Judgment on Lawtel: https://www.lawtel.com/UK/Searches/2328/AC0155012
Crumpler v Candey involved an application by the liquidators of Peak Hotels & Resorts Ltd (“the Liquidators” and “the Company”) to establish the efficacy of a charge granted by the Company to Candey Limited (“Candey”).
The Company was incorporated in the BVI in 2014 to acquire shares in a joint venture vehicle operating the Aman Resorts hotel group. Soon after, the Company fell out with its joint venture partners. Litigation ensued and Candey, a law firm, was instructed. A fixed fee of £3.8m was agreed, purportedly secured by an all-monies charge. The Company went into liquidation in the BVI in 2016, before Candey had been paid.
The court was asked: (i) whether a sum of money held on trust was subject to a fixed or floating charge; (ii) whether a sum of money paid by the Company into court (before the charge was executed) was subject to the charge at all; and (iii) if so, whether the money in court was subject to a fixed or floating charge.
The matter came before the English court because it had previously recognised the BVI liquidation as a foreign main proceeding under Schedule 1 to the Cross-Border Insolvency Regulations 2006. Accordingly, the Liquidators were entitled to apply for the same relief as if the liquidation were an English liquidation
- The money held on trust was subject to a floating charge only because the charge did not “contain any provisions which restrict the dealings that [the Company] could enter into in relation to” that money (at ).
- The money paid into court (strictly speaking, the right of the Company to insist that the money was properly administered) was subject to the charge. That was because “once money is paid into court…the court or the agent of the court holding the funds is not a trustee in the full sense…the relevant parties have the right to insist that the funds are properly administered and applied for the purposes for which they were paid in and that they be paid out in accordance with those purposes” (at ). It is “that interest in administration, or deemed interest in the fund, is one that the courts recognise and that (in the example under consideration) the plaintiff can charge” (at ).
- Further, the money paid into court was not a “liquidator-generated asset”. That was because, in ensuring payment out, the Liquidators “no more created a new asset than they would in taking steps to enforce, for example, an existing cause of action against a misfeasant director or in taking steps to enforce a right to after-acquired property say arising under a will where the deceased died after the commencement of the bankruptcy” (at ).
- The money paid into court was also subject to a floating charge only because there were insufficient restrictions on how the Company was entitled to deal with the money.
- There was a further question, which would have to be considered on another day, as to the extent to which the charge was invalidated by section 245 IA 1986. This will turn on the value of the services supplied to the Company by Candey after the creation of the charge: see section 245(2)(a) IA 1986.
- Practitioners should read re Spectrum Plus Limited  2 AC 680 to help them distinguish a fixed from a floating charge. The central issue is not the label given but whether there is an “absence of a right of the charger company freely to deal with the charged assets and to withdraw them from the security without the consent of the holder of the charge” (at [104(2)]).
- It matters because the effect of section 245 IA 1986 is to invalidate certain floating charges entered into in the run-up to liquidation or administration where the company was insolvent.
- Practitioners should be aware of the distinction between liquidator-generated assets (those generated within the formal insolvency process and therefore fall outside any charge the insolvent company may have granted – e.g. transaction at an undervalue realisations pursuant to section 238 IA 1986) and assets that are realised by enforcing existing rights (e.g. against a misfeasant director pursuant to the procedural route of section 212 IA 1986).