England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice
		30th June 2000

1. MR JUSTICE NEUBERGER: Mr Dean Udal is an accountant and was until today a partner in the firm of BKR Haynes Watts. He held a total of about 240 appointments as a liquidator, a trustee in bankruptcy, a supervisor under individual voluntary arrangements, a supervisor under company voluntary arrangements, and an administrator. He has fallen out with his partners and, while it seemed for a substantial time that he might not in fact retire from the partnership on terms that had been negotiated, he finally agreed to do so yesterday. One of the terms of the agreement under which he retired was in these terms:

"The retiring partner [that is Mr Udal] acknowledges that the partners [that is the remaining partners in the firm] will be making application in the High Court for the transfer of all insolvency appointments held by the retiring partner in England and Wales to one of the partners and the retiring partner shall use his best endeavours to facilitate the transfer".

2. The application before me today is made by Mr David Clements and Mr Rupert Mullins, partners in BKR Haynes Watts, and they seek the removal of Mr Udal and his replacement by them in the various appointments to which I have referred. The power of the court to make such an order has been considered in a number of cases, including Re AMC Supplies Ltd [1998] 1 BCLC 603. As the evidence in that case shows, and, indeed, the evidence in this case, shows, it is highly desirable that, where an accountant dies or retires, or is for some other reason unable to act, a blanket application is made in relation to all his appointments to have him replaced by an appropriate replacement. For that purpose it is necessary in almost all cases, and this case is no exception, to order a blanket transfer of matters which are in the County Court to this court for the purpose of removal of the appointee and his replacement and then to send the matter back to the County Court concerned.
3. There are two unusual features in the present case, one of which raises a point of general application and the other of which raises a point applicable to applications such as this. The first point is that this application is made without notice to Mr Udal. In my judgment, as a general principle, the court should not grant applications made without notice to the defendant save in two circumstances. The first circumstance is where the need for the relief sought is so urgent that it has not been possible to notify the defendant of the proposed application. The second reason is where the nature of the relief sought is such that it is appropriate that the defendant has no notice of the fact that the application is to be made, because to do so would risk rendering nugatory the very relief which the applicant seeks. Obvious examples are applications for a freezing order or for a search order. In the present case it does not seem to me that either of those requirements is satisfied.
4. The requirement that Mr Udal should be notified and have an opportunity to appear before the court makes any final order is particularly strong in the present type of case. In relation to many of his offices, Mr Udal has been appointed by the court and indeed is an officer of the court. In those circumstances, even bearing in mind that he has signed an agreement containing the provision to which I have referred, it seems to me wrong in principle that the court should remove him and replace him, without giving him the opportunity of informing the court whether he thinks that he should be replaced and whether there is any reason why his proposed replacements are inappropriate in relation to any particular insolvency.
5. In the present case, I indicated that I might be prepared to make the order if Mr Udal were telephoned and told of my concern that he had not been informed of today's hearing specifically. I also suggested that I might well be prepared to make the order if he told me that there was no problem so far as he as office holder was concerned in making the order. He has apparently said that he would not be happy about being replaced as an office holder without having three months continuing as an office holder because he has certain information in relation to some of these insolvencies which would not be apparent from the document. Whether there is anything in that or not, I cannot possibly decide, but the fact that he has apparently said this indicates the obvious undesirability of replacing him without at least giving him an opportunity to say whether and, if so, to what extent that proposed course may be inappropriate. After all, I am concerned not with the interests of the applicant or the respondent in this case. I am concerned, as Mr Cormack Smith rightly points out, with the interests of the creditors in the various insolvencies.
6. I propose, therefore, to stand this matter over to Thursday next week at 9:30 am to be heard by me, because I have been taken through the matter and I am well acquainted with it. Clearly it may be right that the matter is adjourned to a further date if necessary, although I hope it is not necessary, and the parties can communicate through the usual channels in that connection.
7. It is also fair to mention that the applicants should not be blamed for making this application ex parte without notice. Without going into the history of the matter or allocating blame, it is clear that there were considerable uncertainties as to what was going to happen in the last few days in relation to Mr Udal's position in the firm, and in any event there is, as I have mentioned, the possibility of a hiatus between Mr Udal leaving the office and new applicants being appointed.
8. There is, however, another matter which has to be considered. Between now and next Thursday it is conceivable that probably something requiring the signature of the office-holder will have to be done urgently (I refer to the signature of the office holder because in practice these insolvencies have been run on a day to day basis, not by Mr Udal but by people working in his office under him and they no doubt will continue to manage the insolvencies until next Thursday and, I suspect, thereafter). A signature may be required, or an executive decision may be required, and it may be urgent.
9. In light of that, Mr Cormack Smith argues that I have jurisdiction to appoint Mr Clements and Mr Mullins as additional trustees, supervisors, administrators or liquidators on a temporary basis and that it would be appropriate to appoint them in addition to Mr Udal at least for the period between now and next Thursday or whenever the matter comes back. In my judgment, I do have power to appoint Mr Clements and Mr Mullins as additional office holders on a temporary basis, and, in my judgment, it is appropriate to make such an order in the present case.
10. So far as voluntary liquidations are concerned, section 108(1) of the Insolvency Act 1986 provides:

"If from any cause whatever there is no liquidator acting the court may appoint a liquidator".

