Sheriffdom of Lothian and Borders at Edinburgh

 

 

Case Reference No: S71/04

 

 

JUDGMENT OF SHERIFF NOËL McPARTLIN

 

in the Sequestration of

 

JOHN HUMPHREY PARKES

 

 

 

 

EDINBURGH, 12 May 2006

 

The Sheriff, having resumed consideration of the Note for the Creditors, Cintec International Ltd (adjusted as at 27 March 2006), and the Answers thereto for the Accountant in Bankruptcy, as Permanent Trustee, and for the Debtor, John Humphrey Parkes, repels the first plea-in-law stated for the Noters and dismisses the second crave of the Note; appoints parties to be heard on expenses on 13 June 2006 at 10am.

 

 

 

NOTE

 

John Humphrey Parkes was sequestrated by me in this Court on 10 June 2004. The Noters were the petitioning creditors in respect of a debt of over £90,000.00. The Accountant in Bankruptcy was appointed interim trustee and later permanent trustee. She has appointed Robin MacGregor, insolvency practitioner, to act as her agent.

 

The Noters seek an order under section 3(7) of the Bankruptcy (Scotland) Act 1985, which provides:

 

"Where the debtor, a creditor or any other person having an interest is dissatisfied with any act, omission or decision of the permanent trustee, he may apply to the sheriff and, on such application being made, the sheriff may confirm, annul or modify any act or decision of the permanent trustee or may give him directions or make such order as he thinks fit."

 

In accordance with that provision, the Noters' crave 2 is in the following terms:

 

"To direct the Accountant in Bankruptcy, as permanent trustee on the sequestrated estate of John Humphrey Parkes ("the Sequestrated Estate"), forthwith to market and sell the assets comprising the Sequestrated Estate including, for the avoidance of doubt, (a) the heritable property known as and forming Redhall Mill, 82 Katesmill Road, Colinton Dell, Edinburgh, EH14 1JF and (b) the patents listed in schedule B annexed hereto;"

 

In the Statement of Facts, the Noters set out the duties of the permanent trustee under section 3(1) of the Bankruptcy (Scotland) Act 1985, which include realising the debtor's estate and distributing it among the creditors. It is averred that the permanent trustee and her agent have failed to do that, with regard to the property and patents mentioned in the crave, in spite of requests from the Noters and their solicitors.

 

The Note goes on to aver that the Noters understand that this is because Mr Parkes has sought to challenge the award of sequestration in a number of different ways and the Note sets out particulars of procedures undertaken by him. The most significant of these, in the context of the Note, is an action which he has raised in the Court of Session for the reduction of the award of sequestration and which is depending before that Court. The Noters aver that the action of reduction has no material prospect of success and point out that a Lord Ordinary has already refused interdict ad interim on the basis that the Summons fails to disclose a prima facie case. It is further averred, in the Note, that the permanent trustee is not called as a party to the action of reduction and that his agent shares the view that the action is incompetent and irrelevant. The Note asserts that, in these circumstances, it is inappropriate for the permanent trustee to delay the realisation of the sequestrated estate.

 

The Accountant in Bankruptcy, in her Answers, accepts that the Lord Ordinary has indicated that a prima facie case for reduction has not been disclosed there but does not herself know or admit that the action has no prospect of success. Curiously, she is also neutral on the question of the inappropriateness of her delaying to realise the sequestrated estate. She refers to an indication by Lord Johnston, sitting with other judges, that the permanent trustee surely would not realise the sequestrated estate while the reduction action was pending. (It is accepted, by all parties to these proceedings, that this indication was given.) She also avers:

 

"Unlike (see the 1985 Act, section 17(3)(c) and (5)(b)) a recall of sequestration, the Court pronouncing a decree of reduction has no power to do so subject to conditions, and the validity of transactions entered into by the permanent trustee prior to reduction is not preserved."

