The correct use of funds in insolvency proceedings (Crumpler v Candey)

This article was first published on Lexis®PSL on 15 November 2018.

Crumpler and another (Joint liquidators of Peak Hotels and Resorts Ltd in liquidation) v Candey Ltd, [2018] EWCA Civ 2256, [2018] All ER (D) 78 (Oct).

What are the practical implications of this case for practitioners?

While the facts of this case are unusual, it is unlikely to be an everyday occurrence that solicitors will take a charge over funds held in court, so the decision provides useful clarity for practitioners as  regards to the status of funds held in court paid in relation to security for costs.

It is clear that the payer of funds retains an interest in them subject to the security interest of the defendant. This case also reaffirms the ability of the payer of the funds—or a subsequently-appointed insolvency office-holder—to apply to court for the payment out of the funds.

For insolvency practitioners this may be a valuable asset—subject to reaching an agreement with the defendant on payment of their costs—for them to realise should the claimant become insolvent before the litigation is concluded.

What was the background?

In October 2015, Peak Hotels & Resorts Limited (Peak)—who had engaged in lengthy litigation proceedings represented by Candey Limited (Candey)—ran into financial difficulties and entered into a fixed fee agreement for their past and future legal costs with Candey, which included the execution of a deed to charge certain of its assets.

During the litigation and before its liquidation, Peak had paid a sum into the court (the funds) to provide security for costs. Upon the liquidation of Peak, Candey asserted the charge over its outstanding fees. On receipt of the claim for payment as a secured creditor, the liquidators applied for a determination as to whether—and if so to what extent—the funds were the subject of the charge.

At first instance, the judge ruled that the sums owed were the subject of the charge. The joint liquidators of Peak appealed on the grounds that once Peak had paid the money into the court, they had parted with their proprietary interest in the funds and as a result it was no longer an existing asset capable of charging.

What did the Court of Appeal decide?

The joint liquidators of Peak were unsuccessful in their argument that the legal charge held over the funds was invalid because Peak no longer had a proprietary interest in the funds. The Court of Appeal dismissed the appeal on the basis that Peak did retain a proprietary interest over the funds.

Regarding the previous authorities as ‘flowing firmly in favour of Candey’, Rimer LJ considered that a payer of money into court by way of security retained its interest:
• subject to the security interest that the payment gives to the defendants
• the ultimate payment out is dependent on the making of a court order

It therefore followed that Peak always retained an interest and entitlement for the proper administration of the funds. As a matter of public policy, the Court of Appeal considered that this had to be the correct analysis.

Interviewed by Julian Sayarer. RELX (UK) Limited, trading as LexisNexis®.