Guidance on lodging and admitting proof of debt

The case of Re Rochay Productions Ltd [2020] EWHC 1737 (Ch) provides useful guidance to those both lodging and admitting proofs of debt at creditors meetings.

Opus Art Limited brought an application to the court challenging the admission of a proof of debt lodged by Rochay Elite Limited at the creditors meeting of Rochay Productions Ltd . The proof of debt was admitted to vote by the second respondent, Medina Williamson, a director of the company and the chairman of the meeting, as a result of which Rochay Elite Limited was the majority creditor and voted for the appointment of the first respondent Mr Nedim Aiylan as liquidator. That appointment was not supported by Opus Art Ltd

Despite initially contesting the application, shortly before the hearing the third respondent consented to the application despite having aggressively defended it previously, but the hearing continued for the purposes of a decision on the costs of the application. Opus Art Limited sought costs orders both against Rochay Elite Limited and Medina Williamson.

Purely on the basis of bank statements produced to the court it was clear that Rochay Elite Limited was a debtor not a creditor of the company and its late withdrawal of its defence to the proof was on the basis that the proof was indefensible. The conduct of Rochay Elite Limited was such to take the case outside of the normal and costs would be awarded against it on the indemnity basis. It appeared to the court that the proof was knowingly submitted on a false basis

So far as Medina Williamson, the chair of the meeting, was concerned, the court did not make an order against her but followed the normal procedure. It was argued by Opus Park Ltd that she should have known that the proof was false and that she was not acting in good faith in admitting the proof of debt. She had been appointed a director of Rochay Productions Ltd only one month before the meeting of creditors.

However, the court considered that the applicant pitched its case too highly against Medina Williamson. She had not contested the application in the first place, and it was believed that the court should be slow to conclude that she had acted with bias, conscious impropriety or otherwise in bad faith when admitting the debt. There was no cogent evidence in support of these allegations. In those circumstances the normal rule under 15.35 (6) is that the person deciding whether to admit a proof of debt for voting purposes is not personally liable for the costs of an appeal from that decision unless the court makes an order to that effect. This is a clear signal from the legislature that a personal costs order should not be made against persons in the position of Medina Williamson unless some good reason can be made out.