 

Mr Parkes also lodged Answers. These do not directly answer the Note. They refer to issues of equal treatment of party litigants, human rights, potential bias or prejudice against him on my part arising from my hearing the petition for his sequestration, abuse of process and the competency of the proceedings.

 

At the hearing on the Note, Cintec International Ltd were represented by Mr Howlin, Advocate and the Accountant in Bankruptcy was represented by Mr Kinroy, QC. Mr Parkes appeared on his own behalf.

 

Mr Howlin began by accepting that his second crave seeking a direction to market and sell the assets "forthwith" would probably not be right and that it might be possible to give a direction to market and sell "on such conditions as to price and completion date as shall be reasonable".

 

He submitted that the application was not about the validity of the sequestration. The essence of the Noters' complaint was that the permanent trustee, although under a statutory duty to realise the sequestrated estate, had done nothing since the award of sequestration on 10 June 2004. The permanent trustee relied on the obiter remark of Lord Johnston, in one of the three proceedings raised by Mr Parkes, as a reason for not acting. Mr Parkes had an interest in keeping litigation going but there was nothing in his Summons for reduction which got it off the ground. Interim interdict against the holding of a meeting of creditors had been refused in the reduction proceedings and that crave was now deleted.

 

Mr Howlin pointed out that, when a petition was presented for recall of sequestration the sequestration process was to continue (section 16(5)). Under section 17(4) the Court, in recalling a sequestration, had to try to restore parties to the position they would have been in if sequestration had not been awarded. By contrast, the effect of a reduction was to render the sequestration null and void, with a consequent effect on any title granted by the permanent trustee.

 

With regard to the order sought by the Noters under section 3(7), Parliament gave no guidance as to the test to be applied. Mr Howlin submitted that the crucial facts which would justify the making of the direction were the lapse of time - two years without action - and the manifestly deficient Summons for reduction, where interim relief had already been refused for lack of a prima facie case.

 

As to the Answers by Mr Parkes, they suggested, erroneously, that Lord Johnston's comments were somehow binding. On the question of prejudice in relation to the award of sequestration, a sheriff had an obligation to award sequestration when the statutory conditions were met, under section 12(3), and there was no scope for prejudice.

 

On behalf of the Accountant in Bankruptcy as permanent trustee, Mr Kinroy submitted that the test to be applied in this case should be the same as that applied to the almost identical provision for liquidations in England and Wales in the Insolvency Act 1986, section 168(5) -

 

"If any person is aggrieved by an act or decision of the liquidator, that person may apply to the Court; and the Court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just."

 

In the case of Re Edennote Ltd [1996] 2 BCLC 389, CA, it was accepted, at page 394 onwards, that the correct test propounded in the authorities was that (fraud and bad faith apart) the Court would only interfere with the act of a liquidator if he had done something so utterly unreasonable and absurd that no reasonable man would have done it.

 

Mr Kinroy pointed out that there was an almost identical provision for the Trustee of a Bankrupt's estate, in England and Wales, under section 303(1) of the same Act. The Scottish provision under section 3(7) of the 1985 Act was first brought in in 1993 and echoed these two provisions. It should be subject to the same test. Re Edennote was the most recent statement of the law, a leading earlier case being Leon -v- York-0-Matic Ltd [1966] 3 All ER Ch D 277. In the latter case, it was pointed out that the test for interference by the Court had to be a high one or the trustee could not get on with the sequestration (page 280).

 

In the present case, Lord Johnston did make the remarks in a particular context and Mr Parkes may have gained the impression that it was an order to the permanent trustee not to proceed with the sequestration. The permanent trustee had declined to give any such assurance. There had been no discussion about the meaning of the Judge's remark but he may have been referring to the practical difficulty of selling property and giving a title when an action of reduction was pending.

