Moratorium lifted to permit enforcement of an adjudication decision where notice deemed by the court to be 'entirely bogus'

Out-Law Legal Update | 03 Nov 2017 | 9:50 am | 2 min. read

LEGAL UPDATE: The TCC has given permission for the statutory moratorium imposed by a NOIA to be lifted and entered judgment for the amount of an adjudication award in circumstances where it deemed that the NOIA was "entirely bogus". In his judgment, the judge made a number of damning findings regarding the conduct of both the defendant and its solicitors in their misuse of the insolvency process. 

Bernard Sport Surfaces Ltd obtained an adjudication award against Astrosoccer4u Ltd following a dispute relating to a football pitch and issued proceedings to enforce the decision. Astrosoccer4u admitted the sum was due, but despite this counterclaimed and their solicitors gave Bernard Sport's solicitor an ultimatum stating that if they did not mediate Astrosoccer4u would enter into an insolvency process. Having not received the desired response from Bernard Sport's solicitor, Astroscoccer4u's solicitors wrote to them again stating "You will get nothing then, Goodbye".

Astrosoccer4u then set about a course of conduct to restructure itself with the intention of avoiding payment to Bernard Sport. It granted a legal mortgage in favour of a sister company with a view to it taking precedence over Astrosoccer4u's assets, although no lending had taken place. Its shareholding was also transferred to another company with the same owners. Finally, it filed a NOIA, although crucially, there was no evidence of actual insolvency and Astrosoccer4u continued to trade throughout.

In response, Bernard Sport applied to enforce the adjudicator's decision and allow it to continue with the enforcement, notwithstanding the filing of the NOIA and the statutory moratorium pursuant to Paragraph 43(6)(b) of Schedule B1 of the Insolvency Act 1986.

On hearing these applications, Mr Justice Coulson severely criticised Astrosoccer4u's approach and those of its solicitors, describing these as "unlawful", "aggressive" and "breathtakingly rude". The judge found that all of the events were an attempt to avoid paying the debt and regarded them as "entirely bogus". Of further concern to the judge was the connivance of Astrosoccer4u's solicitors, which he regarded to be in breach of the proper conduct of solicitors. Distinguishing from his previous recent decision in the case of South Coast Construction Limited v Iverson Road Ltd [2017] EHHC 61 (TTC), in which he had also ruled that an interim moratorium created following the filing of an NOIA should be lifted,  Mr Justice Coulson commented that whilst these cases and the outcomes were similar, albeit there was only one NOIA filed in this case, the criticisms he levelled in South Coast were nothing compared to the criticisms applicable in the present case and the conduct of Astrosoccer4u was "far, far more serious". Heavily influenced by Astrosoccer4u's conduct, the judge gave permission for the moratorium to be lifted and judgment was awarded against Astrosoccer4u.

This is the third decision in quick succession from the courts in relation to the misuse of insolvency proceedings, together with the Court of Appeal decision in JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd [2017] EWCA Civ 267. The outcome of these cases serves as a clear reminder that the court will not tolerate any abuse of the insolvency process and specifically the misfiling of an NOIA in an attempt to avoid payment of a legitimate sum due, which will likely result in the court either lifting the moratorium or striking out the NOIA itself. The conduct of the defendant is also likely to be a determining factor.

Serena McAllister is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com