Home Information Cases Lomax Leisure Ltd (In Liquidation) v (1) Nicholas John Miller (2) Timothy James Bramston (2007)

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Lomax Leisure Ltd (In Liquidation) v (1) Nicholas John Miller (2) Timothy James Bramston (2007)

Summary

Liquidators had been entitled to postpone and later cancel the payment of dividends to creditors even though they had already declared those dividends and provided the cheques as, following the declaration, they had become aware of a pending application by another creditor.

Facts

The claimant company (L), as assignee of some of its creditors, sought enforcement of a duty on the defendants (D), in their role as L's liquidators, to pay a declared dividend and payment of and damages or compensation in equity in respect of the dividends declared. L had entered into administration and D were appointed as administrators. D effected an asset sale resulting in what was thought to be a surplus for creditors. D were appointed as liquidators and gave notice pursuant to the Insolvency Rules 1986 r.11.2 of their intention to pay a final dividend within four months of the last date for proving. The following month a company claiming to be a creditor (M) submitted a proof which was rejected by D. M later issued an originating application by which it appealed. In the meantime D, not aware that the application had been issued, resolved pursuant to r.11.5(1) to pay a dividend and sent letters to all creditors whose proofs had been admitted, enclosing notice of declaration and cheques. When the application arrived at D's offices, they contacted the bank and stopped the cheques. D contacted the relevant creditors, informing them of events and of their decision to defer payment. Following M's appeal, an award was made to M. As a result L had insufficient funds to pay the creditors. The liquidation was converted into a creditor's voluntary liquidation and a new liquidator was appointed. L submitted that although a cheque, to be capable of being sued upon, was required to be supported by consideration, consideration was to be given an extended definition by the Bills of Exchange Act 1882 s.27 and that consideration was provided as D were absolved from being forced to pay the dividend. L further contended that the liquidator's power to postpone or cancel a dividend under r.11.4 was superseded once a dividend was declared pursuant to 11.5(1) and the reference to a pending application in 11.5(2) should be construed as meaning that an application should have been served as well as issued.

Held

(1) Rule 11.5 provided for the declaration of a dividend but did not impose a duty to pay it over and above the overriding duty of a liquidator under r.4.180(1). The liquidator was not personally liable to pay the dividend and there was no relationship of debtor and creditor between the liquidator and creditor. A creditor's remedy where a dividend was not duly paid was r.4.182(3) and applying for an order directing the liquidator to pay the dividend. Whilst r.4.182(3) did not strictly apply to a members' voluntary liquidation, an analogous procedure was available. If a liquidator, having declared a dividend, paid away assets so as to defeat such an application or the equivalent procedure in respect of a members' voluntary liquidation, then a personal claim might lie against a liquidator. However unless the company had been dissolved the claim would ordinarily only be capable of being brought as a misfeasance claim, Kyrris v Oldham (2003) EWCA Civ 1506, (2004) BCC 111 considered. L's claim for payment and damages or compensation in equity failed on the basis that D owed no personal obligation to the creditors to pay the dividend and the creditors had no personal claim to damages or equitable compensation for breach of any duty owed to them. (2) A good reason for postponing finality was to await the result of an appeal against the rejection of a proof whatever the circumstances of that appeal were, so long as it was properly constituted and there was some merit in it. The ordinary and natural meaning of "pending" in r.11.5(2) was that an appeal against the rejection of a proof was on foot, without it being an additional requirement that the application should have been served on the liquidator. In the instant case there was no good reason to displace that natural meaning. The requirement for finality did not sufficiently outweigh the need to protect the position of a creditor such as M that had appealed in time against the rejection of its proof. The fact that the provisions of the Rules did, in certain instances, specifically provide for finality in respect of a dividend or distribution, did point to there being no general presumption as to finality from the mere fact of the declaration of a dividend. Therefore the proper construction of r.11.5(1) applied to the facts and D were under no duty to declare the dividend. As a matter of construction of r.11.4, it was open to D to postpone or cancel the dividend at any time prior to payment of monies to the creditors so long as they did so within the four month period. (3) There was no consideration in the extended sense sufficient to support the cheques, Autobiography Ltd v Byrne (2005) EWHC 213 (Ch) distinguished.

Judgment for defendants

Chancery Division
Mark Cawson QC
Judgment date
12 October 2007
References

LTL 19/10/2007