Section 234 Insolvency Act 1986: a cautionary reminder for insolvency office-holders

Section 234 Insolvency Act 1986: a cautionary reminder for insolvency office-holders

Right to rent - update

The recent Court of Appeal judgment in the case of Ezair v Conn [2020] EWCA Civ 687, handed down on 1 June 2020, has reiterated that section 234 of the Insolvency Act 1986 (“IA 1986”) provides only a summary procedure to assist insolvency office-holders in the exercise of their statutory duties. The Court made clear that section 234 IA 1986 does not provide scope for the determination of complex legal issues relating to the property in question.

Section 234 IA 1986 provides that where any person has in his possession or control any property, books, papers or records to which the company appears to be entitled, the court may require that person to deliver up such property to the insolvency office-holder.

The factual background:

Mr Ezair (“E”) personally owned a number of residential properties (the “Properties”) for investment purposes, before deciding to incorporate his business via a newly-incorporated company, Northern Estates Limited (“NEL”). In 1999, E entered into a written agreement with NEL to transfer the business, including the Properties, to it in consideration for which E would receive shares in NEL (the “1999 Agreement”). The 1999 Agreement provided that completion of the sale of the Properties (i.e. the transfer of the legal estate from E to NEL) was to be completed following seven days’ written notice being provided by either party. In order to avoid stamp duty liability arising, notice was not given by E or NEL.

In 2003, NEL entered into a written agreement with a Jersey-incorporated company, Charlotte Street Properties (“CSP”), to sell the Properties to it as part of family trust arrangements put in place by E (the “2003 Agreement”). The 2003 Agreement stated that completion of the legal transfer of the Properties remained at the option of CSP or NEL, upon provision of 28 days’ written notice. Notice was not given by either party. However, from this point onwards, the Properties were recorded in the company accounts of CSP.

The administrators subsequently appointed in respect of CSP made an application for relief under section 234 IA 1986 requesting that E deliver up the executed property transfer forms to enable them to complete the legal transfer of the Properties to CSP. Following the High Court judgment granting the section 234 order, the administrators took an assignment of the benefit of the 1999 Agreement and then served the requisite notice to complete, pursuant to its terms.

Decision:

Allowing the appeal, the Court refused the administrators’ application for a section 234 order and held that the procedure did not provide a means of determining complex issues about title involving third party claims or the prosecution of a claim for specific performance (Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend CBC [2001] UKHL 58 followed). It was apparent that completion of the sale of the Properties to CSP required the service of notice pursuant to the 2003 Agreement, and prior to that, service of notice under the terms of the 1999 Agreement (to which CSP was not party). Neither of these things had occurred. Accordingly, there was no basis upon which CSP could compel E to deliver up the executed property transfer forms. While the administrators had subsequently complied with the terms of the underlying contracts following the High Court judgment granting the section 234 order, it was for the administrators to issue fresh proceedings so that E could address this and raise any defence he saw fit.

Tim Carter, co-head of restructuring and insolvency at Stevens & Bolton LLP, comments:

“This case serves as a useful reminder for all insolvency office-holders as regards the scope of an application pursuant to section 234 IA 1986. It also highlights the critical importance of complying with the contractual provisions of any relevant agreements relating to the property in respect of which the order is being sought, in advance of issuing proceedings. Had the administrators initially complied with the terms of the underlying contractual agreements in the instant case, they would have avoided the need to enter into complex arguments as to title, not to mention the associated time and cost of making a further application pursuant to section 234 IA 1986”.

Contact our experts for further advice

View profile for Tim CarterTim Carter, Louise Corcoran

Search our site