 

Mr Kinroy said that the permanent trustee was neutral in today's hearing. Notwithstanding the Judge's remarks, it was unlikely to be a contempt of court for the trustee to proceed with the realisation of the estate. However, the heritable property mentioned in the crave was subject to a security and, therefore, to the rules in 39(4) of the 1985 Act as to the inter-relation of the rights of the heritable creditor and the trustee. In this case, proceedings by the creditor had been suspended because of concerns about the health of Mr Parkes . With regard to the patents, they had been allowed to lapse and the trustee was seeking to have them renewed.

 

Mr Kinroy suggested that an order to sell "forthwith" would be too draconian; a direction to the permanent trustee to sell "as she saw fit" would make it clear that she was to ignore the indication given by Lord Johnston.

 

On the issue of bias and prejudice raised by the debtor, Mr Kinroy referred to the case of Gillies -v- Secretary of State for Work and Pensions, 2006 SLT (HL) 77, which confirmed that the test was whether a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased. Nothing in the Answers by Mr Parkes went near meeting that test.

 

Mr Parkes, in addition to his Answers, had prepared submissions which he read out, copies having been made available to the other parties. While I trust that I do no disservice to the case he presented, it was essentially an attack on the award of sequestration and had little direct bearing on the order presently sought. Mr Parkes stated that he challenged the jurisdiction of the Court on the basis of potential bias on my part. He submitted that I had deceived myself as to the import of a freezing order, in the course of the sequestration hearing.

 

Mr Howlin replied briefly to Mr Kinroy. He accepted that the language in the Scottish provision was similar to the language of the provision discussed in Re Edennote Ltd but the Noters were not inviting the Court to interfere in the day to day administration of the estate. The complaint was that the permanent trustee was doing nothing and should be directed to proceed.

 

Mr Kinroy responded that the order sought would interfere with the day to day administration of the estate, that being precisely the power conferred by the statute.

 

At the outset, I have had to consider whether, as Mr Parkes submitted, I should decline to deal with this case because I might, or might be perceived, to be prejudiced against him. I have taken note of his submission but it would seem to go no higher than suggesting that I erred in law when hearing the petition for sequestration. As Mr Howlin pointed out, it is a matter in which the statute left me no room for discretion and, applying the test to which Mr Kinroy referred in Gillies -v- Secretary of State for Work and Pensions, I find no basis for inferring bias, perceived or actual. Accordingly, I saw no obstacle to my dealing with the case on its merits.

 

Section 3(7) of the 1985 Act allows a sheriff to give the permanent trustee directions, in certain circumstances. Mr Howlin sought to draw a distinction between a direction relating to the detail of the day to day administration of the sequestration and the general direction sought here to proceed with the sequestration, when the trustee is inactive. He seemed to imply that the test referred to by Mr Kinroy would not apply here. However, I do not think that section 3(7) of the 1985 Act distinguishes between types of direction and I proceed on the basis that the test in Re Edennote Ltd does apply.

 

As has been noted, the test is a high one and a court should not lightly interfere with the functions of the trustee. I can understand the frustration of the Noters who, wishing to see the estate realised, find that process delayed by what they regard as a spurious action of reduction. The permanent trustee, however, must make a judgement in the matter. It might be imprudent of her to ignore the ongoing proceedings for reduction, or the indication given by the one of the Judges in the case, even if not binding on her. Looking at the whole situation, including the complication of a security over the heritable property and the lapse of the patents, she has decided not to proceed with the realisation of the sequestrated estate, at the present time. Applying the test in Re Edennote, I could not say that her decision is so utterly unreasonable and absurd that no reasonable man person would have taken it. I conclude that it is not appropriate to give her any direction in this matter.

Accordingly, I have repelled the first plea-in-law stated for the Noters and dismissed their second crave. The case has been continued for a hearing on expenses.

 

I should mention that, while this matter has been at avizandum, certain documents were lodged with the sheriff clerk by Mr Parkes, along with a motion to consider these; one of the other parties also lodged documents. I took the view that it would be inappropriate to consider these papers and directed the sheriff clerk to return them to the parties concerned.