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Sebastian Clegg successfully appears in Insolvency case in the Court of Appeal

Sebastian Clegg successfully appears in Cook v Mortgage Debenture Ltd in the Court of Appeal.

Mr Clegg successfully appeared for the respondent on this appeal which concerned the construction of paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 and, in particular, what constitutes “legal proceedings” against a company in administration. The Court of Appeal (Lord Dyson MR and McCombe and David Richards LJJ) held that purely defensive steps in proceedings being pursued by a company in administration did not come within the definition.

The underlying proceedings concerned a loan of £9,000 taken in 1992 by the Chapmans from Basdring Limited which was secured against their property. Basdring’s loan became subject to a debenture which was assigned to Mortgage Debenture Limited (MDL). Basdring went into liquidation and in 2003 the liquidator and the Chapmans compromised the loan for a (further) payment of £9,000. The Chapmans borrowed the further £9,000 from Nationwide and Mr Cook’s firm acted in that transaction. Nationwide’s loan of £9,000 was secured by a legal charge against the Chapmans’ property which replaced Basdring’s charge which was released. MDL subsequently brought proceedings against the Chapmans alleging that the compromise with the liquidator was procured by misrepresentation and that the compromise should be set aside, Basdring’s charge should be reinstated and Nationwide’s charge should be postponed accordingly. Nationwide wrote to Mr Cook’s firm threatening legal action in the event that MDL succeeded in its claim. Mr Cook applied to be joined to MDL’s proceedings against the Chapmans to protect his firm’s position. The District Judge refused Mr Cook’s application and Mr Cook appealed. Just before the hearing of that appeal, MDL issued a notice of intention to enter administration and paragraph 43(6) of Schedule B1 was engaged. HHJ Waksman QC decided that Mr Cook’s appeal was not covered by the moratorium provided by paragraph 43(6), the appeal was successful and Mr Cook was joined into the proceedings. MDL obtained permission from Lewison LJ to appeal the decision that Mr Cook’s appeal was not covered by the moratorium. In his judgment, with which Lord Dyson MR and McCombe LJ agreed, David Richards LJ held that Mr Cook’s application to be joined into the proceedings, and therefore also the appeal before HHJ Waksman QC, constituted defensive steps in a claim being brought by MDL and, therefore, were not covered by paragraph 43(6) of Schedule B1. The appeal was dismissed.

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