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This judgment is significant for the issues it raises, both with regard to the conflicts and the court’s willingness to sanction office-holder decisions and with regard to disciplinary investigations. Comet’s joint liquidators (who were also its former joint administrators) applied for directions under section 112 of the Insolvency Act 1986 (IA 1986), effectively permitting them not to carry out any further investigation into the validity of a debenture held by a special purpose vehicle (HAL) that had been granted by Comet within twelve months of its collapse into administration. The liquidators also sought a direction that they be permitted to transfer a further tranche of funds to HAL that had been realised under the floating charge contained within the debenture. The application was made in the light of a disciplinary investigation launched by the Institute of Chartered Accountants of England and Wales (ICAEW), the liquidators’ regulator, into the conduct of the former administrators and that of their firm, Deloitte LLP. The ICAEW was made respondent to the application. After a three-day hearing, the judge—who expressed serious concerns about the office-holders’ conduct both before and after their appointment as administrators—refused the application and was not prepared to make any order that might afford, protection to the liquidators in the ICAEW disciplinary proceedings. Among other things, the judge cited what Neuberger J said in Re T&D Industries plc: ‘... a person appointed to act as an administrator may be called upon to make important and urgent decisions. He has a responsible and potentially demanding role. Commercial and administrative decisions are for him, and the court is not there to act as a sort of bomb shelter for him.’ Written by Marcia Shekerdemian QC, barrister at Wilberforce Chambers.
Re Comet Group Ltd (in liquidation); Kahn and another (in their capacity as the joint liquidators of Comet Group Ltd) v Institute of Chartered Accountants in England and Wales  EWHC 1378 (Ch)
Cases involving office-holders and conflicts of interests have been a recent growth area (eg Re Ve Interactive Ltd (in administration); Ve Vegas Investors IV LLC and others v Shinners and others  EWHC 186 (Ch),  All ER (D) 34 (Mar), Zinc Hotels (Investment) Ltd v Beveridge and others  EWHC 1936 (Ch),  All ER (D) 172 (Jul), Davey v Money and another (as joint administrators of Angel House Developments Ltd); Dunbar Assets plc v Davey  EWHC 766 (Ch),  All ER (D) 40 (Apr)).
Pre-pack cases have their own sensitivity and require particular care when conflict issues arise. Indeed, in pre-pack cases, the court will be more ready to find operative conflicts, or conflicts that need managing or rectifying (this is how Mr Justice Henry Carr distinguished Ve Vegas in Zinc).
Significantly, while Comet did not involve a pre-pack, the judgment provides a salutary lesson on the dangers inherent in overly close relationships between insolvency practitioners and those who appoint them, or are closely connected with those who appoint them. It also highlights the potential conflicts that may arise where the office-holder has an overly close relationship with a significant creditor of the company. The judgment is meticulous in its detail and analysis. It carefully considers those areas where Comet’s other professional advisers (specifically its lawyers) should have been more closely involved in the lead up to the appointments and in the underlying transactions themselves and whether their advice post-appointment was sufficiently objective and comprehensive. Moreover, insolvency practitioners should not expect the court to provide a safe harbour in circumstances where they may have failed to properly exercise reasonable commercial judgement o to have acted otherwise than in good faith.
Comet went into administration in November 2012, only nine months after HAL had acquired Comet and taken a debenture containing a floating charge. The relationship between HAL, those behind HAL, Deloitte and the three individuals who subsequently became administrators was a close one and there had been some significant engagement and planning in the year leading up to the administration.
that the administrators had failed properly to investigate the conduct of the Comet directors before filing the required returns under the Company Directors Disqualification Act 1986
In order to address a pending limitation deadline, the joint liquidators had commenced protective proceedings against HAL and certain of Comet’s directors in respect of HAL’s debenture (seeking an order that it be set aside). However, in their view, the proceedings were without merit and they did not wish to serve them.
The ICAEW was joined as respondent to the IA 1986, s 112 application.
The effect of those opinions was that HAL’s security was valid and that, therefore, the joint liquidators were entitled to act in accordance with that advice.
In response, the ICAEW obtained an opinion from Lexa Hilliard QC. In her opinion, there were a number of issues surrounding the grant HAL’s debenture which cried out for investigation and that, in the absence of such investigation, it was well arguable that the security was invalid.
Sir Nicholas Warren handed down his judgment on 7 June 2018. He found that the ICAEW’s concerns were justified and refused to give the liquidators the sanction that they had sought: ‘This is not a case of the Court being asked to substitute its own judgment for the commercial judgment of the liquidators. This is a case where there is a real and justified concern that the decisions of the liquidators concerning pursuit of the directors and challenging the HAL Debenture do not reflect a properly informed exercise of commercial judgment’ (at para ).
The judge queried the value of legal opinions drafted on the assumption of solvency when there were allegations and indeed evidence to the contrary. Indeed, an earlier opinion provided by the administrators’ then solicitors had concluded that the debenture was valid, but qualified the opinion on the basis that insolvency laws had not been considered.
The judge found that there was a number of serious issues surrounding the grant of HAL’s debenture that warranted investigation and that the joint liquidators, by reason of their perceived lack of independence as a consequence of their prior relationship with HAL, should not carry out those investigations. He went on to hold that the investigations should be carried out by an independent additional liquidator (appointed at a subsequent hearing).
In a later judgment (21 June 2018), the judge imposed reporting restrictions on the publication of the main judgment so as not to prejudice investigations that might be carried out by the independent additional liquidator. Costs were awarded to ICAEW on the indemnity basis.
On 7 January 2020, Deputy Insolvency and Companies Court Judge Frith lifted the reporting restrictions on publication of both judgments (Re Comet Group Ltd  EWHC 131 (Ch),  All ER (D) 141 (Jan)).
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Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.
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