Insolvency Proceedings: Serve your application on the respondents promptly or else

The Court of Appeal judgment handed down on 9 November 2020 in the case of HH Aluminium & Building Products Ltd and another v Bell and another (Joint Trustees In Bankruptcy of Ide) [2020] EWCA Civ 1469 provides a clear warning to applicants: serve your application notice without delay, particularly if a limitation period is close to expiry.

Factual background:

• Trustees in Bankruptcy (the Trustees) were appointed over the estate of the bankrupt with effect from 30 January 2013.
• On 30 January 2019, being the last date on which an application could be made in respect of the bankrupt’s estate under the limitation rule, the Trustees issued an application in the Southampton County Court (the Substantive Application). The Substantive Application was issued against six respondents who had received payments from the net proceeds of the sale of the bankrupt’s house and included claims, among others, of preference, transactions at an undervalue and transactions defrauding creditors.
• In May 2019, the court returned to the Trustees a sealed application notice endorsed with a hearing date of 9 July 2019 at 11am.
• Under Rule 12.9 of the Insolvency Rules 2016 (the Insolvency Rules) the Trustees were required to serve the sealed copy of the application notice on the respondents by 24 June 2019, being at least 14 days before the date fixed for the hearing of the application. However, on 7 June 2019, the Trustees issued an application in respect of 1) errors in the Substantive Application, 2) service out of the jurisdiction and substituted service, and 3) vacating the 9 July 2019 hearing.
• On 27 June 2019, the court granted the relief sought (the June Order) including vacating the 9 July hearing, with permission granted to the respondents to apply to set aside the order or vary it within seven days of being served with the June Order.
• The hearing was relisted for 15 October 2019 and on 6 September 2019, being more than 14 days before the date fixed for the vacated hearing, the Substantive Application was served on the respondents.
• On 14 October 2019, an application (the October Application) was issued by some of the respondents seeking 1) to set aside the June Order vacating the first hearing, and 2) to dismiss or strike out the Substantive Application for failure to serve in compliance with Rule 12.9.
• In November 2019, the trustees filed two application notices 1) to transfer the October Application to the High Court and 2) to vary the June Order to grant a retrospective extension of time for service of the Substantive Application.
• The October Application was transferred to the High Court where HHJ Matthews made the first instance decision. HHJ Matthews subsequently granted leave to appeal to the Court of Appeal.

The Court of Appeal decision:

The court considered the following main issues:

1. Could the County Court transfer part only of insolvency proceedings to the High Court?
2. Do the same principles apply to the extension of time for service of an insolvency application as those which apply to the extension of time for service of a claim form under the Civil Procedure Rules (CPR)?
3. On a true construction of Rule 12.9, is an applicant required to serve the substantive application at least 14 days before the date of the first hearing, or the date of the vacated hearing?

Lord Justice Nugee held as follows:

1. Rule 12.30(2) of the Insolvency Rules, which permits transfers by the County Court, should be interpreted widely so as to make practical sense. Therefore the County Court may transfer a specific application within insolvency proceedings to the High Court, as opposed to the entirety of the insolvency proceedings.
2. The same principles apply to the extension of time for service of an insolvency application as those which apply to the extension of time for service of a claim form under the CPR. Therefore, where – as in this case – an application had been issued, but not served, within the limitation period, an extension of time for service will not be given unless there are exceptional circumstances, since the effect of doing so would be to deprive a respondent of a limitation defence.
3. Reflecting the structure of the Insolvency Rules as a whole, the deadline for serving an application notice on a respondent in insolvency proceedings under Rule 12.9 of the Insolvency Rules – being 14 days before the hearing – is calculated by reference to the original hearing date endorsed by the court on the application notice, even where the hearing is vacated to a later date.

David Steinberg, Co-Head of Restructuring and Insolvency at Stevens & Bolton LLP, comments that:

"The court’s decision to apply the same principles when considering an application for an extension of time for service of an insolvency application, as those which apply to an application for an extension of time for service in respect of a claim form under the CPR, demonstrates an increasing tendency to align insolvency processes with the stricter approach in the CPR. This case also serves as a clear warning to insolvency office holders issuing applications close to the end of a limitation period: serve notice of such applications promptly, and in any event at least 14 days before the original date fixed for the hearing of the application, or come prepared with an exceptional reason for not doing so when seeking an extension of time for service."

A link to the judgment in HH Aluminium & Building Products Ltd and another v Bell and another (Joint Trustees In Bankruptcy of Ide) [2020] EWCA Civ 1469 can be found here.