Out-Law / Your Daily Need-To-Know

High Court overturns two UK rulings on insolvency proceedings date issue

Out-Law Legal Update | 13 Mar 2020 | 12:39 pm | 2 min. read

The High Court in London has overturned two previous rulings on the date within which the issuing of insolvency proceedings can be valid.

The critical date for determining validity can be later than the hearing date on the application notice if a hearing is postponed, the Court ruled, overturning decisions in two cases which the judge said had been wrongly decided. The case is being appealed.

The trustees in bankruptcy of Nicola Jane Ide sought orders under the Insolvency Act of 1986 (IA86) against Ide and some others related to payments made to or by them. This originating application was made on the final day of a six year limitation period under the Limitation Act 1980.

The Insolvency Rules 2016 (IR16) govern how claims can be brought under IA86 and say that an application must be served on each party at least 14 days before the application hearing.

In Ide the date for that hearing was originally set for July 2019 but was later postponed to October to give the trustees in bankruptcy time to serve the application on parties outside of England. Notice of the hearing was served on all parties in September.

Two of the parties said that the application should be struck out because notice had not been served 14 days before the initial hearing date. They relied on the decision in a previous case, Re HS Works Ltd [2018] EWHC 1405 (Ch), in which the judge said that service was required 14 days before the date the application was first listed for hearing.

The judge in the present case did not accept the decision in the HS Works case. He said that the 14 day period under IR16 should be calculated by reference to the hearing that actually went ahead, rather than the date on the application notice and decided that the proceedings in the case had been served on time.    

The judge also considered what the position would have been if the decision in the HS Works case was correct. The trustees in bankruptcy said that adjourning and relisting the initial hearing effectively extended the time for service, relying on the decision in another case, Re Kelcrown Homes Ltd [2017] EWHC 537 (Ch). In that case it was decided that time for service should not be extended unless it was a situation in which time to serve a claim form would be extended, otherwise the respondent would be deprived of any potential limitation defence.

The judge disagreed with this decision, deciding that if a claim form under the CPR is not served within the relevant time it will become a nullity and extending time for service will potentially cause a limitation defence to be lost. However, under the IA86, if proceedings are not served in time, the application does not fail, so the issue of the respondent being deprived of a potential limitation defence does not arise. 

This decision confirms that insolvency proceedings are validly served where proceedings were issued within the limitation period and served more than 14 days before the first hearing takes place, even if service is four months after issuing the application.

Permission for an appeal to the Court of Appeal has been given to allow it to decide between the differing High Court decisions. If on appeal this decision is upheld, when an initial hearing is adjourned and relisted, applicants will not have the risk of a limitation defence arising.