11. When compared with other provisions elsewhere in the Act, to which I will refer, which identify vacancies, it seems to me that "no liquidator acting" are words which extend to a liquidator who may not be performing his function. If the court has power at a final hearing to appoint a liquidator where it is satisfied that there is no liquidator acting, it seems to me that the court must have power on an interlocutory basis to appoint additional liquidators, possibly for a short time, where it is arguable that no liquidator may be capable of acting. Given that Mr Udal is no longer in the office, I think there must at least be an arguable case for saying that that is the position.
12. So far as bankruptcies are concerned, section 363(1) of the 1986 Act provides that:

"Every bankruptcy is under the general control of the court".

13. To my mind those very wide words do give power in appropriate cases to the court to appoint temporary additional trustees in bankruptcy.
14. So far as individual voluntary arrangements and corporate voluntary arrangements are concerned, the provisions are the same for this purpose and they are to be found in section 263 and section 7 respectively. In each case subsection (5) provides:

"The court may whenever (a) it is expedient to appoint a person to carry out the functions of a supervisor and, (b) it is inexpedient, difficult or impracticable for an appointment to be made without the assistance of the court, make an order appointing a person who is qualified to act as an insolvency practitioner in relation to the debtor, either in substitution for the existing supervisor or to fill a vacancy".

This is extended by subsection (6) in these terms:

"The power conferred by subsection (5) is exercisable so as to increase the number of persons exercising the functions of the supervisor ...".

15. So far as administrators and liquidators are concerned, there is no statutory provision which in terms gives the court the power to do that which I am invited to do. However, I think that Mr Cormack Smith is right to say that there is an inherent jurisdiction to grant such relief. One always has to be careful of invoking inherent jurisdiction, but in this connection in relation to compulsory liquidators I refer to the observations of Lord Millett in Deloitte v Touche Ross and Johnson [2000] 1 BCLC 485, where he said this:

"As liquidators of the company, the respondents are officers of the court. The court's inherent jurisdiction to control the conduct of its own officers is beyond dispute".

16. While that does not precisely cover this case, it seems to me that it is consistent with those observations to hold that there is a power to add, in appropriate cases, a liquidator in a compulsory liquidation, and, if that is right, then it must follow that in an appropriate case where good grounds are shown a temporary order to that effect may be made.

So far as administrators are concerned, in Re Mark I Oxford Street Plc [2000] 1 BCLC 462, Jacob J said:

"The court itself has general powers over an administrator as its officer".

17. Again, it seems to me that, while not directly in point, this emphasises the wider jurisdiction of the court. However, in my judgment, while I have jurisdiction to make the temporary order sought, I think it should be qualified because of my concern that Mr Udal has not been notified and has not had an opportunity to make his views known. In my judgment, the powers of the temporary office holders, who may in due course mature into permanent office holders when this matter comes on to a full hearing, should only be exercised in the meantime if it is reasonably necessary for them to exercise their powers before the matter comes back to court next Thursday.
18. I should add this. Mr Cormack Smith has suggested that Mr Udal may be acting unreasonably and may be seeking to get an uncovenanted and inappropriate benefit from the current attitude he apparently takes when compared with what he agreed in clause 5 of the agreement, which I have quoted. As he fairly accepts, that is not something that I can decide now. However, either there are good grounds in the case of some insolvencies for Mr Udal not being replaced, or he is acting in an unreasonable way. If there are good grounds for him not being replaced at once then I see no harm in Mr Clements and Mr Mullins being put in place temporarily as additional office holders. If there are no cases where Mr Udal can fairly say that he needs to remain, and Mr Cormack Smith's suggestion as to his attitude is correct, then it seems to me to underline the desirability of having additional office holders in place albeit temporarily.
19. In all the circumstances, therefore, I propose to appoint Mr Clements and Mr Mullins as additional office holders in relation to all these insolvencies on terms that they will remain there until next Thursday as additional office holders on terms that they do nothing other than what needs to be done urgently before the matter comes back to court in relation to any of these insolvencies. Mr Udal will remain an office holder as well in the meantime.
20. In so far as removing Mr Udal and appointing Mr Clements and Mr Mullins on a permanent basis, that is a matter I propose to consider, I hope, on Thursday at 9.30 am on the basis that Mr Udal will be informed of today's hearing today and will be given copies of all documents with which I have been provided today. I do not require any notification of this order to be given to any of the creditors or any of the insolvents (if I may call them that), because of the short term nature of the appointment. If and when I make an order on a more permanent basis, I would require the creditors to be informed of the change when they are next contacted in relation to another matter, provided that is within six months of the order. If there is no contact with the creditors for any other reason within those six months, then in those insolvencies the creditors should be specifically contacted in relation to the change within seven months of the order.
21. Subject to that then I propose to make the temporary order sought for the reasons indicated and to stand the matter over otherwise.