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Late Service of Insolvency Applications Potentially Fatal to Claim: Nicola Ide (In Bankruptcy), Re HH Aluminium and Building Products Ltd v Bell  EWCA Civ 146919th November 2020 Restructuring & Insolvency
The Key Issues and Background
The Court of Appeal was asked to consider two key points (together with matters, including relating to the granting of summary judgment) regarding the procedural aspects of applications in insolvency proceedings. The relevant proceedings were issued by the trustees in bankruptcy of Nicola Ide (the “Trustees”).
First, could the County Court transfer part of insolvency proceedings to the High Court?
Secondly, do the same principles apply to an extension of time for service of insolvency applications as apply to the extension of time for service of claim forms under the CPR?
It is accepted that, when a claim form has been issued, but not served, within the limitation period, an extension of time for service should only be granted in exceptional circumstances: to do otherwise would be to strip away a defendant’s right to advance a limitation defence. In the insolvency case of Re Kelcrown Homes Ltd  EWHC 537 (Ch) this approach was applied. However, HHJ Matthews, sitting as a Judge of the High Court (following transfer from the County Court), did not do so on the basis that, as the first hearing had been vacated and re-listed, this had the practical effect of extending time for service. Accordingly, HHJ Matthews dismissed the application to strike out the Trustees’ application for failure to effect service in time.
HHJ Matthews granted leave to appeal.
The Trustees’ application notice was issued in the County Court at Southampton on 30 January 2019 (although the fee was not paid until the following morning – no issue was taken on this point). The parties accepted that 30 January 2019 was the deadline for limitation purposes. A hearing was listed for 9 July 2019 at 11.00 a.m., the sealed application notice being returned to the Trustees’ solicitors in May 2019.
Rule 12.9 of the Insolvency Rules 2016 obliges the applicant to serve a sealed copy of the application notice endorsed with the venue for hearing on the respondent (unless the Court directs or the rules provide otherwise) at least 14 [clear] days before the date fixed for the hearing of the application. That would have required the Trustees to serve the application notice by 24 June 2019. However, a subsequent application was issued on 7 June 2019, ex parte, (i) to amend errors in the substantive application; (ii) in respect of service out of the jurisdiction and substituted service; and (iii) to vacate the 9 July 2019 hearing, to be re-listed on the first open date after 1 October 2019. Both applications, the Trustees’ solicitors relayed to the court, would be served once the second application had been dealt with by the court.
The court granted the order sought without a hearing, with permission granted to the respondents to apply to set it aside or vary it. The substantive application was re-listed on 2 July 2019 for 15 October 2019 and served on 6 September 2019: evidently at least 14 days before the re-listed hearing date of 15 October 2019 but, crucially, several weeks after 24 June 2019.
On 14 October 2019, an application was issued seeking various heads of relief including setting aside the order to vacate and re-list the hearing and dismissal or strike out of the substantive application for failure to serve it in compliance with rule 12.9. Two further applications in the matter were issued, including one seeking a retrospective extension of time for service of the substantive application.
Judgment of HHJ Matthews, 12 February 2020, High Court
First, HHJ Matthews concluded that part only (i.e. not the entirety if not appropriate) of insolvency proceedings could indeed be transferred to the High Court.
Secondly, and noting that rule 12.9 requires an application to be served at least 14 days before the “date fixed for the hearing”, HHJ Matthews decided that the relevant date “fixed for hearing” was the date upon which the court had re-listed the substantive application, in other words 15 October 2019. This was despite the judgment of Deputy ICCJ Prentis in Re HS Works Ltd  EWHC 1405 (Ch) which concluded that the relevant hearing date was the date of the original listing.
HHJ Matthews would also go on to decline to follow Re Kelcrown, in which the court had decided that if the vacating and re-fixing of the first hearing date amounted to an extension of time for service, the respondents would be deprived of a limitation defence (with reference made to the principles under the CPR to the extension of time for service). HHJ Matthews did not agree with that approach on the basis that, unlike a claim form, an application notice does not become a nullity unless properly served – meaning no barrier to a limitation defence.
The Appeal, Judgment of Lord Justice Nugee
The transfer from County Court to High Court
Nugee LJ considered r.12.30(2) of the Insolvency Rules 2016:
“The County Court may order insolvency proceedings which are pending in a hearing centre to be transferred either to the High Court or to another hearing centre.”
In his view, the word “proceedings” could be used to describe a discrete application within insolvency proceedings as a whole. Nugee LJ regarded this as being consistent with the Insolvency PD, paragraph 3.6 which, whilst having no force of law, was sufficiently persuasive in that it envisages that a transfer might be made either of an “application within existing insolvency proceedings” or of the “entirety of those insolvency proceedings”. Nugee LJ was, accordingly, in agreement with HHJ Matthews and dismissed the appeal on this point.
Service of the substantive application and r.12.9 IR 2016
Nugee LJ posited that it was linguistically feasible when determining what “the date fixed for hearing” means to follow either HHJ Matthews (15 October 2019) or the date originally fixed (9 July 2019). However, the 2016 rules as a whole, with a focus on rules 12.6 to 12.13, and their practical consequences must be taken into account. Nugee LJ took the court through the rules (r.12.8 in particular) and concluded that Deputy ICCJ Prentis in Re HS Works Ltd (at 56.1) had been correct: “the date fixed for hearing” was the original listing date of 9 July 2019. The application in question equating to a substantive claim against the respondent, it was akin to the issue of a claim form and Nugee LJ went onto consider the three purposes of a claim form (notification to a defendant, enabling the defendant to participate and enabling the court to control the litigation process), with the first two undoubtedly applying to insolvency applications, the third possibly so in some way. The observation of limitation periods in respect of claim forms necessitates the placing of a time period upon service and Nugee LJ’s clear view was that the same principles apply to claims made within insolvency proceedings. Insolvency proceedings do, after all, also have their own limitation periods for the bringing of claims. In essence, the applicable principles as between general claims and insolvency applications should be similar, absent good reason for it to be otherwise. Nugee LJ was not persuaded any such reasons existed nor, accordingly, that the date of service should relate to any date other than that originally listed and so service of the application notice should have been effected by 24 June 2019, which it was not. The substantive claims in question could not, therefore, be proceeded with against the Appellants.
In respect of extensions of time for issuing or serving, Nugee LJ reiterated the well-established practice of treating a limitation period as a “very material consideration when considering an extension of time”. Whether in respect of a claim form or an insolvency application, if service has not been effected by the stipulated time, the court must extend that time for the proceedings to be able to continue. However, limitation should be taken into account when deciding whether or not to grant any extension: in fact the issue “ceases to be simply a matter of case management and becomes a matter of substance”.
Arnold LJ also raised an important point which practitioners should note. The Trustees had failed to comply with their duty of disclosure on a without notice application to bring to the court’s attention the limitation position. Had the Trustees done so – and had they asked the court to deal with the subsequent application expeditiously – the Trustees would still have been able to effect service in time had the court refused to vacate and re-list.
Always diarise limitation periods.
Always plan ahead, as far as possible, when considering applications or claims.
Always check service (or, for instance, advertising) requirements in any given situation.
In insolvency applications (which are not ex-parte), effect service at least 14 clear days before the first listing date, unless the court orders otherwise.
If an extension of time is required, in particular one which would impact on limitation, be prepared to explain in detail and with full transparency why one is needed.