England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE CENTRAL LONDON
COUNTY COURT
HIS HONOUR JUDGE COWELL

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/06/2006

Mr Justice Lightman:

INTRODUCTION

1. On the 18^th November 2005 HHJ Cowell gave summary judgment in favour of the Respondent FNCB Limited on its application for a declaration that its charge over Norcott Lodge, Dudswell, Berkhampsted, Hertfordshire ("Norcott") the home and property of the Appellants Mr and Mrs Rey, continued to subsist and dismissed an application for summary judgment by the Appellants declaring that the charge had ceased to have effect and for removal of a caution from HM Land Registry protecting that charge. HHJ Cowell refused permission to appeal and Warren J (on paper) also refused permission to appeal on the ground that an appeal did not have any realistic prospect of success. Mr Knight, counsel for the Appellants, renewed the application before me for permission to appeal on the 3^rd March 2006 and Mr Lenon, counsel for the Respondent, opposed the application. The application was adjourned until the 12^th June 2006 when after full and careful argument I said that I would give judgment today.
2. The issue between the parties is one of construction of two identical Voluntary Arrangements under Part VIII of the Insolvency Act 1986 entered into by the Appellants and in particular whether clause 22 of the Voluntary Arrangement ("Clause 22") precluded the Respondent from enforcing its security.
3. On the 15^th May 1992 the Respondent obtained judgment against the Appellants in the sum of £290,681.11 in respect of sums advanced to assist in the development of their leasehold property 60-61 Long Lane, London EC1 ("Long Lane") over which the Respondent had a charge. On the 11^th September 1992 the Respondent was granted a charging order absolute in respect of the judgment debt over Norcott. In 1994 the Appellants were engaged in litigation ("the Proceedings") against their landlord at Long Lane.
4. During 1994 the Appellants fell into serious financial difficulties, and these led to proposals for voluntary arrangements and the terms of the Voluntary Arrangements were approved on the 23^rd September 1994. At the Creditors' Meeting the Respondent stated that the total amount of its debt was £31,930.73 and valued it security over Long Lane at £45,000 and its charging order over Norcott at nil; and the Respondent voted in favour of the Voluntary Arrangements as creditor in the sum of £346,930.75 giving full credit for the value of its securities.
5. The only hope of any substantial recovery by the Appellants' creditors depended on the Appellants obtaining legal aid and with such legal aid on their successfully prosecuting the claim against the landlords at Long Lane. (The claim in fact failed.) The Appellants however required the express or implied agreement of the Respondent to allow this course to be followed because the Respondent as chargee of Long Lane had included in its charge the cause of action against the landlord. As the price for the Respondent's agreement to agree to this course, the Voluntary Arrangements provided that (amongst other things) the Respondent would receive: (a) 85% of the monies recovered in the proceedings; (b) 90% of the profit rents received by the Appellants in respect of Long Lane pending determination of the proceedings; and (c) 90% of the profit rents received by the Appellants in respect of Long Lane after determination of the proceedings; and that the remaining creditors should share pari passu the remaining 10% under (b) and (c) and have no further entitlement.
6. Clause 1.2 of the Voluntary Arrangements, headed "Interpretation" provided as follows:

"'Debt', 'Creditor', 'Security' and 'Preferential Debt' shall be construed in accordance with section 382 (bankruptcy debt) section 383 (creditor, security etc) and section 386 (categories of preferential debt)."

7. Clause 9.5 of the Voluntary Arrangements provided that Insolvency Rule 6.115(1) should apply.
8. Clause 22 of the Voluntary Arrangements read as follows:

"22 Proceedings

On approval of this proposal in accordance with the Act and the Rules the Creditors shall not be entitled to commence or continue any proceedings execution or other legal process in respect of the Debts and shall not be entitled to receive any payment in respect of the Debts save for such dividends as shall be payable by the Supervisor under the terms of the Voluntary Arrangement."

DECISION

9. The issue for determination is whether Clause 22 precludes any secured creditor from enforcing his security. Clause 22 precludes all creditors, secured or otherwise from commencing or continuing proceedings, execution or other legal process in respect of any liability of the debtor and receiving any payment in respect of such liability except for dividends payable by the supervisor under the terms of the Arrangements. This language is apt to preclude proceedings, execution or process to enforce the personal liability of the debtor to make payment of the sum due to the creditor. It is not apt to preclude a secured creditor from enforcing his security and this is so regardless of whether enforcement requires (as it does in case of a charging order) recourse to the court. The distinction between proving and enforcement of a personal liability for payment and retention and enforcement of security for that personal liability is crucial in the law of insolvency and (in particular) in section 383(2) and (3) of the Insolvency Act 1986.
10. The fact that Clause 22 has no effect on the right of enforcement by secured creditors (and in particular the Respondent) of their securities is reflected in the provision of clause 9.3 to the effect that Rule 6.115(1) shall apply, for that rule provides that a secured creditor may with the agreement of the trustee or the permission of the court at any time alter the value which he has put in his proof of debt upon this security. The express inclusion of this rule is consistent only with Clause 22 having no effect on security. It is also reflected in the reduction in amount of the Respondent's proof of debt to reflect the value of its charge on Long Lane.
11. Reference has been made by counsel to section 258(4) of the Insolvency Act 1986 which requires concurrence by a secured creditor in any provision in a voluntary arrangement adversely affecting the rights of a secured creditor. As I have held, Clause 22 had no such adverse effect.

CONCLUSION

12. I agree with HHJ Cowell and Warren J that an appeal has no real prospect of success and there is no reason why permission to appeal should be granted.