B P Collins’ lawyers acting for a leading buildings insurer have succeeded in obtaining the High Court’s permission to lift the statutory stay imposed after directors of a defendant building company placed it into administration the day before a hearing to consider applications for judgment in a long-standing claim over building defects.
The claim, which was later revised to c£670,000 in value, was first issued in February 2022 and sought to recover sums in debt and/or damages from a building company, and its parent under a deed of indemnity, in respect of costs incurred to remedy fire-safety defects at a London building development.
Despite agreeing to a stay to allow pre-action correspondence to take place, the builder entered into a CVA in May 2022, which sought to compromise claims not only of its creditors but also from creditors with ‘performance guarantees’ in place with its parent. As a result, the insurer’s claim proceeded against the parent as a claim under its indemnity, which the parent sought to defend on the sole basis that the claim had been compromised by the CVA.
No defence was filed; rather, the parent applied to stay and for summary judgment on the strength of the CVA, and in circumstances where a third-party challenge to the CVA had been brought by two ‘guarantee’ creditors, prompting a cross-application for summary judgment and an interim payment on account of damages by the insurer.
The High Court in the CVA challenge found that (i) insufficient information had been given to guarantee creditors as to their position in relation to the parent, and that there was a material irregularity arising from the absence of a full explanation over how the guarantee creditor claim sum was reached; and (ii) one of the creditor applicants with a guarantee had been unfairly prejudiced on the basis that the class of guarantee creditors had been swamped by votes from creditors who were to be paid in full, without due justification.
The builder sought to appeal to the Court of Appeal, which was dismissed on 19 April 2023, and as a result directions were given in the claim against the parent requiring it to file a defence and for the outstanding applications to be listed and heard. No defence was filed, and as a result, the claimant applied to bring on the outstanding applications and also sought judgment in default on the premise that the argument based on the CVA could no longer be maintained and as time to file a defence had passed.
The three applications were listed for a day’s hearing, with one day of pre-reading. Having ignored arrangements for the claim, at 3.15 pm on the day before the hearing, solicitors for the parent company wrote to confirm that they were now instructed for administrators, and confirmed that the parent had been placed into administration that day and requested that the court simply vacate the hearing.
Against this background, and on notice to the administrators, the claimant made an oral application at the hearing to lift the moratorium imposed by the administration in order to solely deal with the outstanding applications, and to allow the court to enter judgment in default and assess the claimant’s costs. Against strong opposition, in a fact-specific decision the Court concluded that the long time in which the case had been ongoing, the costs incurred, and the very late notice of the administration, coupled with a history of having been ‘messed around’, were relevant factors in deciding that the circumstances were ‘exceptional’ so as to allow the court to exercise its discretion and lift the moratorium and deal with the claimant’s applications.
Although no enforcement will take place in the ordinary sense because of the administration, the effect of that finding is significant: a substantial proportion of the claimant’s indebtedness has been crystalised enabling its debts (now of c.£1 million, including interest and cost awards) to be addressed in the wider administration, and it provides a further warning for companies that fail to engage in litigation.