Alternative fast-track route for office-holders to obtain property possession

3rd December 2020 Corporate Recovery and Insolvency

JMW Solicitors have recently obtained an Order made pursuant to Section 234 of the Insolvency Act 1986 (the “Act”), which includes a term that allows the office-holder to recover possession of a residential property, without the need for separate possession proceedings being issued pursuant to Part 55 of the Civil Procedure Rules (“CPR”), which sets out the usual Court procedure for obtaining an order for possession of land.

Under the Act, an insolvency office-holder has various powers to investigate and obtain information about an insolvent company’s assets, dealings and affairs, including the power to obtain property or records of an insolvent company from third parties.

As per Section 234 (2) of the Act:

“Where any person has in his possession or control any property, books, papers or records to which the company appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder.”

Whilst it is not uncommon for office-holders to exercise their power granted by this provision to apply to the Court for the delivery up of Company’s assets, books and records, and/or other properties, it is unusual for office-holders to rely on this provision to obtain possession of residential land.

Factual Background

A partnership (the “Partnership”) initially entered into administration in October 2018. The only asset in the Partnership was real property (the “Property”), the registered proprietorship of which was held by one of the partners in the Partnership (“R1”) on trust for and on behalf of the Partnership. R1 and another partner in the Partnership (“R2”) both resided at the Property.

For some 2 years since the administration, the administrator had been liaising with R1 in order to sell the Property. Having encountered various obstacles and delays in relation to the first sale (which aborted), a second buyer was finally found. Even then, the conveyancing process became protracted for various reasons. Adding to the complication was a dispute with a charge holder over the amount owed under that charge; a settlement was achieved on the condition that completion of the sale took place imminently.

Despite agreeing to the sale and the proposed completion date, R1 and R2 refused to execute the transfer deed and vacate the Property.

In order to realise the Property as quickly as possible for the benefit of the Partnership creditors, the administrator filed an application pursuant to Section 234 of the Act (as modified by the Insolvent Partnerships Order 1994) for: i) R1’s transfer of the legal title of the Property to the administrator; ii) R1’s and R2’s delivery up of vacant possession of the Property; and iii) the Property be sold by the administrator.

The administrator relied on Everitt (As Liquidator of Property Securities Ltd) v Zeital [2018] EWHC 1316 (Ch) in which Deputy ICC Judge Schaffer considered possession proceedings brought pursuant to Section 234 of the Act to recover the possession of real property, at all material times an asset of the Company, were properly constituted and that no separate possession proceedings were required to be issued pursuant to CPR Part 55:

a.      Deputy ICC Judge Schaffer explained that “Section 234 is not limited to delivery up of documents. That section on its natural reading includes the delivery up of property which under Section 436 of the Act, includes land”.

b.      He was also satisfied that “the word "deliver" was not to be given the confined meaning it has in the Rules” and “If Parliament had meant that the word "deliver" was only to apply to papers it would have said so - Indeed the section clearly has to have in mind land as it refers as well to "convey" and "surrender" of "property"”.

Outcome

In the administrator’s case, Deputy ICC Judge Barnett adopted Deputy ICC Judge Schaffer’s stance in Everitt (As Liquidator of Property Securities Ltd) v Zeital and was satisfied that a possession order was necessary given the Property was the only substantive asset of the Partnership and that R1 and R2 had been frustrating the sale process by failing to execute the transfer deed, and indeed, vacate the Property.

Although being sympathetic to R1’s and R2’s circumstances, Deputy ICC Judge Barnett also emphasised that, as per their statutory duties, they must not prevent the administrator from carrying out his duties. In this case, the administrator needed to complete the already protracted sale as quickly as possible in the best interests of all creditors of the Partnership.

Deputy ICC Judge Barnett was content to make the order for the possession and sale of the Property, which included an anticipatory term nominating the administrator’s solicitors to execute documents relating to the sale of the Property pursuant to section 39 of the Senior Courts Act 1981, in the event R1 and R2 failed to do so.

Comment

This case and the Everitt case provide office-holders with another option when seeking to recover real property owned by companies (or partnerships, as the case may be) other than the usual Part 55 proceedings, which normally commence in the County Courts and are much lengthier.

The office-holders are able to issue proceedings within the Insolvency & Companies Court of the High Court of Justice, or if required (as in this case), within the Urgent Interim Application Court.

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Philippa Lai is an Associate Solicitor located in Londonin our Corp. Recovery and Insolvency department

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