Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
Find up-to-date guidance on points of law and then easily pull up sources to support your advice with Lexis PSL
Check out our straightforward definitions of common legal terms.
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Access our unrivalled global news content, business information and analytics solutions
Insurance, risk and compliance intelligence using big data, proprietary linking and advanced analytics.
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Discuss the latest legal developments, ask questions, and share best practice with other LexisPSL subscribers
Does a recent High Court judgment force the hand of administrators to either pursue a claim for mis-selling or assign the claim to a willing creditor?
Hockin and others v Marsden and others  EWHC 763 (Ch)
The High Court has ordered a company in administration to assign its claim for the mis-selling of an interest rate swap agreement to a creditor under the Insolvency Act 1986, Sch B1, para 74 (IA 1986).
The application before the court concerned a company, London & Westcountry Estates Limited (LWE), which is now in administration. The applicants in this case were The Hockin Dinamic Group Limited, the holding company of LWE and Mr and Mrs Hockin who were the shareholders of The Hockin Dinamic Group Limited as well as directors of LWE.
It is claimed by the applicants that LWE's failure was the fault of the banks (The Royal Bank of Scotland (RBS) and National Westminster Bank) who were responsible for funding its operations and focuses specifically on the mis-selling of an interest swap agreement entered into by LWE in July 2008. The administrators of LWE had decided that they did not wish to pursue the claims. The applicants applied to an order under IA1986, Sch B1, para 74 to assign the claims to them.
The application was made under IA 1986, Sch B1, para 74(1) which reads:
'A creditor or member of a company in administration may apply to court claiming that:
the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or
the administrators proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).'
'A creditor or member of a company in administration may apply to court claiming that:
On an application under IA 1986, Sch B1, para 74, the court may make any order it thinks fit, including an order requiring an administrator to do or not do a specified thing. In the current case, the court considered it did have jurisdiction to direct the assignment of a claim pursuant to IA 1986, Sch B1, para 74.
An application can only be made by a creditor or member of the company. As The Hockin Dinamic Group no longer pursued the application, only Mrs Hickin had standing to apply to court in her capacity as a secured creditor of LWE.
Counsel for the administrators argued that it was only open to the court to interfere with the administrator's decision not to pursue the claim if the decision itself was perverse. Mr Nicholas Le Poidevin QC, sitting as a deputy judge of the Chancery Division, disagreed and considered that IA 1986, Sch B1, para 74 set down a different test of whether the actions of the administrator caused unfair harm to a creditor and on this basis the test was satisfied.
It was also submitted by counsel for the administrators that IA 1986, Sch B1, para 74 could not be invoked unless the applicant was complaining of some discrimination between one creditor or another (or one member and another). However the judge found that differential treatment between creditors was not the only form of unfairness capable of satisfying para 74 and the scope of para 74 should not be limited to such treatment.
The judge briefly considered the basis of the proposed claim against the banks. There were three claims:
The judge was not surprised that the administrators had declined to pursue the claim and there was no criticism of the administrators in this respect. The judge acknowledged that the claims against the banks could only be made good with evidence from the directors of LWE. The directors would have nothing to lose and the administrators would be spending creditors' money on the costs.
The question instead was whether it was justifiable to decline to assign the claims such that they would otherwise be lost. Without going into great detail, the judge considered that it would unfairly harm the creditors if all the claims were lost and ordered the assignment of the claim.
Despite the judge considering certain of the claims as vexatious, he allowed all three claims to be assigned on the basis that they were so closely bound up with each other.
Once the judge determined that the assignment should be allowed, he felt he had no other alternative than to accept the applicants' proposal to the consideration they will provide. This position is potentially troublesome for administrators negotiating position but may be different where there are other individuals seeking an assignment.
It was part of the terms of the assignment proposed by the applicants that they should indemnify LWE against any third party costs order. The judge considered that the indemnity should be extended to the administrators personally and evidence as to the applicants means should be provided to court so that the administrators and LWE are satisfied that it is worth something.
Ever since the Financial Conduct Authority (as it became) set up an investigation into the sale of interest rate swap agreements, restructuring and insolvency professionals have been watching the review process with much interest. Many professionals are affected—some are administrators of companies that purchased swap agreements that may have contributed to the demise of the company and others who were administrators of companies that are now dissolved but have now been contacted by the review.
This is one of the first cases dealing with the fall out of the mis-selling of swap agreements and allowing the assignment to an interested creditor potentially gives a solution to a situation where insolvency practitioners are reluctant to pursue claims on the basis of the costs that would be incurred in pursuing claims that are far from straightforward. Administrators will now be required to either pursue amis-selling claim or assign the claim to a creditor who is wishes to pursue the claim. This may not be an easy choice for administrators in some cases.
One of the interesting dynamics of the mis-selling claims where the company is in administration is that it is the normally the bank in their position as secured creditor that stands to benefit from any recoveries from the mis-selling claims.
In the current case, the banks' claim had been assigned to Isobel Asset Co Limited, a vehicle set up by RBS and in which it retains a 75% ownership. Accordingly, it would be Isobel (who currently owed a shortfall of £17m), rather than the applicants, that would benefit first from the assignment and any successful claim against the bank.
It remains to be seen whether Mrs Hockin will pursue the claim against the banks. Any claims will need to exceed £17m before Mrs Hockin will recover any sums she is due (she is a secured creditor of LWE for £479,000).
If you are a LexisPSL subscriber, click on the link below for further reading:
Challenge to administrators—action for unfair harm
Not a subscriber? Find out more about how LexisPSL can help you.
Anna Jeffrey, solicitor in the Lexis®PSL Restructuring & Insolvency team.
Free trials are only available to individuals based in the UK
* denotes a required field
0330 161 1234