his solicitors will not be starting from scratch.

In addition, the Respondents had agreed a timetable in the proceedings against them after issue of the Validity Application. There was no evidence before the Court of any material change in circumstance to explain the Respondents’ change in position following agreement of the directions through to trial set out in the consent order.

With respect to the argument that costs may be wasted if the Respondents are successful on the Validity Application, the Court found that it must have regard to the range of possible outcomes on the Validity Application. Contrary to the Respondents’ submissions, even if the Respondents succeed in establishing that the out of court appointment was invalid, it may be open to the court on the evidence before it to consider granting a retrospective administration order on the application of a creditor or any other person with standing, which would mean that the assignment of the claims would remain.

Moreover, even if the Validity Application was successful and no retrospective administration order was granted, a fresh prospective administration order may be granted, barring which the claims would remain with the Company to pursue. Accordingly, even on the Respondents’ ‘best case scenario’ (ie that the Validity Application succeeds and no retrospective administration order is granted), it could not be said that all work done by the Respondents in defending the proceedings against them will inevitably have been ‘entirely wasted’.

As a result, the Court dismissed the stay application.

Judge: ICC Judge Barber

Counsel: James Saunders of New Square Chambers (instructed by Lewis Onions Solicitors Limited) for Manolete; Alexander Kingston-Splatt of Radcliffe Chambers (instructed by FWJ Legal Limited t/a Francis Wilks & Jones) for the Respondents