Melton Town Football Club Limited v Hunts Contractors Limited
[2023] EWHC 3133 (TCC)
Consort Healthcare (Tameside) Plc v Tameside and Glossop Integrated Care NHS Foundation Trust
3 July 2024
[2024] EWHC 1702 (Ch)
High Court
A company tried to restructure its debts, but another company worried it wouldn't get paid its legal costs if the restructuring failed. The judge said the restructuring company had to put some money aside to cover those costs, even though it was already struggling financially. The judge considered the special rules about this type of debt restructuring, and the fact that someone else was paying the restructuring company's legal bills, before making a decision.
Key Facts
- •Consort Healthcare (Tameside) PLC (Company) proposed a restructuring plan under Part 26A of the Companies Act 2006.
- •Tameside and Glossop Integrated Care NHS Foundation Trust (Trust) applied for security for costs.
- •The Company is financially distressed and unlikely to pay costs if ordered to do so in August 2024.
- •The Plan involves a compromise with three creditors, with the Trust opposing the plan.
- •The Plan seeks to reverse benefits the Trust obtained after a successful adjudication.
- •Two funds indirectly own the Company's equity and subordinated debt and are funding the Company's costs.
- •The Trust argues that it faces a risk of not recovering costs due to potential construction defects and the time needed for set-off.
- •The Trust seeks £926,560.25 in security for costs.
Legal Principles
An application for security for costs may be made by a defendant if there is reason to believe the claimant will be unable to pay costs.
CPR 25.12 and CPR 25.13
The court must consider all circumstances when exercising its discretion on security for costs.
CPR 25.12
In Part 26A proceedings, the court's role is to consider the position of all creditors and members affected by the plan.
Re Virgin Active [2021] EWHC 911 (Ch)
Creditors opposing a Part 26A plan who advance reasonable arguments are unlikely to be ordered to pay the company's costs.
Re Smile Telecom Holdings Ltd [2022] Bus LR 591
Security for costs should be tailored to provide protection against the relevant risk.
Chernukhin v Danilina [2019] 1 WLR 758
The relevant risk for security for costs is the risk that the claimant will be unable to pay costs if ordered to do so, not the loss of a chance of recovery.
Chernukhin v Danilina [2019] 1 WLR 758
Outcomes
The court ordered the Company to provide security for costs, but only half the amount requested by the Trust (£463,280.13).
The court found a real risk that the Trust would not be able to set off its costs against the COT payment, particularly if the plan is sanctioned. The court considered the unique circumstances of Part 26A proceedings and the funding arrangements, balancing the risk of stifling the plan with the need to protect the Trust's interests.
The Trust was awarded its costs of the application.
The Trust was deemed the overall successful party, having obtained an order for security for costs.