Bermans Solicitors recently – and successfully – represented a captive motor financier in roundly defeating a claim by administrators which sought to interfere with a client’s right to possession of a vehicle worth in the region of £7m. Ian Munford and Andrew Henderson write.
Ever since the landmark Atlantic Computers case in 1991, administrators have, in general, recognised that they have very limited ability to interfere with the property rights of financiers, and that the statutory moratorium granted to them by the Insolvency Act 1986 normally requires them to continue to pay rentals or return equipment that is subject to finance.
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In this case, the administrators sought to advance a different argument. The vehicle had been acquired by the client from a dealer, who as part of the price had received five other vehicles in part exchange from Mr Hood, controller of JD Classics Ltd (the company). The client obtained a letter from Hood declaring that he had the right to dispose of those vehicles, and Hood entered into a hire purchase agreement with the client. When the company went into administration and the client sought to repossess its vehicle, the administrators first sought to contest the client’s title to the vehicle.
After the client had clearly demonstrated the chain of title, the administrators switched their argument to say that the part exchange vehicles were owned not by Hood but by the company, and that therefore the company had a “resulting trust” amounting to an equitable interest in the vehicle which the client had acquired and supplied to Hood.
In Barclays Mercantile Ltd v Sibec Developments Ltd [1992] 1 WLR 1253, Millett J was concerned with a situation where administrators had refused to allow the owner of goods leased on hire purchase to the company to recover the same. He held that administrators might be liable for conversion where the owner had an immediate right to possession, had made a lawful demand for redelivery, and there had been an unreasonable refusal to redeliver, subject to the statutory defence under sections 234(3) and (4) of the 1986 Act, which is dependent upon the administrator having reasonable grounds to seize or dispose of the asset in question.
Officers of the Court
Considering the position of administrators when faced by a request by the owner for the return of a particular asset, at 1259E-1259F, Millett J said: “The administrators are officers of the court and at all times subject to the court’s direction. If they wish to make use of another party’s property for the purposes of the administration and cannot agree terms, they can seek the directions of the court. If administrators wrongly retain goods otherwise than for the proper purposes of the administration, for example, to use them as a bargaining counter, the owner can apply to the court to direct the administrators to hand over the goods without the need for action, and to pay compensation for having retained them in the meantime. Only in a case where there was a triable issue as to the ownership of the goods will the question of giving leave to take proceedings for possession arise.”
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By GlobalDataIn short, in this situation, unless there is a triable issue as to the ownership of the goods in question – that is, a real prospect of the administrators showing that the company has some proprietary right entitling it to possession as against the party seeking to recover it – it is open to the owner to apply to the court for an order directing the administrators to hand over the goods.
Bermans took the view from the very beginning that the basis of the administrators’ claim was entirely misconceived, if not mischievous. Consequently, the continued threats and aggressive correspondence from the administrators were resisted, and the matter came on for hearing before a specialist Chancery Judge in Manchester, HH Judge Eyre QC.
It is fair to say that the judge was not impressed with the administrators’ arguments, and for various reasons he held that there was “no realistic prospect of a finding that there could be a resulting trust in favour of the company in the circumstances here”.
Bermans was also successful in recovering all of its client’s costs.
by Ian Munford and Andrew Henderson
